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FIRE INSURANCE

BASIC PRINCIPLES :-
Fire insurance business has been defined in section 2 of Insurance Act, 1938 as the business of
effecting, otherwise than incidentally to some other class of insurance business, contract of insurance
against loss by or incidental to fire or other occurrence customarily included among the risks insured
against in fire insurance policies.
Ordinarily one may get inclined to think that it is an insurance policy which indemnifies [v: (often foll. By
FROM, AGAINST) secure a person from a harm, a loss, etc; compensate; (often foll by FOR) exempt from
a penalty] the insured against loss or damage to property caused by fire. But this understanding is not
correct. The Fire Policy is far wider than its superficial meaning. It protects the assets against a host of
perils as many as twelve groups of perils. In view of the very wide scope of this Policy it is misnomer to
call it a Fire Policy. So it has been renamed by the TAC as: STANDARD FIRE & SPECIAL PERILS
POLICY (SFSP).
Fire insurance contracts are governed by the general law of contract as embodied in the Indian Contract Act,
1872. According to this general law of contract a fire insurance contract must have the following essential
ingredients in order to make it enforceable at law:- a) Offer and acceptance, b) Consideration, c) Agreement
between the parties, d) Legal Competence [n: ability; being competent] of parties and Basic Principles like
i) Utmost Good Faith: To disclose all material fact which have a bearing on the insurance. The duty of
disclosure of material fact ceases [v: stop; come to an end] when the contract is concluded under common
law. But in Fire Insurance the Insured should give notice, if there are any material alterations during the
currency of the policy.
ii) Insurable Interest: The competency [n: also Competence = (ability; being competent)] of a person to
effect a contract of a fire insurance is determined by his legal capacity to contract and his legal pecuniary
[adj: of or concerning money] relationship to the property. In fire insurance the insurable interest should
exist at the time of taking policy, continue throughout its currency and should exists at the time of loss. Fire
insurance policies are personal contracts. The moral hazard of the insured plays vital role. Hence if the
property is sold the policy is not transferred automatically. Transferring the policy in the new owners name
has to be agreed to, accepted and endorsed by the insurance company.
iii) Indemnity: The principle of indemnity [v: (often foll. By FROM, AGAINST) secure a person from a
harm, a loss, etc; compensate; (often foll by FOR) exempt from a penalty] is strictly adhered to in fire
insurance. Fixing the SI is an important aspect and the responsibility is with Insured. If insurer agrees to the
value it becomes Agreed Value Policy.
iv) Subrogation: The principle of subrogation is a corollary [n: (often foll. by OF) Consequence] of the
principle of indemnity. If loss suffered by the insured is recoverable from third party (ies), who is/are
responsible for the loss, the insureds right of recovery is transferred or subrogated to the insurer when they
indemnify [v: (often foll. By FROM, AGAINST) secure a person from a harm, a loss, etc; compensate;
(often foll by FOR) exempt from a penalty] the loss.
v) Contribution: The principle of contribution is a corollary [n: (often foll. by OF) Consequence] of the
principle of indemnity, provided that the same property is insured under more than one policy. Insured
cannot recover more than his loss; he can recover only a rateable portion of loss under each policy.

Section I: General Rules and Regulation

1. POLICY:
Only Standard Fire and Special Perils Policy (SF&SP Policy) with the permitted "Add- on" covers (as
appearing under Section VIII) if any, can be issued.
Note:- Unless otherwise specifically provided for, this tariff is applicable to land-based properties only.
It is permissible to exclude STFI and/or RSMD at inception [n: beginning] of the Policy only by deleting the
relevant perils from the Policy. The deletion shall apply for the entire property in one
complex/compound/location covering the entire interest of the Insured under one or more policy (ies)
without any option for selection.

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2. VALUED POLICY (IES):
Valued Policy (ies) can be issued only for properties whose Market Value cannot be ascertained e.g Curios
(Ornaments), Works of Art, Manuscripts, Obsolete machinery and subject to the valuation certificate being
submitted and found acceptable by the insurers.

3. LONG TERM POLICIES:


Policies shall not be issued for a period exceeding 12 months, except for "Dwellings".

4. MID-TERM COVER:
Generally, it is not permissible to grant mid-term cover for STFI. The following provisions shall apply,
where such covers are granted mid-term:
a) Insurers must receive specific advice from the insured accompanied by payment of the required
additional premium in cash or by draft. This additional premium shall not be adjusted against existing Cash
deposits or debited to Bank guarantee.
b) Mid-term cover shall be granted for the entire property at one complex /compound/location covering the
entire interest of the Insured under one or more policy (ies). Insured shall not have any option for selection.
c) Cover shall commence 15 days after the receipt of the premium.
d) The premium rates as under shall be charged on short period scale (as per Rule 8) on full sum insured at
one complex/compound/location covering the entire interest of the insured for the balance period i.e. up to
the expiry of the policy.
** No mid-term cover shall be granted for RSMD and Terrorism.

5. PAYMENT OF PREMIUM:
Premium shall be paid in full and shall not be accepted in installments or by deferred payments in any form.
N.B:- It is not permissible to split sum insured of the same property under various policies for different
periods of insurance to derive advantage of deferred installments for payment of premium.
Notwithstanding [(prep: in spite of; without prevention by) (adv: nevertheless)] the above, different policies
may be issued for stocks where circumstances necessitate issuance of such policies.

6. MINIMUM PREMIUM:
Minimum premium shall be Rs.100/- per policy except for risks ratable under Section III and Tiny Sector
Industries under Section IV where the minimum premium shall be Rs. 50/ per policy.

7. PARTIAL INSURANCE:
It is not permissible
a) To issue a policy covering only certain portions of a building. Notwithstanding [(prep: in spite of; without
prevention by) (adv: nevertheless)] this, the plinth [n: lower square slab at the base of a column; base
supporting of a vase or statue] and foundations or only the foundation of a building may be excluded (If
insured wants to cover, it is allowed).
b) To issue a policy covering only specified machinery (except Boilers), parts of machine or accessories
thereof [adv: of that or it] housed in the same block/ building.
N.B. Where portions of a building and/or machinery therein [adv: in that place etc; in that respect] are under
different ownership, it is permissible for each owner to insure separately but to the full extent of his interest
on the building and/or machinery therein [adv: in that place etc; in that respect]. In such cases, the Insured's
interest shall be clearly defined in the policy.

