Is Actual ignition requisite for a spontaneous combustion loss?

Spontaneous Combustion is nitpicky issue in Fire insurance. It is a matter of great concern for industries that deal with substances that are prone to spontaneous combustion like

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• Haystacks and unprocessed cotton may self-ignite because of heat produced by bacterial fermentation.
• Grain dust in a hot metal silo can explode violently, destroying the structure.
• Boiled linseed oil in a partially confined space (such as a pile of oil soaked rags left out in an uncovered container) can evaporate leading to a buildup of heat and thus ignition.
• Coal can spontaneously ignite when exposure to oxygen causes it to react and heat up when there is insufficient ventilation for cooling.
• Pistachio nuts are highly flammable when stored in large quantities, and are prone to self-heating and spontaneous combustion.
• People have also been reported as spontaneously combusting. However the effect is largely attributed to the wick effect, whereby an external source of fire ignites nearby flammable materials and human fat.

The process of spontaneous combustion starts in a small portion with the absorption of oxygen from the air by the commodity resulting in oxidation and consequent increase in temperature and eventually this process of heating is accelerated and affects the other parts of the stock in the same heap or stock. At this stage there is no ignition and if detected, it will be found that the commodity after being heated up changes its colour and original quality. Since there is no ignition the claim does not fall in the scope of the cover. However the built-up heat in commodity can result in actual ignition of the commodity.

The operative clause of the fire policy excludes damages caused to insured property by ‘its own fermentation, natural heating or spontaneous combustion.’

The word ‘its own’ in the exclusion term puts this claim out of the scope for admission of liability but it is important that this exclusion applies to the originating fire only and if fire spreads to the other heaps or stocks the subsequent fire damage on those heaps or stocks damaged by fire is the liability of the insurers.

However to take care of the commodities where such risk is inherent or where the property has a tendency towards self-heating like coal, vegetable oil cakes, groundnuts etc the insurers provide add-on cover to the basic fire package cover.

This extra cover is however made available by the insurers to include loss or damage by ‘fire only’ of or to the property insured caused by its own fermentation, natural heating or spontaneous combustion. Thus the additional cover is only for fire damage as a result of spontaneous combustion.

Fire and combustion are very important terms to deal with the losses where real or dominant cause of loss is spontaneous combustion. The meaning of fire plays an important role in fire policy which is not a simplicitor fire cover but a package policy covering various perils including fire.

The term fire has not been defined in the Fire policy but this term is understood in its ordinary popular meaning as established in various legal decisions that defines insured fire is actual ignition or burning of property which is not or ought not to be on fire and that is under accidental or fortuitous circumstances. Absence of definition has also created situations where this term has been put to legal test in court of law.

Fire is a form of heat energy which causes smouldering, burning, heating, melting and perhaps few more words but in insurance contracts fire is associated with flames or actual ignition.

Combustion is defined as the burning of any substance, whether it be gaseous, liquid or solid. In combustion, a fuel is oxidized evolving heat and often light. The combustion of solids such as coal and wood occurs in stages. First, volatile matter is driven out of the solid by thermal decomposition of fuel and burns in air. At usual combustion temperature the burning of the hot solid residue is controlled by the rate at which oxygen of the air diffuses to its surface.

This is also known that some materials can combust spontaneously. Underwriters have a point that this is because of the natural behaviour of the goods and in standard fire cover this is an excluded peril. To understand it better we should know how a spontaneous combustion occurs ?

1. A substance with a relatively low ignition temperature begins to release heat, which may occur in several ways, such as oxidation or fermentation.
2. The heat is unable to escape, and the temperature of the material rises
3. The temperature of the material rises above its ignition point
4. Combustion begins, if sufficient oxygen is present

Though such losses are excluded in standard fire policy but as discussed above protection against such risks is available as an extra add-on cover that is available on additional premium alongwith the normal cover.

