INSURANCE LAW

Unit IV
Fire Insurance
◦ Contract whereby one person undertakes to indemnify another person against loss or
damage by fire to the agreed amount
◦ Essentials:
1. Contract of insurance: Distinguish from bailment etc.
2. Consideration: Premium
3. Object: Indemnification
Nature of fire insurance contract:
4. Contract of indemnity
5. Uberrima fides
6. Different from wager and guarantee
7. Personal contract
8. Cause of fire immaterial generally
 Form of contract
◦ Policy contains:
Recitals
1. Name of insured
2. Description of subject matter
3. Amount of insurance
4. Contract to indemnify
5. Perils insured against
6. Conditions
7. Duration
8. Extent of liability
9. Premium
10. Signature
11. Schedule
◦ Cover note acts as deposit receipt, confers interim protection
◦ Indian Trade and General Insurance Co. v. Bhailal
◦ Tipu v. New India Assurance Co. Ltd.
Conditions and Warranties
◦ Implied conditions:
1. Good faith
2. Insurable interest
3. Existence of subject matter
4. Indemnity
◦ Special conditions: Misdescription, alteration
Warranties: Breach of warranties bars to claim: Bhattacharjee v. Seminal Insurance
Co.

*Exclusions: Explosion, marine clause, money, securities, documents etc.

Meaning of “Fire” and “Loss by
Fire”
◦ Fire insurance does not extend to loss due to any cause other than fire
◦ The term ‘fire’ is to be understood in its ordinary meaning, so in order to
constitute fire there must be ignition or combustion(burning)
◦ There may be phenomena that correspond in their effect to fire, but if there is no
ignition then contract of fire insurance cannot be extended to loss caused e.g.
lightning, damage caused by heat of furnace/sun
◦ Origin of fire is immaterial, provided there is no fraud on part of the insured
Harris v. Poland-Plaintiff had comprehensive policy insuring her jewels and
currency notes, during summer she placed them in the fireplace for safety but
forgot about them and lit a fire without removing them resulting in damage from
burning
Insurer repudiated claim as fire was in place where it is intended to be, but Court
held insurer liable as risk insured against included risk of insured property coming
unintentionally in contact with fire and thereby damaged/destroyed, immaterial
whether fire came to insured property or insured property came into fire
Exclusions
◦ In ordinary policies, as a matter of practice, loss by explosion is not included i.e.
Explosions caused by explosive substance e.g. gunpowder or gas
Explosions caused by application of fire to substance not explosive by itself e.g.
boiler
◦ Everest v. London Assurance Co.- Plaintiff had fire insurance policy on
buildings, there was an explosion and fire in a gunpowder factory at half mile
distance from insured and consequently windows and window frames were
shattered and the structure of building was damaged by atmospheric pressure
caused by the explosion, Court held that insurance company is not liable as the
house itself did not burn so damage not caused by fire but pressure
 Loss by Fire
◦ Fire caused by negligence of assured is covered
◦ Mischief by fire by third persons is covered(must report immediately)
◦ Deliberate act in case of necessity covered
◦ Loss resulting from bonafide efforts to put down fire is also covered
◦ Property need not necessarily be burnt by fire directly, if loss would not have occurred but for fire then it
will still be covered
◦ Loss will be covered in the following circumstances-
1. Damage by smoke/scorching caused by fire
2. Property blown up to prevent fire from spreading
3. Damage by water used for extinguishing fire
4. Damage done by fire brigade in execution of duties
5. Loss to property removed from burning building on account of rain/ theft or damage during removal if
removal was to mitigate loss
6. Loss by fall of walls/part of building in which fire takes place
Oriental Insurance Company Ltd. V. Mitra and Ghosh Publishers Pvt. Ltd. – In process of extinguishing
fire, books were thrown away and lost, books not actually burnt-considered loss by fire-not necessary to show
subject matter burnt, sufficient to show that fire was proximate cause of loss
Loss caused by remote causes
◦ Anticipated profit/loss of profit-chance to earn profit
Wright v. Pole-Fire policy taken on inn, inn destroyed by fire-rent, cost of alternate
accomodation and stoppage of businesss during repairs claimed, held not to be covered
◦ Continuing expenditure/standing charges-expenses incurred in maintaining the
establishment e.g. taxes, interests, premiumsrent, salaries etc.