8. RATES FOR SHORT PERIOD INSURANCE:


Policies for a period of less than 12 months shall be issued at the rates set out.
N.B.: Extension of short period policy (ies) shall not be permitted.

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9. LOADING FOR "KUTCHA" CONSTRUCTION:
Building(s) having walls and/or roofs of wooden planks/thatched leaves and/or grass/hay of any
kind/bamboo/plastic cloth/asphalt cloth/canvas/tarpaulin and the like shall be treated as 'Kutcha'
construction for rating. All other constructions are termed as Other than Kutcha' or Standard
Construction. An additional rate of Rs.3.00%o shall be charged for such building(s) and/ or contents
thereof [adv: of that or it].
Note:-Temporary sheds (attached to buildings) erected during the monsoon solely for the purpose of
monsoon protection are permitted without loading provided such sheds are not used for storage purpose.

10. RULES FOR CANCELLATIONS:


A. At the option of the insured:-
Retention of premium shall be at Short Period Scale for the period the policy has been in force, subject to
the retention of minimum premium by the Insurer.
During the currency, if a policy is replaced with the same insurer by a new annual one covering the identical
property, refund of premium may be allowed on pro-rata [adj: proportional; adv: proportionally] basis at
the original rates for the sum insured replaced.
For the sum insured not replaced, refund must be calculated after charging premium at short period scale
on such sum for the time the insurance has been in force subject to retention of the minimum premium by
the insurer.
In case of short period policies, premium shall be retained at the applicable short period scale.
N.B.:- In case a policy is cancelled on account of a Government Order or on completion of a Building in
course of construction or where Buildings are demolished, pro-rata [adj: proportional; adv: proportionally]
refund of premium may be allowed.
B. At the option of the insurer: - Refund of premium shall be on pro-rata basis for the unexpired
term.

11. MID-TERM REVISION IN SUM INSURED:


Increase in sum insured: On pro-rata [adj: proportional; adv: proportionally] basis, Decrease in sum insured:
On short-period scale.

12. ESCALATION CLAUSE:


It will be in order for Insurers to allow automatic regular increase in the Sum Insured throughout the period
of the policy in return for an additional premium to be paid in advance. The terms and conditions for this
extension shall be as follows:
a) The selected percentage increase shall not exceed 25% of the Sum Insured.
b) The additional premium, payable in advance, will be at 50% of the full rate, to be charged on the
selected percentage increase.
c) The Sum Insured at any point of time would be assessed after application of the Escalation Clause.
d) Escalation Clause will apply to policies covering Building, Machinery and Accessories only and will
not apply to policies covering stock.
e) Escalation Clause will apply to all policies and is not restricted to policies issued on reinstatement
value basis.
f) Pro-rata [adj: proportional; adv: proportionally] condition of Average will continue to apply as usual.
g) The automatic increase operates from the date of inception [n: beginning] up to the date of operation
of any of the Insured Perils. Example: Loss after 85 days. Available S.I. = S.I. + (S.I. x 85/365 x
Escalation %)

13. FLOATER POLICY:


Floater Policy (ies) can be issued for stocks only at various specified locations under one Sum Insured (The
Standard Floater Clause I, Annexure A shall be attached to such policies).
Rating: The rate shall be the highest rate applicable to insured's stocks at any location & a loading of 10 %
(Floater Extra) is charged since the exposure to hazard is higher.
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N.B.1: In case Stocks in a process block are covered under the Floater Policy and the rate for the process
block is higher than the storage rate, the process rate plus 10% loading shall apply.
N.B.2: Presence of "Kutcha" construction may be ignored.
N.B.3: If stocks situated within godowns/process blocks in the same compound are covered under floater
policy, no floater extra is chargeable.
N.B.4: The insured should have a good internal audit and accounting procedure and the changes in address
should be communicated.

14. DECLARATION POLICIES:


To take care of frequent fluctuations in stocks/stock values, Declaration Policy (ies) can be granted subject
to the following conditions:
a) The minimum sum insured shall be Rs 1 crore in one or more locations and the sum insured shall not be
less than Rs. 25 lakhs in at least one of these locations. It is necessary that the declared values should
approximate to this figure at sometime during the policy year.
b) Monthly declarations based on i) the average of the values at risk on each day of the month or ii) the
highest value at risk during the month shall be submitted by the Insured latest by the last day of the
succeeding month. If declarations are not received within the specified period, the full sum insured under
the policy shall be deemed [v: consider; judge] to have been declared.
c) Reduction in sum insured shall not be allowed under any circumstances.
d) Refund of premium on adjustment based on the declarations/ cancellations shall not exceed 50% of the
total premium.
e) The basis of value for declaration shall be the Market Value anterior [adj (often foll. by TO): prior] to the
loss.
f) It is not permissible to issue declaration policy in respect of
i. Insurance required for a short period.
ii. Stocks undergoing process.
iii. Stocks at Railway sidings.
g) If after occurrence of any loss it is found that the amount of last declaration previous to the loss is less
than the amount that ought to have been declared, then the amount which would have been recoverable by
the insured shall be reduced in such proportion as the amount of said last declaration bears to the amount
that ought to have been declared.

15. FLOATER DECLARATION POLICIES:


Floater Declaration policy (ies) can be issued subject to a minimum sum insured of Rs 2 crores and
compliance with the Rules for Floater and Declaration Policies respectively except that the minimum
retention shall be 80% of the annual premium.

