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Unit 8: Insurance Planning

that something which is illegal cannot be insured. If insurance is affected on say for example, Notes
smuggled goods, and the insurer comes to know after some time of signing the contract, he may
avoid the contract.
All Insurance contracts are governed by the basic principles of insurable interest, indemnity,
utmost good faith, subrogation and proximate cause.

8.7.3 Fire Insurance

Fire insurance contracts cover the risks of damage by fire. They insure the risk of loss caused
whether by fire or incidental to fire. Thus, fire insurance policies cover the insurance business in
which the risk to the asset is from fire or incidental to fire. A fire insurance policy covers the fire
and other occurrences as stated in the policy. The inclusion of various clauses to cover matters
related to fire in the policy is essential to cover the loss caused due to various reasons.

The policy should mention clearly the subject matter/assets insured. The contract of fire insurance
will not cover the assets, which are not mentioned in the policy document, though the loss is
caused to the assets because of the fire. The policy document is the evidence of conclusion of the
contract.

As such, presence of a physical asset is a must to have the risk of fire covered. The asset, which is
insured, becomes the subject matter of the insurance contract. Occurrence of fire is essential and
the damage should be caused to the asset due to fire. The damage has to be compensated and the
assured has to be indemnified. The origin or cause of origin of fire damaging the asset is not of
importance.
If the insurance company finds the intentions of the assured mala fide, it can take this as a
defense to avoid the fire insurance claim settlement. As such fire insurance contracts are a part of
general insurance and are contracts of good faith.
The word fire should be construed in its simple meaning and sense without attributing any
technical or scientific concepts or meanings to the term. The risk of fire is simply an unforeseen
or unexpected event caused either by accident or incident that cannot be forecasted. The contract
of fire insurance is valid as long as the assured has an insurable interest in the asset insured. In
the absence of the insurable interest in the contract of insurance, the contract becomes a wagering
contract and thus becomes void.

Definition
Section 2(6A) of the Insurance Act, 1938 defines Fire Insurance as ‘the business of effecting,
otherwise than incidental to some other class of insurances business, contracts of insurance
against loss by or incidental to fire or other occurrence customarily included among the risks
insured against in fire insurance policies.’

Types of Fire Insurance Policies

The following are some of the fire insurance policies:
(a) Standard Fire Policy: Fire insurance business in India is governed by the All India Fire
Tariff that lays down the terms of coverage, the premium rates and the conditions of the
fire policy. Fire insurance policy is suitable for the owner of the property, one who holds
property in trust or in commission; individuals/financial institutions, who have financial
interest in the property. All movable and immovable property located at a particular
premises such as building, plant and machinery, furniture, fixtures, fittings and other
contents, stocks and work-in-progress along with goods held in trust or in commission

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