Basics of Fire Insurance

The Fire Insurance Policy states:


"In consideration of the Insured named in the schedule hereto paying to the abovementioned Company (hereinafter called ABC Insurance Co Bhd) the premium mentioned in the said schedule.

The Company agrees subject to the terms and conditions contained herein or endorsed or otherwise expressed hereon that if the property insured described in the said schedule or any part of such property be destroyed or damaged by Fire or Lightning during the period of insurance stated in the said schedule or any subsequent period in respect of which the Insured shall have paid and the company shall have accepted the premium required for the renewal of this policy , the company will pay or make good to the Insured the value of the property Insured at the time of the happening of its destruction or amount of such damage.

Provided that the liability of the company shall in no case exceed in respect of each item the sum expressed in the schedule to be insured thereon or in the whole the total sum insured hereby or other such sum or sums as may be substituted therefor by endorsement hereon or attached hereto signed by or on behalf of the company.

Provided always that due observance and fulfilment of the terms and conditions and endorsements of this policy in so far as they relate to anything to be done or complied with by the Insured shall be conditions precedent to any liability of the company to make payment under this policy"

To have a basic understanding of this policy, we shall examine all the key words underlined above and the intended application.

Consideration:

Refers to the "premium" paid by the Insured and the "acceptance" of the premium and "commitment" by the Insurer to pay a claim due to an insured peril or extended peril subject to the terms and conditions of the policy

Terms and Conditions:

There are 4 categories here.

i) Conditions precedent to Contract

* Misdescription or Concealment
* Due Diligence and care
* Payment of Premium

ii) Conditions subsequent to Contract

* Cancellation
* Change or alteration in risk

iii) Conditions precedent to Liability

* Notice of Claim
* Arbitration
* Average
* Contribution
* Subrogation

iv) Excluded Perils / Property/ Loss/ Liability

* Flood, earthquake, flood or other convulsion of nature
* Displacement of building
* Marine Damage
* Pollution or contamination liability
* War and allied perils
* Goods held in trust or on commission
* Cash, manuscripts, moulds, personal effects etc

The Property:

Can mean the buildings, the machineries, the stocks, the office contents, furnitures, fixtures and fittings as well as the professional fees connected with the removal of deris, architects and surveyors fees


Fire and Lightning:

These 2 are the basic perils provided under the fire policy.

Domestic explosion is not specified in the operative clause but shall deemed to be loss by fire so long as the gas is not generated therein and which does not form part of any gas works

Extraneous Perils

Excluded perils such as flood, storm, earthquake, aircraft damage, standard explosion etc and uninsured perils such as aircraft damage, impact damage, damage by falling trees etc are usually incoporated into the policy by way of endorsements subject to additional premium (See Section 5 of RFT)

Destroyed or Damaged:

Property insured can be totally destroyed or partially damaged for a claim to be registered.

Destroyed means total loss and Insurer will pay the claim based on the value of the property insured at the time of the happening of its destruction subject to the maximum sum insured

Damaged means partial loss and Insurer will pay or make good the amount of such damaged subject to the application of average (for underinsurance).

Pay or Make Good:

Pay refers to the cash payment (usually by cheque) issued by the Insurer to the Insured being the cost incurred to repair or replace or reinstate the subject property

Make good refers to the physical repair or replacement or reinstatement of the subject property (instead of cash payment), these options can only be exercised by the Insurer should the Insured decides not to accept the cash payment which is not to the latter's expectation of a full indemnity or compensation.

Liability of the Insurer:

Limits to the sum insured of each item. Meaning the sum insured stated against the item insured is the maximum payable by the Insurer. No offset business.

Example:

Building insured for RM 500,000
Machinery insured for RM1,000,000

Caim for damage to building is RM200,000 (with a balance sum insured of RM300,000).
Claim for machinery is RM1,100,000 (exceeded the sum insured). Insurer will limit the claim for this item to RM1,000,000 being the maximum sum insured.

Insurer will not allow the balance amount of RM300,000 from the building sum insured to be used to offset the RM100,000 shortfall under the machinery sum insured.

Maximum claim payable under the policy shall not exceed the total sum insured of all properties insured

Due Observance and Fulfilment of Terms and Conditions:

Failure of the Insured to comply with any of the policy terms and conditions can render the policy null and void.

Examples: failure to advise the change in the occupation of the building or late in notifying the Insurer of a claim, breach of the 60 days premium warranty etc

The Schedule:

Basically, it contain the details of the Insured, the subject matter insured and the clauses/warranties applicable

Examples:

Description of property insured, period of insurance, sum insured, name of Insured, nature of business, construction of building, premium charged and clauses/warranties applicable etc

Next Posting will be on Clauses and their intended application