16. REINSTATEMENT VALUE (At which the damaged property can be reinstated) POLICIES:
Reinstatement value insurance may be granted on Buildings, Machinery Furniture, Fixture and Fittings only.
There is no extra premium and the same may be granted subject to
a) The reinstatement must be carried out by insured.
b) The work of replacement or reinstatement (which may be carried out upon another site and in any
manner suitable to the requirements of the insured subject to the liability of the Company not being
thereby increased) must be commenced and carried out with reasonable dispatch and in any case must
be completed within 12 months after the destruction or damage or within such further time as the
Company may in writing allow, otherwise the loss will be settled on the normal indemnity basis.
c) The reinstatement basis of settlement will not apply if
i) The Insured fails to intimate to the insurer within 6 months from the date of destruction or damage or
such further time as the insurer may in writing allow replacing or reinstating the damaged property.
ii) The Insured is unable or unwilling to replace or reinstate the damaged property.

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17. LOCAL AUTHORITIES CLAUSE:
Reinstatement Value Policy may be extended to cover additional cost of reinstatement solely by reason of
the necessity to comply with the regulations of local authority by incorporating the clause in the policy.
The insurance by this policy extends to include such additional cost of reinstatement of the destroyed or
damaged property hereby (adv: by this means; as a result of this) insured as may be incurred solely by
reason of the necessity to comply with the Building or other Regulations under any act of Parliament or with
Bye-laws of any Municipal or Local authority and no additional premium is being charged for inclusion of
this clause.
1. The amount recoverable under this extension shall not include:
a) The cost incurred in complying with any of the aforesaid regulations or Bye-laws
i) In respect of destruction or damage occurring prior to the granting of this extension,
ii) In respect of destruction or damage not insured by the policy
iii) Under which notice has been served upon (prep: on) the insured prior to the happening of the
destruction of damage.
iv) In respect of undamaged property or undamaged portions of property other than foundations (unless
foundations are specifically excluded from the insurance by this policy) of that portion of the property
destroyed or damaged.
b) The additional cost that would have been required to make good the property damaged or destroyed to a
condition equal to its condition when new had the necessity to comply with any of the aforesaid Regulations
of Bye-laws not arisen.
c) the amount of any rate, tax, duty, development or other charge or assessment arising out of capital
appreciation which may be payable in respect of the property or by the owner thereof by reason of
compliance with any of the aforesaid Regulations or Bye-laws.
2. The work of reinstatement must be commenced and carried out with reasonable dispatch and in any case
must be completed within twelve months after the destruction or damage or within such further time as the
Insurers may (during the said twelve months) in writing allow and may be carried out wholly or partially
upon another site (if the aforesaid Regulations or Bye-laws so necessitate) subject to the liability of the
Insurer under this extension not being thereby increased.
3. If the liability of the insurer under (any item of) the policy apart from this extension shall be reduced by
the application of any of the terms and conditions of the policy then the liability of the Insurers under this
extension (in respect of any such item) shall be reduced in like proportion.
4. The total amount recoverable under any item of the policy shall not exceed the sum insured thereby (adv:
by that means; as a result of that).
5. All the conditions of the policy except in so far as they may be hereby expressly varied shall apply as if
they had been incorporated herein (adv: in this matter).
18. REMOVAL OF DEBRIS CLAUSE: (up to 1% of the claim amount)
Following a loss, a lot of debris gets accumulated. The expenses incurred up to 1% of the claim amount are
included in the sum insured on: (a) Removal of debris from the premises of the Insured;
(b) Dismantling or demolishing; (c) Shoring up or propping.
Note: (b) & (c) above should be deleted when neither Building nor Machinery are covered.
19. ARCHITECTS, SURVEYORS AND CONSULTING ENGINEERS FEES: (up to 3% of the claim
amount)
Following a loss, the insured have to engage services of above professionals for plans, specification tenders,
quantities and services in connection with the superintendence of the reinstatement for the Building,
Machinery, Accessories and equipment. The fees paid are covered up to 3% of the adjusted loss. But this
does not include any costs in connection with the preparation of the Insureds claim or estimate of loss in
the event of damage by insured perils.
20. AGREED BANK CLAUSE:
All policies in which a Bank/Financial Institution has interest shall be issued in the name of Bank/Financial
Institution and owner or mortgagor and shall contain a suitable clause to protect their interest. The salient
features of the Clause are.
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i. The claim is payable to the Bank/Financial inst. whose receipt shall be complete discharge and shall
be binding on all the parties insured.
ii. Any notice under the policy is sufficient if given by or to the bank.
iii. Any adjustment, settlement, compromise or reference to arbitration (n: settlement of dispute by an
impartial third party) in connection with any dispute if made with bank shall be valid and binding on
all parties.
iv. Breach of condition which relates to notification of material alterations in the risk does not affect the
interest of the bank unless the breach is committed by the bank.
v. Any alteration or increase in risk does not invalidate the insurance, provided the bank notifies the
same as soon as it comes to its knowledge and pays the additional premium.
vi. If the insurer pays a claim to the bank and there is no liability to the mortgager or owner, the insurer
becomes legally subrogated () to all rights of the bank to the extent of such payments.
21. CONTRACT PRICE INSURANCE CLAUSE:
This clause is the only exception in fire insurance, where an element of profit is covered. Hence the loss is
indemnified on the basis of selling price, because the goods have already been sold.
In the case of insurance of imported goods only (and not for goods of local manufacture) which are sold
under a contract which is cancelled either wholly or to the extent of loss or damage, it is permissible to issue
a policy on the basis of Contract Price.
22. DESIGNATION OF PROPERTY CLAUSE:
For the purpose of determining, where necessary, the item under which any property is insured, the
insurers agree to accept the designation under which the property has been entered in the insured's books.
Sometimes following a loss, it is found that a particular item is capitalized under a heading (say an
air conditioner classified as machinery instead of electrical installation) which is not acceptable to insurer or
surveyor. To avoid such disputes insurers offer the above clause.
23. CLAIMS EXPERIENCE DISCOUNT / LOADING:
Risks having sum insured (on buildings and contents of all blocks in one compound of one complex
in one location ) above Rs.50 Crores rateable under Sections IV, V, VI & VII of this tariff shall attract
claims experience discounts/loadings based on the incurred claims experience of all the policies covering
the Insureds interest for the preceding 36 months excluding the expiring policy period. (If there is any
break in insurance, available 36 months experience shall be taken into account).
* On renewal of business either by an existing insurer or by a new insurer, a provisional loading of
15% must be charged in all cases where certified details of claims experience by respective insurers are not
available. This loading shall be adjusted subsequently on receipt of the exact claims experience.
The above loading will not be applicable for Dwellings.
24. FIRE EXTINGUISHING APPLIANCES DISCOUNT:
The discounts as per the scale may be granted by the Insurers to detached or segregated (as per the
Committees Building Regulations) blocks of the risks protected by Fire Extinguishing Appliances ratable
under Sections III, IV, V, VI and VII of the Tariff [except for Floater and/or Floater Declaration Policy(ies)]
subject to the following:
a) System is erected and tested as per the relevant Regulations of the TAC and a certificate from LPA
or TAC accredited Professional(s) /Professional agency (ies) confirming the efficacy of the system
and its full compliance with the Committees rules is submitted by the Insured.
b) The installation is maintained in an efficient working order at all times and an Annual Maintenance
Contract (AMC) with an external agency is in force.
25. RATING OF RISKS IN MULTIPLE OCCUPANCY INDUSTRIAL ESTATE:
Risks in Multiple Occupancy Industrial Estate shall be rated `Per se'(For itself). If the entire building
of the Industrial Estate is insured under one sum insured, a rate of Rs. 1.80%o shall be chargeable to
'building'. Only the contents will be rated as per the individual occupancy.
26. SILENT RISK:
Risks rateable under Sections IV and V are allowed silent rates as per the following table.
Factories where no manufacturing / storage Retention of the premium shall be based on the
activities are carried out continuously for 30 days appropriate storage rate or silent risk rate of

