Fire Insurance is a device to compensate for the loss consequent upon destruction by fire.
It relieves the insured from the horror of the fire losses to which he is exposed.
Based on the type of fire insurance policy, these 6 principles of fire insurance apply:
- Insurable Interest in Fire Insurance.
- The principle of Good Faith in Fire Insurance.
- The principle of indemnity.
- Proximate Cause of Fire Insurance.
- The doctrine of Subrogation.
- Warranties in Fire Insurance.
Insurable interest is the general principle of insurance without which an insurer cannot lawfully be enforced. An insurance unsupported by an insurable interest would be a gambling transaction. The insurable interest in fire insurance must be present at the time of contract, continue throughout its currency and at the time of loss.
The following conditions must be fulfilled to constitute an insurable interest.
- There should be a physical object capable of being damaged or destroyed by fire.
- The object must be the subject matter of insurance.
- The insured must stand in such relationship, as recognised by law, where the insured is benefited by the safety of the subject-matter or be prejudiced by its loss.
The insurable interest is the ‘pecuniary interest’. The fire insurance is a personal contract between the insured and the insurer. So, the transfer of interest would invalidate the contract.
The contract of fire insurance is one in which the observance of the utmost good faith by both the parties are of vital significance.
The utmost good faith in fire insurance has two aspects first, the disclosure of material facts and second, preservation of the property insured.
The insured, since he has more information about the subject-matter, must disclose all the information asked truly and fully.
The insured is also required to disclose all the material information which are known to him although it was not asked by the insurer; the material fact is one which influences the decisions of the insurance.
The decision may be pertaining to the acceptance or declination or determination of the premium. Any change after the commencement of risk must be communicated to the insurer.
Principle of indemnity
The doctrine of indemnity aims to compensate the insured for a loss sustained, and the compensation should be such as to place him as nearly as possible in the same pecuniary position after the loss as he occupied immediately before the occurrence.
The insured cannot claim anything in excess of the amount required to recoup the actual loss sustained.
The insurers undertake to make good the insured’s loss by monetary payment or by reinstatement or replacement so that the insured shall be fully indemnified, but this is subject to the sum insured. The law does not sanction any insurance which would enable the insured to profit from the destruction of the thing destroyed. It will check the temptation to destroy the property insured thereby to secure the money. The insured amount is not the measure of indemnity but it sets an upper limit up to which the loss can be indemnified.
Proximate Cause of Fire Insurance
The rule is that the immediate and not the remote cause is to be regarded as causa proxima non-remota spectature. Proximate cause is very important in fire insurance. If the property insured is burned but the fire was preceded and brought into operation by an excepted peril, the legal position depends upon whether the excepted peril was proximate. If the loss is attributed to the insured perils, the direct and unavoidable result that direct causal relationship is established, the insurer is liable for the loss.
Doctrine of Subrogation
Subrogation means the right of one person to stand in the place of another and to avail himself of the latter’s rights and remedies. The principle of subrogation is just a corollary to the principle of indemnity.
The insured can realise only the actual value of the loss or damage to the property according to the principle of indemnity and it follows that if the damaged property has any value left or the assured can recover the lost property or has any right against a third party regarding that property.
These must pass on to the insurer.
If the insured is allowed to retain them, he shall have realised more than the actual loss which is contrary to the indemnity principle.
The insured can proceed against the third party, if he so desires, and if he recovers damages, the insurer is relieved of liability.
If the insured has received the full amount of his loss any sums obtained from the third party belong to the insurer up to the amount of their disbursement.
The right of subrogation is exercisable at common law after the insurer has paid the claim made against him.
Warranties in Fire Insurance
The contents of proposal form are expressly incorporated in the policy, which forms warranty.
Warranty is that by which the insured undertakes that some particular thing shall or shall not be done, or that some conditions shall be fulfilled or whereby he affirms or negatives the existence of a particular state of facts.
Warranties which are mentioned in the policy are called express warranties and those warranties which are not mentioned in the policy are called implied warranties.