◦ Increased expenditure/cost of working-expenses that would not otherwise be incurred e.g
rent of temporary premises, extra labour
◦ Depreciation-Reduction of value of remaining property
◦ Liability- [personal injury to third person, damage to property other than insured property

◦ Not covered by ordinarily policy, but can be covered by consequential loss policy taken in
addition to fire insurance policy
Amount recoverable by assured
◦ Contract of indemnity, therefore only actual loss can be recovered
◦ Principle of indemnity to be followed, insured to be placed in original position before loss of fire
◦ Amount recoverable generally calculated according to the market value on the date of the fire(at the place of
fire)
If there is a difference between selling and purchase price then insured entitled to recover latter price e.g. used
furniture
Market value may be more than cost price, not to be deemed as profit
Cost of repairs may be adequate indemnification
Real value to insured at the time of loss
◦ The insurer also has a right of reinstatement-to replace or rebuild to restore to original, option to insurer and
insured can’t compel, as per terms of the contract
If technologically advanced type of goods is substituted, insured to pay part of cost of reinstatement
◦ Where insured has limited interest-generally entitled to recover only to the extent of his interest but can recover
full value if policy enables him, entire property is insured and nothing in law prohibits him from recovering the
entire value
◦ Sue and labour clause-insurance company liable to pay expenses in saving the property even though nothing may
actually have been saved
Rights and duties
◦ Duties of policyholder-intimate insurer with proof, loss minimization, fulfilment of
conditions
◦ Insurer’s rights after fire
1. Right of entry
2. Right to contribution
3. Right of subrogation
4. Right of reinstatement
 Procedure to Claim the Amount
◦ Duty of insured to notify damage to insurers and make claim-Insurer will see whether
policy is in force and if the peril causing damage is covered by the policy
◦ Insured to submit description of damage and estimate of loss. Following documents are
required:
1. Original policy
2. Claim form
3. Proof(photos/newspaper clipping)
4. FIR &forensic report, if applicable
◦ Insurer will appoint an adjuster when they receive a claim
◦ Adjusters will go to the scene of occurrence and conduct an investigation. They will report
to the insure a fair estimate of the loss. Then adjuster looks into claim and adjusts loss,
taking into account information provided by the policyholder.
◦ If insured and insurer agree then insured signs claim form accepting amount and insurers
will give cheque for amount.
Insurance Ombudsman
◦ Ombudsman is an authority created to control authorities in the exercise of
powers vested in them
◦ Set up with a view to protect the interests of the consumer and reduce litigation
◦ Central Government, in exercise of powers under Insurance Act, 1938, framed the
Redressal of Public Grievances Rules, 1998
◦ Governing Body of Insurance Council(Council for Insurance Ombudsmen) to
appoint insurance ombudsman among those who have experience in or exposure
to industry, civil service, administrative service, judiciary etc.
◦ Appointment would be for 3 years and emoluments equivalent to High Court judge
would be paid
◦ Ombudsman to have jurisdiction on both life and general insurance claims,
territorial jurisdiction as specified by the Governing Body
 Complaints to Ombudsman
◦ Rule 12: The Ombudsman may receive and consider complaints regarding
1. any partial or total repudiation of claims by an insurer;
2. any dispute in regard to premium paid or payable in terms of the policy
3. any dispute on the legal construction of the policies in so far as such disputes relate to claims
4. delay in settlement of claims
5. non-issue of any insurance document to customers after receipt of premium.