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or more. Re.0.60%o whichever is higher.
The silent rates are not applicable if a risk goes silent following a loss under the policy.
Note:- Risks becoming silent shall not be entitled to any discounts.
27. VOLUNTARY DEDUCTIBLES:
On receipt of application from the insured, Insurer may consider suitable discounts for voluntary
deductibles as per the scale. The discounts are applicable under the Standard Fire and Special Perils Policy
as well as for the add-on covers and the Insurer shall attach to the policy (ies) a suitable clause.
28. COMPUTATION OF RATE:
The following sequence shall be adopted for computation of the rate :-
1. Basic Rate
2. 5% Reduction for Sprinklered blocks if applicable ( for risks rateable under Sections III ,IV, V and
VI).
3. Reduction in rates for deletion of STFI and/or RSMTD perils, if opted out.
4. Tariff extra for `Kutcha' Construction, if applicable ( to be applied on 1-2-3)
5. Discount/loading for claims experience (to be applied on 1-2-3-/+4)
6. Discount for FEA on protected blocks (to be applied on 1-2-3-/+4 )
7. Discount for voluntary deductible shall be applicable on the total premium calculated on the basis of
final rate worked out as above.

Section II: STANDARD FIRE AND SPECIAL PERILS POLICY


(A) PERILS COVERED:
1. Fire: Fire means actual ignition or burning under accidental circumstances.
Excluding destruction or damage caused to the property insured by
a) i) Its own fermentation, natural heating or spontaneous combustion.
ii) Its undergoing any heating or drying process.
b) Burning of property insured by order of any Public Authority (Not a fortuitous event)
2. Lighting: Lightning includes any damage caused by lightning with or without ignition (Fire)
3. Explosion/Implosion: Excluding loss, destruction of or damage
a) To boilers (other than domestic boilers), economizers or other vessels, machinery or apparatus( in
which steam is generated) or their contents resulting from their own explosion/implosion;
b) Caused by centrifugal forces. (Covered by engineering policy)
4. Aircraft Damage:
Loss, Destruction or damage caused by Aircraft, other aerial or space devices and articles dropped
therefrom excluding those caused by pressure waves (e.g. Damage to window panes by vibration from low
flying planes or from sonic or supersonic aircraft.
5. Riot, Strike, and Malicious Damage:
Loss of or visible physical damage or destruction by external violent means directly caused to the
property insured but excluding those caused by
a) Total or partial stoppage of work or process or operations or omissions of any kind.
b) The insured having lost the right of possession of building or machinery etc. or premises due to
action of any lawful person or lawful authority.
c) The property has been unlawful occupied by any person or access to the premises is prevented
thereby making the insured unable to use his property.
d) Any malicious act committed in connection with Burglary, housebreaking, theft, larceny or any such
attempt or any omission of any kind of any person.
If the insurer alleges that the loss/damage is not caused by any malicious act, the burden of proving the
contrary shall be upon the insured.
Terrorism Damage Exclusion Warranty: The policy excludes loss, damage or expenses directly or
indirectly caused by any act of terrorism.
If the insurer alleges that the loss/damage is caused by terrorism act and not covered by the policy, the
burden of proving the contrary shall be upon the insured.
TERRORISM COVER: (The Optional Cover In conjunction with RSMD only)
Definition of Terrorism: an act or series of acts, including but not limited to the use of force or violence
and/or the threat thereof, of any person or group(s) of persons, whether acting alone or on behalf of or in
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connection with any organisation(s) or government(s), or unlawful associations, recognized under Unlawful
Activities (Prevention) Amendment Act, 2008 or any other related and applicable national or state
legislation formulated to combat unlawful and terrorist activities in the nation for the time being in force,
committed for political, religious, ideological or similar purposes including the intention to influence any
government and/or to put the public or any section of the public in fear for such purposes.
Scope & Applicability: Applicable to all insurances of terrorism risk insured along with the insurances of
property in any of the insured classes.
Rates, Terms and Conditions for Terrorism Risks: These shall be decided by Pool Underwriting
Committee of GIC Re (Manager to the Indian Market Terrorism Risk Insurance Pool) and filed with IRDA
for approval under File and Use Guidelines. At present it follows overall limit per location Rs. 750 crores.
The wordings for Terrorism Damage cover Endorsement and Terrorism Damage Exclusion Warranty has
been revised w.e.f. 01.07.2010.
6. Storm, Cyclone, Typhoon, Tempest, Hurricane, Tornado, Flood and Inundation: (Act Of God)
Loss, destruction or damage directly caused by Storm, Cyclone, Typhoon, Tempest, Hurricane,
Tornado, Flood or Inundation excluding those resulting from earthquake, Volcanic eruption or other
convulsions of nature. (Wherever earthquake cover is given as an add on cover the words excluding
those resulting from earthquake volcanic eruption or other convulsions of nature shall stand deleted.
7. Impact Damage:
Loss of or visible physical damage or destruction caused to the property insured due to impact by any Rail/
Road vehicle or animal by direct contact not belonging to or owned by
a) The Insured or any occupier of the premises or
b) Their employees while acting in the course of their employment.
8. Subsidence and Landslide including Rock slide: Excluding loss, destruction or damage caused by
a) the normal cracking, settlement or bedding down of new structures
b) the settlement or movement of made up ground
c) coastal or river erosion
d) defective design or workmanship or use of defective materials
e) Demolition, construction, structural alterations or repair of any property or ground works or
excavations.
9. Bursting and/or overflowing of Water Tanks, Apparatus and Pipes:
10. Missile Testing operations: By the Defence Department, Government of India.
11. Leakage from Automatic Sprinkler Installations: Excluding loss, destruction or damage caused by
a) Repairs or alterations to the buildings or premises
b) Repairs, Removal or Extension of the Sprinkler Installation
c) Defects in construction known to the Insured.
12. Bush Fire: Excluding loss, destruction or damage caused by Forest Fire.
PROVIDED that the liability of the Company shall in no case exceed in respect of each item the sum
expressed in the said Schedule to be insured thereon or in the whole the total Sum Insured hereby or such
other sum or sums as may be substituted thereof by memorandum hereon or attached hereto signed by or on
behalf of the Company.