This looks simple and clear but in practical situations the parties to contract may encounter several problems in dealing with losses especially related to spontaneous combustion. The issues that may surface once losses related to spontaneous combustion are reported are:

1. Whether it is a standard fire cover or the endorsement for spontaneous combustion is attached to the basic cover.
2. Whether the loss is due to spontaneous combustion only without ignition or flame.
3. Whether coverage for spontaneous combustion is excluded if there is no flame or fire.
4. Whether it is possible to segregate pre-ignition and post-ignition losses. Whether such bifurcation is relevant even when endorsement for spontaneous cover is available.
5. Whether subsequent fire to other parts of property including heaps different from the heap where the spontaneous combustion took place is covered in the basic cover.
6. Whether fire occurs only when there is ignition and whether spontaneous fermentation or heating without ignition is not a fire in terms of the cover.
7. Whether it is insured or the insurer who has the burden of proving that such loss is admissible or not once insurers alleges that the loss falls in the exclusion clause of the cover.

If it is only the basic fire cover there may not arise any complication as the policy has a very specific exclusion mentioning that it covers fire losses excluding destruction or damage caused to the property insured by its own fermentation, natural heating or spontaneous combustion or its undergoing any heating or drying process.

Fire occurs only when there is ignition and spontaneous combustion without ignition is not termed as a fire as per the terms of the cover. Since the standard fire policy excludes loss due to spontaneous combustion there is no issue when underwriters do not admit the liability for a spontaneous combustion loss. In fact the spontaneous combustion when resulting from an internal oxidation process through the chemical action of its own element and when there is no resultant fire contributing to such a loss than it falls in the excluded peril clause of the policy.

However if the builtup heat generated by the oxidation initiates the flames or ignites than such fire that spreads to any other insured property and causes loss to such insured property is well within the scope of the fire policy and such extended loss caused by such fire is covered in the policy.

If the insured has purchased an add-on cover on the basic coverage than a slip is attached to the policy providing that “in consideration of the payment of Rs… by the insured to the company of additional premium the company agrees notwithstanding what is stated in the printed exclusion of this policy shall extend to include loss or damage by fire only of or to the property insured caused by its own fermentation, natural heating or spontaneous combustion.”

With this endorsement the spontaneous cover peril is insured but the issue that surface at the time of claim is whether fire or actual ignition is a pre-condition to admit the loss to product due to its spontaneous combustion?

Underwriters’ contention in this regard is that as per this slip for a loss due to spontaneous combustion to be admitted as insurer’s liability there should be actual ignition and if there is no fire with flames insurers do not accept it as liability as per contract.

But there is another school of thought which feels that once additional premium has been charged for covering the risk of spontaneous combustion than fire only word is illusive since the basic policy would normally cover loss by fire by any means, may be spontaneous combustion or external ignition.

If the intention of insurers is to cover only the loss or damage by fire they should not have charged any additional premium and once the exception of loss due to the peril of spontaneous is deleted by additional premium there should be no denial whether there is actual ignition or not. There should be no question regarding the pre-ignition or post-ignition losses.

When there is a difference in expectation and understanding of same cover it creates a ground for litigation and such disputes may not get resolved by common sense words but would require the legal interpretation to define it.

The dispute arising from the issue that actual ignition is a pre-condition to admit the liability of claim arising from spontaneous combustion has been put to its legal test by some parties by invoking the matter to the National Consumer Disputes Redressal Commission as can be seen in cases of Roshan Lal Oil Mill Vs United India, Saraya Sugar Mills Ltd Vs United India and Murli Agro Products Limited Vs Oriental Insurance Co Ltd.

In Roshan Lal Oil Mills case the Commission observed that if it was the intention of the insurers to exclude the damage by spontaneous combustion in pre-ignition stage this ought to have been stated much more clearly and directly. The commission felt that the language used in the insurance policy is unqualified and the rejection in their opinion was not justified in terms of the insurance policy.

