The procedure for effecting fire insurance.
The term fire denotes a condition of burning or visible flame accompanied by heat. Fire insurance contract is an important and popular form of insurance for the business world. A fire insurance contract is an agreement whereby one party in return of a consideration, undertakes to indemnify the other party against financial loss suffered by the insured as a result of damage or destruction of the insured property by fire. A claim for the loss by fire can be entertained if there must be actual fire and the fire must be accidental but not intentional.
A fire insurance policy covers actual fire losses and any of the following losses consequent upon fire:
i. Damages caused to property because of collapse of roof or side wall due to fire.
ii. Damages caused to property by sprinkling of water to put out the fire.
iii. Damages caused to property at the time of removing it in the hot haste from the building under fire. All losses caused due to efforts in extinguishing fire.
iv. Damages by lighting are not covered under fire policy but if lighting cause ignition of fire, it will be included in the policy of fire insurance.
v. It does not cover losses due to explosion but if it causes actual ignition which ultimately spreads into fire, it will be covered by fire insurance policy.
A fire insurance contract is a contract of indemnity and as such the insured cannot claim more than the actual amount of losses. The property so covered under fire insurance policy must be clearly described. Property held in trust are not covered under fire insurance policy.
When a house is insured under fire insurance policy, it does not cover household goods. The following steps are observed while effecting fire insurance policy:
I. Filling up Proposal Form:
A person desiring of taking a fire insurance policy has to select and contact a fire insurance office. He will obtain a proposal form from the office and fill up the proposal form. While filling up the proposal form of principles of good faith must be observed and he has to fill up the form with utmost good faith.
II. Associating Evidence of Responsibility:
The insurer will ascertain that the proposer is a respectable person and is undertaking the policy in utmost good faith. This consideration should be viewed before accepting the proposal. Since the insurance policy covers a high degree of moral hazards, these considerations are to be kept in mind.
III. Survey of the Property:
The proposed property to be insured is surveyed by an expert called the surveyor. The surveyor inspect the property and estimate the degree of risks involved in such property. On the basis of the surveyor’s report the insurer accepts or rejects the policy.
IV. Accepting Proposal and Issuing of cover note:
After the receipt of surveyor’s report, it is scrutinized to see whether risks is acceptable or not. When the insurer is satisfied with regard to the report of the surveyor, he accepts the proposal and gives intimation to the proposer accordingly. The rate of premium is decided and on acceptance of appropriate premiums a cover note is issued. A cover note is an interim policy till the final policy is issued. A cover note serves as an evidence of insurance when losses to property are caused before the issue of final policy but after the issue of cover note.
V. Issue of Final Policy:
After the issue of cover note, policy document is prepared. It is duly stamped document which contains terms and conditions of the insurance. The policy serve as an evidence of insurance between the insured and the insurer.