(B) GENERAL EXCLUSIONS:


1. (Excess) This Policy does not cover (not applicable to policies covering dwellings) w.e.f. 01/04/2011
a) SI up to INR 10 crore per location 5% of claim amount subject to a minimum of Rs 10,000/-
b) SI INR 10 to 100 crore per location- 5% of claim amount, minimum of INR 25,000
c) SI INR 100 to 1500 crore per location- 5% of claim amount, minimum of INR 5 lakhs
d) SI INR 1500 to 2500 crore per location- 5% of claim amount, minimum of INR 25 lakhs
e) SI above INR 2500 crore per location- 5% of claim amount, minimum of INR 50 lakhs
The Excess shall apply per event per insured.
2. (War Perils) Loss, destruction or damage caused by war, invasion, act of foreign enemy hostilities or war
like operations (whether war be declared or not), civil war, mutiny, civil commotion assuming the
proportions of or amounting to a popular rising, military rising, rebellion, revolution, insurrection or military
or usurped power.
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3. (Nuclear Perils) Loss, destruction or damage directly or indirectly caused to the property insured by
a) Ionising radiations or contamination by radioactivity from any nuclear fuel or from any nuclear
waste from the combustion of nuclear fuel
b) The radioactive toxic, explosives or other hazardous properties of any explosive nuclear assembly or
nuclear component thereof
4. (Pollution & Contamination unless caused by insured perils) Loss, destruction or damage caused to
the insured property by pollution or contamination excluding
a) Pollution or contamination which itself results from a peril hereby insured against.
b) Any peril hereby insured against which itself results from pollution or contamination
5. (Curios, documents etc. > Rs. 10,000) Loss, destruction or damage to bullion or unset precious stones,
any curios or works of art for an amount exceeding Rs. 10000/-, manuscripts, plans, drawings, securities,
obligations or documents of any kind, stamps, coins or paper money, cheques, books of accounts or other
business books, computer systems records, explosives unless otherwise expressly stated in the policy.
6. {Change of temp. (Stocks in cold storage)} Loss, destruction or damage to the stocks in Cold Storage
premises caused by change of temperature
7. (Pure electrical fires) Loss, destruction or damage to any electrical machine, apparatus, fixture, or fitting
arising from or occasioned by over-running, excessive pressure, short circuiting, arcing, self heating or
leakage of electricity from whatever cause (lightning included) provided that this exclusion shall apply only
to the particular electrical machine, apparatus, fixture or fitting so affected and not to other machines,
apparatus, fixtures or fittings which may be destroyed or damaged by fire so set up.
8. {Architects etc. fees (beyond 3% of claim amount) & Removal of debris (beyond 1% of claim
amount)} Expenses necessarily incurred on (i) Architects, Surveyors and Consulting Engineer's Fees and
(ii) Debris Removal by the Insured following a loss, destruction or damage to the Property insured by an
insured peril in excess of 3% and 1% of the claim amount respectively.
9. (Consequential losses) Loss of earnings, loss by delay, loss of market or other consequential or indirect
loss or damage of any kind or description whatsoever.
10. (Spoilage due to cessation of process) Loss or damage by spoilage resulting from the retardation or
interruption or cessation of any process or operation caused by operation of any of the perils covered.
11. (Theft- during/ after loss) Loss by theft during or after the occurrence of any insured peril except as
provided under Riot, Strike, & Malicious Damage.
12. (Earthquake) Any Loss or damage occasioned by or through or in consequence directly or indirectly
due to earthquake, volcanic eruption or other convulsions of nature.
13. (Shifting of property to other place) Loss or damage to property insured if removed to any building or
place other than in which it is herein stated to be insured, except machinery and equipment temporarily
removed for repairs, cleaning, renovation or other similar purposes for a period not exceeding 60 days.
14. Terrorism damage

