Elements of Fire insurance


Indemnity 

A fire insurance contract is based on the principle of indemnity. It means that the insurer undertakes to compensate the insured for the loss caused to him due to fire. This principle does not allow the insured to make any profit from a fire. For example, a godown is insured for Rs. 300,000. There is a fire which results in a loss of Rs. 100,000. The insured can recover only Rs. 100,000 from the insurer and not more than that. Thus, the amount which can be recovered under the policy cannot exceed the insured sum.

Utmost Good Faith 

The contract of fire insurance is entirely based on the principle of Uberrimae Fidei' ie. absolute good faith. It is the duty of the proposer to disclose all the material facts before the contract is completed. This principle applies equally to insurers also.

Subrogation

Subrogation is a supplement to the principle of indemnity and applies to all the contracts of insurance except life insurance and personal accident insurance. It refers to the right of the insurer to stand in place of the insured and to have all the rights and remedies against third parties

Proximate Cause (Causa Proxima) 

Proximate cause is very important in fire insurance, The insurer always tries to find out the proximate cause of damage to the property while paying a claim. If the immediate cause is an insured peril, the insurers are liable to make the payment under the policy, otherwise not.

Contribution

It is the right of an insurer who has paid a loss under the policy to recover a proportionate amount from the other insurers who are liable for the same loss. For example, if 'A has fire policies with X, Y and Z for the same risk and X compensated him for the loss, then X has a right to recover a proportionate amount of loss from the other two insurers, ie. Y and Z

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