◦ Rule 13-The complaint shall be in writing duly signed by the complainant or through his legal heirs and shall
state clearly the name and address of the complainant , the name of the branch or office of the insurer
against which the complaint is made, the fact giving rise to complaint supported by documents, if any, relied
on by the complainant, the nature and extent of the loss caused to the complainant and the relief sought
from the Ombudsman.
1. Before making complaint to ombudsman, insured must make representation to the insurer named and
either insurer has rejected the complaint or the complainant has not received any reply within a period of
one month or the complainant is not satisfied with the reply given to him by the insurer;
2. The complaint is made not later than one year after the insurer had rejected the representation or sent his
final reply on the representation of the complainant
3. The complaint is not on the same subject-matter, for which any proceedings before any Court, or Consumer
Forum, or arbitrator is pending or were so earlier.
 Duties of Ombudsman
◦ Rule 14-The Ombudsman may ask the parties for necessary papers in support of their respective claims and where
he considers necessary, he may collect factual information available with the insurance company.
◦ The Ombudsman shall dispose of a complaint fairly and equitably
◦ Rule 15-May settle complaints by mutual consent: In pursuance of request made in writing by complainant and
insurer through mutual agreement, the Ombudsman shall make a recommendation which he thinks fair in the
circumstances of the case.
◦ The copies of the recommendation shall be sent to the complainant and the insurance company concerned.
◦ Such recommendation shall be made not later than one month from the date of the receipt of the complaint.
◦ If a complainant accepts the recommendation of the Ombudsman, he will send a communication in writing within
15 days of the date of receipt of the recommendation. He will confirm his acceptance to Ombudsman and state
clearly that the settlement reached is acceptable to him, in totality, in terms of recommendations made by the
Ombudsman in full and final settlement of complaint.
◦ The Ombudsman shall send to the insurance company a copy of the recommendation along with the acceptance
letter received from the complainant.
◦ The insurer shall thereupon comply with the terms of the recommendations immediately not later than 15 days of
the receipt of such recommendation and the insurer shall inform the Ombudsman of its compliance.
◦ Rule 20-The Ombudsman shall furnish a report every year containing a general review of the activities of the
office of the Ombudsman during preceding financial year to the Central Government
 Award
◦ Rule 16-Where the complaint is not settled by agreement under Rule 15, the Ombudsman shall
pass an award which he thinks fair in the facts and circumstances of a claim.
◦ An award shall be in writing and shall state the amount awarded to the complainant:-Provided
that Ombudsman shall not award any compensation in excess of which is necessary to cover the
loss suffered by the complainant as a direct consequence of the insured peril, or for an amount
not exceeding rupees twenty(now fifty)
◦ The Ombudsman shall pass an award within a period of three months from the receipt of the
complaint.
◦ A copy of the award shall be sent to the complainant and the insurer named in the complaint.
◦ The complainant shall furnish to the insurer within a period of one month from the date of receipt
of the award, a letter of acceptance that the award is in full and final settlement of his claim.
◦ The insurer shall comply with the award within 15 days of the receipt of the acceptance and it
shall intimate the compliance to the Ombudsman.
◦ Rule 17-If the complainant does not intimate the acceptance under sub-rule (5) of Rule 16, the
award may not be implemented by the insurance company.