( C ) GENERAL CONDITIONS:
1. (Utmost Good Faith) THIS POLICY shall be voidable in the event of mis-representation, mis-
description or non-disclosure of any material particular.
2. (Material Changes of the Property) All insurances under this policy shall cease on expiry of seven
days from the date of fall or displacement of any building or part thereof or of the whole or any part of any
range of buildings or of any structure of which such building forms part.
PROVIDED such a fall or displacement is not caused by insured perils, loss or damage which is covered by
this policy or would be covered if such building, range of buildings or structure were insured under this
policy.
Notwithstanding the above, the Company subject to an express notice being given as soon as possible but
not later than seven days of any such fall or displacement may agree to continue the insurance subject to
revised rates, terms and conditions as may be decided by it and confirmed in writing to this effect.
3.(Material Changes of the Property) Under any of the following circumstances the insurance ceases to
attach as regards the property affected unless the Insured, before the occurrence of any loss or damage,
Fire_Lop/9 of 25
obtains the sanction of the Company signified by endorsement upon the policy by or on behalf of the
Company :-
a) If the trade or manufacture carried on be altered, or if the nature of the occupation of or other
circumstances affecting the building insured or containing the insured property be changed in such a
way as to increase the risk of loss or damage by Insured Perils.
b) If the building insured or containing the insured property becomes unoccupied and so remains for a
period of more than 30 days.
c) If the interest in the property passes from the insured otherwise than by will or operation of law.
4. (In case of Existence of Marine Policy) This insurance does not cover any loss or damage to property
which, at the time of the happening of such loss or damage, is insured by or would, but for the existence of
this policy, be insured by any marine policy or policies except in respect of any excess beyond the amount
which would have been payable under the marine policy or policies had this insurance not been effected.
5. (Cancellation) This insurance may be terminated at any time at the request of the Insured, in which case
the Company will retain the premium at customary short period rate for the time the policy has been in
force. This insurance may also at any time be terminated at the option of the Company, on 15 days' notice
to that effect being given to the Insured, in which case the Company shall be liable to repay on demand a
rateable proportion (Pro rata) of the premium for the unexpired term from the date of the cancellation.
6. (Duties of Insured following a loss)
(i) On the happening of any loss or damage the Insured shall forthwith give notice thereof to the Company
and shall within 15 days after the loss or damage, or such further time as the Company may in writing allow
in that behalf, deliver to the Company
a) A claim in writing for the loss or damage containing as particular an account as may be reasonably
practicable of all the several articles or items or property damaged or destroyed, and of the amount of
the loss or damage thereto respectively, having regard to their value at the time of the loss or damage not
including profit of any kind.
b) Particulars of all other insurances, if any
The Insured shall also at all times at his own expense produce, procure and give to the Company all such
further particulars, plans, specification books, vouchers, invoices, duplicates or copies thereof, documents,
investigation reports (internal/external), proofs and information with respect to the claim and the origin and
cause of the loss and the circumstances under which the loss or damage occurred, and any matter touching
the liability or the amount of the liability of the Company as may be reasonably required by or on behalf of
the Company together with a declaration on oath or in other legal form of the truth of the claim and of any
matters connected therewith.
No claim under this policy shall be payable unless the terms of this condition have been complied with
(ii) In no case whatsoever shall the Company be liable for any loss or damage after the expiry of 12 months
from the happening of the loss or damage unless the claim is the subject of pending action or arbitration; it
being expressly agreed and declared that if the Company shall disclaim liability for any claim hereunder and
such claim shall not within 12 calendar months from the date of the disclaimer have been made the subject
matter of a suit in a court of law then the claim shall for all purposes be deemed to have been abandoned and
shall not thereafter be recoverable hereunder.
7. (Rights of the Insurer following a loss) On the happening of loss or damage to any of the property
insured by this policy, the Company may
a) Enter and take and keep possession of the building or premises where the loss or damage has
happened.
b) Take possession of or require to be delivered to it any property of the Insured in the building or on
the premises at the time of the loss or damage.
c) Keep possession of any such property and examine, sort, arrange, remove or otherwise deal with the
same.
d) Sell any such property or dispose of the same for account of whom it may Concern.
The powers conferred by this condition shall be exercisable by the Company at any time until notice in
writing is given by the insured that he makes no claim under the policy, or if any claim is made, until such
claim is finally determined or withdrawn, and the Company shall not by any act done in the exercise or
purported exercise of its powers hereunder, incur any liability to the Insured or diminish its rights to rely
upon any of the conditions of this policy in answer to any claim.
Fire_Lop/10 of 25
If the insured or any person on his behalf shall not comply with the requirements of the Company or shall
hinder or obstruct the Company, in the exercise of its powers hereunder, all benefits under this policy shall
be forfeited.
The Insured shall not in any case be entitled to abandon any property to the Company whether taken
possession of by the Company or not.
8. (Utmost Good Faith) If the claim be in any respect fraudulent, or if any false declaration be made or
used in support thereof or if any fraudulent means or devices are used by the Insured or any one acting on
his behalf to obtain any benefit under the policy or if the loss or damage be occasioned by the willful act, or
with the connivance of the Insured, all benefits under this policy shall be forfeited.
9. (Enabling Condition to see whether the claim amount is exaggerated) If the Company at its option,
reinstate or replace the property damaged or destroyed, or any part thereof, instead of paying the amount of
the loss or damage, or join with any other Company or Insurer(s) in so doing, the Company shall not be
bound to reinstate exactly or completely but only as circumstances permit and in reasonably sufficient
manner, and in no case shall the Company be bound to expend more in reinstatement than it would have
cost to reinstate such property as it was at the time of the occurrence of such loss or damage nor more than
the sum insured by the Company thereon. If the Company so elect to reinstate or replace any property the
insured shall at his own expense furnish the Company with such plans, specifications, measurements,
quantities and such other particulars as the Company may require, and no acts done, or caused to be done,
by the Company with a view to reinstatement or replacement shall be deemed an election by the Company
to reinstate or replace.
If in any case the Company shall be unable to reinstate or repair the property hereby insured, because of any
municipal or other regulations in force affecting the alignment of streets or the construction of buildings or
otherwise, the Company shall, in every such case, only be liable to pay such sum as would be requisite to
reinstate or repair such property if the same could lawfully be reinstated to its former condition.
10. (Condition of Average) If the property hereby insured shall at the breaking out of any fire or at the
commencement of any destruction of or damage to the property by any other peril hereby insured against be
collectively of greater value than the sum insured thereon, then the Insured shall be considered as being his
own insurer for the difference and shall bear a rateable proportion of the loss accordingly. Every item, if
more than one, of the policy shall be separately subject to this condition.
11. (Contribution) If at the time of any loss or damage happening to any property hereby insured there be
any other subsisting insurance or insurances, whether effected by the Insured or by any other person or
persons covering the same property, this Company shall not be liable to pay or contribute more than its
rateable proportion of such loss or damage.
12. (Subrogation) The Insured shall at the expense of the Company do and concur in doing, and permit to
be done, all such acts and things as may be necessary or reasonably required by the Company for the
purpose of enforcing any rights and remedies or of obtaining relief or indemnity from other parties to which
the Company shall be or would become entitled or subrogated, upon its paying for or making good any loss
or damage under this policy, whether such acts and things shall be or become necessary or required before
or after his indemnification by the Company.
13. (Arbitration) If any dispute or difference shall arise as to the quantum to be paid under this policy
(liability being otherwise admitted) such difference shall independently of all other questions be referred to
the decision of a sole arbitrator to be appointed in writing by the parties to or if they cannot agree upon a
single arbitrator within 30 days of any party invoking arbitration, the same shall be referred to a panel of
three arbitrators, comprising of two arbitrators, one to be appointed by each of the parties to the
dispute/difference and the third arbitrator to be appointed by such two arbitrators and arbitration shall be
conducted under and in accordance with the provisions of the Arbitration and Conciliation Act, 1996.
It is clearly agreed and understood that no difference or dispute shall be referable to arbitration as
hereinbefore provided, if the Company has disputed or not accepted liability under or in respect of this
policy.
It is hereby expressly stipulated and declared that it shall be a condition precedent to any right of action or
suit upon this policy that the award by such arbitrator/ arbitrators of the amount of the loss or damage shall
be first obtained.
14. (Communication) Every notice and other communication to the Company required by these conditions
must be written or printed.