Commission pointed out that it is a settled law that contract of insurance is based upon good faith and it is the duty of insurers and their agents to disclose all material facts within their knowledge since obligation of good faith equally applies to them with the assured. (MKJ Corporation vs United India).

Commission categorically mentioned that if the insurance coverage was not extended even by taking additional premium for the damage caused by spontaneous combustion or natural heating which may not result in fire it ought to have been stated clearly. Finally, the Commission also stated in its order that it is high time for the insurance company to have terms clearly defined in the insurance policy with a reasonable clarity and not to continue with the old forms which terms are vague.”

Insurers submitted before the Honourable Commission that even though there was a spontaneous combustion but as no fire has occurred, the insurance company is not liable since the endorsement specifically stated that policy shall extend to include loss or damage by fire only of or to the property insured caused by its own fermentation, natural heating or spontaneous combustion.

Learned Commission in Roshan Lal Oil Mill (Order dated 14.5.2008- original Petition no 89 of 1991) also observed that identical contention has been negatived in the case of OP No 253 of 1999 of Murli Agro Vs Oriental Insurance decided on 10.12.2004. In this case, the commission held that by taking additional premium and giving endorsement for spontaneous combustion the insurance company has covered such peril.

The commission also recorded the reasons for the aforesaid judgement as under:

1. Firstly, undisputedly, if the damage to the property is because of the fire for any reason there is insurance coverage. The exclusion clause does not provide that loss or damage caused by fire on account of spontaneous combustion is excluded. Reading the term as it is, it can be held that what is excluded is loss or damage caused by spontaneous combustion which may or may not cause fire or flame.
2. Secondly, for the peril, which is excluded, namely the spontaneous combustion, insurance coverage is given, i.e. to say, if the insured property is destroyed or damaged by spontaneous combustion the insurance company is liable to pay to the insured the value of the property. Therefore it can be stated that it is agreed that insurance coverage is given for spontaneous combustion.
3. Thirdly, recovery of additional premium indicates the nature of the contract that subsists between the parties. That contract can not be of giving insurance coverage only in case of damage by fire. If that contention is accepted, the object and purpose of payment of additional premium is frustrated. Recovery of additional premium indicates acceptance of risk by the insurance company for the perils contemplated.
4. Fourthly, if the contract is vague, the intention of the contracting parties is to be gathered from the surrounding circumstances or the nature of the contract. In the present case, considering the nature of contract it is clear that additional premium was taken from the insured so as to cover loss or damage to the property by spontaneous combustion therefore also insurance company is liable to pay the damage suffered by the complainant because of spontaneous combustion.

Though the insurers argued that an insurance policy is a mercantile contract and the words used in it must be given their plain meaning unless the surrounding circumstances or the nature of contract make a special construction necessary but the Commission viewed that in this matter they need not require to consider scientific or chemical meaning of the word fire or spontaneous combustion which inter alia in other words provides that in some articles even at the ambient temperature oxidation process may start and lead to spontaneous heating.

The Commission observed that if the contract is vague, benefit should be given to the insured. The exclusion term of the insurance policy must be read down so as to serve the main purpose of the policy that is to indemnify the damage caused due to fire (B.V. Nagaraju Vs Oriental Insurance)

This judgement is very important since it concludes that underwriters should have terms clearly defined in their insurance products with a reasonable clarity and not to continue with the old forms which terms are vague. It is upto them to define clearly in the contractual document what exactly they wish to cover.

If pre-ignition losses are not to be covered when there is no flame and the additional cover is to consider the spontaneous combustion loss (pre-ignition loss) only when there is flame resultant to spontaneous combustion it should be mentioned clearly in the endorsement and it should not be left for the interpretation of courts to decide about it.

The general insurance market today is open competitive and receptive to the needs of the clients. The underwriters (not one and all) have now changed the wordings of the spontaneous cover and this endorsement has now divorced the word ‘fire only’ from its wordings. This now makes the cover clear concise and effective.

By Mr. Vinay Verma, Published in The Insurance Times, December, 2010