 Policyholder as consumer
◦ Section 35. Manner in which complaint shall be made.—(1) A complaint, in relation to any goods sold or delivered or
agreed to be sold or delivered or any service provided or agreed to be provided, may be filed with a District Commission
by—
(a) the consumer,—
(i) to whom such goods are sold or delivered or agreed to be sold or delivered or such service is provided or agreed to be
provided; or
(ii) who alleges unfair trade practice in respect of such goods or service;
(b) any recognised consumer association, whether the consumer to whom such goods are sold or delivered or agreed to be
sold or delivered or such service is provided or agreed to be provided, or who alleges unfair trade practice in respect of
such goods or service, is a member of such association or not;
(c) one or more consumers, where there are numerous consumers having the same interest, with the permission of the
District Commission, on behalf of, or for the benefit of, all consumers so interested; or
(d) the Central Government, the Central Authority or the State Government, as the case may be

◦ Section 2(7) "consumer" means any person who—

(i) buys any goods for a consideration which has been paid or promised or partly paid and partly promised, or under any
system of deferred payment and includes any user of such goods other than the person who buys such goods for
consideration paid or promised or partly paid or partly promised, or under any system of deferred payment, when such
use is made with the approval of such person, but does not include a person who obtains such goods for esale or for any
commercial purpose; or
(ii) hires or avails of any service for a consideration which has been paid or promised or partly paid and partly promised,
or under any system of deferred payment and includes any beneficiary of such service other than the person who hires or
 Policyholder as consumer
◦ Section 2(42) "service" means service of any description which is made available to potential users
and includes, but not limited to, the provision of facilities in connection with banking, financing,
insurance, transport, processing, supply of electrical or other energy, telecom, boarding or lodging or
both, housing construction, entertainment, amusement or the purveying of news or other
information, but does not include the rendering of any service free of charge or under a contract of
personal service;
◦ Insurer who agrees to indemnify the policyholder from loss can be called the provider of a service
and the policy holder comes under consumer of services.
◦ Section 2(11) "deficiency" means any fault, imperfection, shortcoming or inadequacy in the quality,
nature and manner of performance which is required to be maintained by or under any law for the
time being in force or has been undertaken to be performed by a person in pursuance of a contract
or otherwise in relation to any service and includes—
(i) any act of negligence or omission or commission by such person which causes loss or injury to the
consumer; and
(ii) deliberate withholding of relevant information by such person to the consumer;
◦ Section 2(6) “complaint" means any allegation in writing, made by a complainant for obtaining any
relief provided by or under this Act, that—
(iii) the services hired or availed of or agreed to be hired or availed of by him suffer from any
deficiency
 Policyholder as consumer
◦ Failure to perform duty imposed by law or under contract amounts to deficiency
◦ Under law the insurer must pay the amount due under policy within a reasonable time and
so unexplained inordinate delay in settlement of claim held to be deficiency of service
◦ But not where insured committed suicide/suppressed material facts/policy lapsed, claim
repudiated after proper inquiry
◦ Name appeared as assignee, insurer insisted on succession certificate-deficiency of service:
LIC v. Chatur Behari Lal
◦ K.P. Desai v. United India Assurance Co.- -health insurance taken in 1990 and renewed every
year-1997 corrective LASIK-50K hospital bill-claim rejected said surgery was purely
cosmetic, Distt. Forum ruled in favour,upheld by state commission
◦ Consumer Education and Research Society v. IFFCO Tokio General Insurance Co.-paid
premium for fire insurance policy-portion of stock burnt due to spontaneous combustion,
claim denied as no actual fire-National Commission held to be deficiency of service-ordered
to pay damages and interest
Policyholder as consumer
◦ Section 39. Findings of District Commission.—(1) Where the District Commission is
satisfied that the goods complained against suffer from any of the defects specified in the
complaint or that any of the allegations contained in the complaint about the services or
any unfair trade practices, or claims for compensation under product liability are proved, it
shall issue an order to the opposite party directing him to do one or more of the following,
namely:—
◦ c) to return to the complainant the price, or, as the case may be, the charges paid by the
complainant along with such interest on such price or charges as may be decided;
◦ d) to pay such amount as may be awarded by it as compensation to the consumer for any
loss or injury suffered by the consumer due to the negligence of the opposite party
◦ (f) to remove the defects in goods or deficiencies in the services in question;
◦ (g) to discontinue the unfair trade practice or restrictive trade practice and not to repeat
them;
◦ (m) to provide for adequate costs to parties;