Fire_Lop/11 of 25
15. (Reinstatement of SI) At all times during the period of insurance of this policy the insurance cover will
be maintained to the full extent of the respective sum insured in consideration of which upon the settlement
of any loss under this policy, pro-rata premium for the unexpired period from the date of such loss to the
expiry of period of insurance for the amount of such loss shall be payable by the insured to the Company.
The additional premium referred above shall be deducted from the net claim amount payable under the
policy. This continuous cover to the full extent will be available notwithstanding any previous loss for
which the company may have paid hereunder and irrespective of the fact whether the additional premium as
mentioned above has been actually paid or not following such loss. The intention of this condition is to
ensure continuity of the cover to the insured subject only to the right of the company for deduction from the
claim amount, when settled, of pro-rata premium to be calculated from the date of loss till expiry of the
policy.
Notwithstanding what is stated above, the Sum Insured shall stand reduced by the amount of loss in case the
insured immediately on occurrence of the loss exercises his option not to reinstate the sum insured as above.
SECTION VIII: ADD ON COVERS

Standard Fire and Special Perils Policy (Policy) can be extended to include the following `Add on' covers:
1) Architects, Surveyors and Consulting Engineers Fees (in excess of 3% claim amount):
Discussed in chapter I, Specific SI not exceeding 7.5 % of SI & for premium policy rate apply.
2) Removal of Debris (in excess of 1% claim amount): Discussed in chapter I, Specific SI not
exceeding 10 % of SI & for premium policy rate apply.
3)
(A) Deterioration of Stocks in Cold Storage premises due to accidental power failure consequent to
damage at the premises of Power Station due to an insured peril:
Exclusion: 1. Any deliberate act of Authority for not supplying power. Lake of power without any peril
operating is not covered. Time Excess: The claims are subject to an excess in terms of time and not in
quantum. Claim is payable if failure of power supply is more than 24 hours
(B) Deterioration of stocks in cold storage premises due to change in temperature arising out of loss or
damage to the cold storage machinery (ies) in the Insureds premises due to operation of insured peril:
Time Excess will also apply here.
4) Forest Fire: (Any type of Forest fire, Whether accidental or otherwise), Specific SI
5) Impact Damage due to Insureds own Rail/Road Vehicles, Fork lifts, Cranes, Stackers and the like
and articles dropped there from: Policy SI
6) Spontaneous Combustion: (Damage caused by fire only be paid), SI of relative commodity
7) Omission to Insure additions, alterations or extensions:
This extension is granted subject to the following:
a) An additional premium at policy rate on 5% of the SI on building and/or Machinery, Plant and other
contents is collected in advance.
b) All new additions to Buildings and/or Machinery and Plant not specifically insured/included
during the currency of the policy should be declared at the end of the year and suitable additional
premium paid on pro rata basis from the date of completion of the construction /erection of additions may
be suitably adjusted.
c) If the insured fails to declare the values of such additions within 30 days after the expiry of the
policy, there shall be no refund of the advance premium collected.
8) Earthquake (Fire and Shock): This extension covers loss/damage from earthquake. Sometimes EQ
cause landslide/rockslide, flood, Overflow of sea/lakes. The cover includes such loss or damage resulting
from EQ. However damage covered by overflow of sea/lakes etc. would be covered only if basic cover
includes STFI group of perils.
9) Spoilage Material Damage Cover:
10) Leakage And Contamination Cover:
Policy may be extended to include the risks of (a) accidental leakage and contamination or (b) accidental
leakage.
The extension will apply to oils and chemicals only. It will not apply to any other commodity.
11) Temporary Removal of Stocks Clause:
It is agreed that the stock insured hereby not exceeding 10% of the total sum insured of such stock is
covered while temporarily removed to any other premises for purposes of fabrication or processing or
Fire_Lop/12 of 25
finishing or other similar purposes. This extension does not apply to stock if and so far as it is otherwise
insured.
The pro-rata condition of average should be applied to the limit of stocks temporarily removed as well as to
the total sum insured of such stock under the policy.
12) Loss of Rent clause: Available to a owner of the premises only.
The insurance on rent applies only if (any of) the said building(s) or any part thereof is unfit for occupation
in consequence of its destruction or damage by the perils insured against and then the amount payable shall
not exceed such portion of the sum insured on Rent as the period necessary for reinstatement bears to the
term of the Rent Insured.

