There are fifteen conditions in the policy. They are:

(1)  Voidable Condition: This condition provides that the policy shall be void able in the event of misrepresentation, mis-description or non-disclosure of any material particulars. This condition emphasizes the principle of utmost good faith.

(2)  Policy Ceasing Condition: All insurances under the policy cease to affect after 7 days from the date of fall of displacement of any building or part thereof. However, if the displacement/fall occurs due to an insured peril, and notice is given within due time, the insurer may agree to continue the cover subject to revised terms and conditions, or by endorsements.

(3)  This is known as the Material alteration Condition. Under the following conditions, the insurance cease to attach as regards to the property affected. (a) Changes in trade or manufacture or nature of occupation or other circumstances which increase the risk of loss or damage by insured perils. (b) Un occupancy of the building for a period of more than 30 days (c) Transfer of insurable interest unless by will or operation of law.

(4)  The insurance does not cover any loss or damage to property which at the time of loss is insured under any marine policy. However  the policy covers the excess beyond the amount payable under the marine policy. This is known as  Marine clause.

(5)  Termination Condition: The insurance may be terminated at any point of time by the insured and the premium be refunded at short period scale on a fifteen days notice. The insurer can also terminate the policy on  fifteen days notice and refund the premium for the unexpired term on pro-rata basis.

(6)  This condition is divided into two parts. The first part of the condition plays down the duties of the insured in the event of loss /damage and the procedure to be followed by him. The requirements are

 

• immediate notification of the loss to the company
• submission of the written claim  statement giving detailed particulars of the loss/damage within fifteen days or within any extension period  if granted.
• Submission of all reasonable information and proof in respect of the claim at the insured’s expense.
• A declaration, an oath or any other legal form of the truth of the claim.

 

This condition expressly  provides that compliance with its terms is binding on the insured to fulfill the insurer’s liability.

The second part of the condition is known as limitation condition. According to this condition the liability of the insurer ceases after the expiry of 12 months from the date of loss, unless the claim is the subject of arbitration or pending action.

If the liability for any claim is disclaimed by the insurer, and the insured has not filed a suit within 12 months from the date of disclaimer , the claim is deemed to be abandoned and time barred. This condition provides necessary protection to the insurer against inordinate delay on the part of the insured as it is not possible to keep the accounts open for an indefinite period. In the absence of this condition the insured could have reopened his claim after a long time ,when the insurer may have lost all the evidence which led to its original rejection.

(7) This is known as the right of entry condition. This condition gives the company right to enter the premises where loss has occurred , take possession of the property and deal with it or sell such property. The condition further provides that

 

• exercise of these rights does not mean admission of loss liability
• forfeiture of the benefit under the policy in case of non cooperation of the insured.
• the insured has no right to abandon the property whether taken possession by the insurer or not. This condition confers certain rights on the insures to ascertain the cause and extent of loss/damage to minimize the damage and to protect the salvage. The rights conferred by the condition are exercisable by the insurer at any time until notice in writing is given by the insured declining claim or such claim is finally determined or withdrawn.

 

(8)  This condition deals with fraud. According to this condition, all benefits under the policy shall be forfeited in the following circumstances :

 

• The claim is fraudulent.
• The claim is supported by a false declaration.
• Fraudulent means are used by the insured or any other person on his behalf.
• Loss or damage is caused by the willful act of the insured or any other person with his connivance.

 

This conditions reiterate the conditions under the common law. Utmost good faith is an implied condition in an insurance contract and places the duty of honesty on the insured, when a claim arise. Both fraud and willful act  make the policy void, however an express condition is incorporated under the policy for emphasis.

(9) This is the ‘ reinstatement’ condition. The operative clause provides that the company may pay the value of the property at the time of its destruction or the amount of damage or at its option reinstate/replace such property.

The following provisions are made relating to reinstatement/replacement in exercise of this option:

 

• Reinstatement shall not be exact or complete but shall be reasonably sufficient.
• Expenditure is limited to the cost of reinstating the property to its pre-fire condition and the sum insured.
• It is the duty of the insured to furnish all necessary information to the insurer at his cost.
• Any action done by the insurer regarding reinstatement shall be without prejudice to the final decision.
• If due to municipal or other regulations in respect of building constructions, the insurer is unable to reinstate, then liability is limited to  such sum as would be required to reinstate the property if the same could be lawfully reinstated.  Though this condition is hardly practiced, it is inserted for protection against unreasonable or exaggerated claims.

 

(10)  This is the pro-rata average condition. If the property  at the time of claim be collectively of a larger value than the sum insured, then the Insured shall act his own insurer for the difference, and shall bear a rate able proportion of the loss accordingly. If there is under insurance, i.e the sum insured is less than the value of the property, on the date of loss, the payable amount is proportionately reduced. The main objective is to penalize under insurance by a corresponding under payment of claim. If the fire policy covers various items , then each item will be separately subject to average.

(11) This is the contribution condition. In the event of more than one policy covering the same property, the company will pay only the rate able proportion of the loss. Rate able proportion of the policy  may be defined as that proportion of the loss as the sum insured under the policy bears to the total sum total insured under all the policies.

(12) This is the subrogation condition. The insured’s rights to obtain relief/ indemnify are subrogated to the insurers, even before they indemnify the loss. The condition also provides that the insured shall, at the expense of the company render help and assistance for enforcing these rights against the other parties responsible for the loss.

(13) The arbitration condition provides –

 

• Any dispute or difference as to the quantum to be paid under this policy shall independently be referred to arbitration.
• No dispute can be referred to arbitration if the company disputes or denies the liability under the claim.
• A sole arbitrator has to e appointed in writing, agreed by both the parties.
• If the parties cannot agree upon a single arbitrator within 30 days of any party invoking arbitration, then a panel of three arbitrators can be appointed, where two arbitrators are selected by the two parties, and the third is chosen by the two selected arbitrators.
• Arbitration shall be conducted under the provisions of the Arbitration and Conciliation Act, 1996.
• The award by the arbitrators shall be a condition precedent to any right of action or suit upon the policy.
• The object of this condition is to ensure that disputes are settled quickly. Arbitration is less expensive than litigation, and a private process. So, it avoids undue publicity or press coverage.

 

(14) Every notice or other communication to the company must be written or printed.

(15) The full sum insured has to be maintained throughout the currency of the policy. Upon settlement of loss, pro-rata premium from the date of loss to the date of expiry is to be paid by the insured. The extra premium is deducted from the claim amount.

The continuous cover to the full extent will be available not withstanding  any previous loss for which the may have paid irrespective of the fact whether additional premium has been paid or not. However, in case the insured immediately closes his policy, following a loss, then the sum insured shall stand reduced by the amount of loss.

Extracts from “Guide for Fire Consequential Loss Insurance  (IC-57)” by Dr. Rakesh Agarwal. Copyright of Sashi Publications, Kolkata www.sashipublications.com and www.bimabazaar.com