13) Insurance Of Additional Expenses of Rent For An Alternative Accommodation:


a) The cover may be granted for non-manufacturing premises only.
b) The cover may be granted under the Policy and not under Consequential Loss (Fire) Policy.
c) The period of Indemnity may be limited to the period during which the original premises remain
untenantable as a result of occurrence of perils insured against. Maximum indemnity period not to exceed 3
(three) years.
d) The additional expense recoverable under the policy may be additional rent actually paid i.e. the
difference between the new and the original rent only
e) Certificate from the Local Municipal Authority or an Architect to the effect that premises in question
are untenantable will be accepted as adequate proof of the fact that the premises, in fact, have become
untenantable
f) The cover may be limited to buildings other than those of Kutcha construction.
g) The area for alternative accommodation may be equivalent to the area presently occupied. However,
no restriction will apply in respect of locality for the alternative accommodation, so long as the alternative
accommodation is taken in the same city of town
h) Cover may be permitted to the tenant as also to the Owner-Occupant. Further, in respect of
the Owner-Occupant, the alternative accommodation may be limited to the area presently under his
occupation.
i) For the Owner-Occupant, since he will not be paying any rent, the standard rent fixed by Municipal/
Revenue Authorities for tax purposes may be treated as the original rent for the purpose of this insurance
j) If the insured is a tenant only and for safeguarding his legal tenancy rights is obliged to pay rent for the
premises even during the period when it is not fit for occupation, the additional rent borne by him is the
actual rent for the alternative accommodation.
k) If the insured is a tenant and is not obliged to pay rent for the premises during the period when it
is not fit for occupation, the additional rent borne by him is the actual rent paid for alternative
accommodation taken less the rent which he was paying for the premises immediately prior to the same
being damaged or destroyed by Insured Perils and rendered unfit for occupation
14) Start up Expenses:
It is hereby agreed and declared that this policy extends to cover start-up costs necessarily and
reasonably incurred by the insured consequent upon a loss or damage covered by this policy.
15) Damage due to Molten Material Spillage:
This cover shall operate as an extension to Fire cover on First Loss Basis.
The Excess / Deductible applicable shall be : MD Nil, LOP 7days
Conditions :
a. There shall be no claim due to molten material spillage during the 2 years period prior to the
policy period at inception.
b. LOP cover to be limited to 50% of respective loss limit opted for material damage
c. Loss or damage to the spilled material to be excluded.
16) Terrorism Cover:
Rates, Terms and Conditions for Terrorism Risks: These shall be decided by Pool Underwriting
Committee of GIC Re (Manager to the Indian Market Terrorism Risk Insurance Pool) and filed with
IRDA for approval under File and Use Guidelines. At present it follows overall limit per location Rs.
750 crores. The wordings for Terrorism Damage cover Endorsement and Terrorism Damage Exclusion
Warranty has been revised w.e.f. 01.07.2010.
Excess for Terrorism:

Fire_Lop/13 of 25
a. For risks in section IV, V, VI & VII of Fire Guidelines (Industrial Risks) : 0.5% of TSI subject to
min. of Rs. 1 lac.
b) For risks in section III of Fire Guidelines (Non-Industrial Risks) : 0.5% of TSI subject to min. of
Rs. 25,000/-.

Section III: Dwellings, Offices, Hotels, Shops etc. located outside the Compounds of Industrial
/Manufacturing Risks
RULES:
1) The 'Buildings' and 'Contents' of risks rateable under this Section shall be rated 'per se'.
2) Stocks belonging to the insured stored in the open area adjacent to the insured's premises are held
covered.
3) Incidental operations such as grinding of lenses in optical frame shops, polishing and/or varnishing
in furniture shops, occasional repairs etc. are permitted.
4) For seasonal storage of crackers during the currency of the policy in ' Shops dealing in goods
otherwise not provided', a loading of 10% shall be charged on the rates applicable to 'contents'.
5) The presence of hazardous goods (as per list attached) not exceeding 5% of the total value of the
stock may be ignored.
6) The reduction in premium rates for deletion of STFI and /or RSMD perils at the inception of the
policy shall be as under: STFI Rs. 0.15%o, RSMD Rs. 0.10%o
7) Pump houses, garages, compound walls and ancillary equipments and / or other utilities at the above
occupancies shall carry the respective occupancy rate.
8) Detached / Segregated block(s) within a risk which are protected by automatic sprinkler installations
with their own independent pumping arrangements, as per the Specifications for sprinkler
installations shall be allowed 5% reduction on the basic rate(s).
9) Long Term Policy For Dwellings: -
Long Term Policies shall be issued to house / flat owners only based on either of the following 2 methods
subject to the conditions below:
a) The policy shall be issued for a minimum period of 3 years. (Maximum no limit)
b) Refund on cancellation of Long term Policy at the request of the insured may be allowed subject to
the following conditions: (No refund as per Tariff), But as per guideline:-
i. No refund shall be allowed if there has been a claim under the policy.
ii. If the policy is cancelled within 3 years of inception, the premium to be retained shall be worked
out as per normal rates applicable - that is without allowing any discount.
iii. If the policy is cancelled after 3 years of inception, the discount slab shall be reworked for the
number of years the policy was actually in force. For this purpose fraction of a year shall be
rounded to the next higher year. For example if the policy has run for 3 years and 3 months,
premium shall be retained for 4 years.
iv. Refund, if any, shall be subject to the retention of minimum premium of Rs.50/- as provided under
Rule No.6 of Section I of Guidelines.
c) Mid-term inclusion of perils shall not be allowed.
d) Premium for entire policy period shall be collected in advance.
Method A:
Premium shall be charged in full without any discount. However sum insured under the policy shall be
deemed to have increased by 10% of the original sum insured at the end of every 12 months period.
OR
Method B:
There shall not be any automatic increase in sum insured as in method A. However appropriate discounts
shall be allowable on applicable gross premium as per table:
N.B. :
1. Mid-term increase in sum insured shall be allowed on pro rata basis for the balance period.
2. No refund of premium is allowed in case of midterm reduction in S.I. considering the concessions
allowed on the premium for the same.
SECTION IV: INDUSTRIAL / MANUFACTURING RISKS
SCOPE:

Fire_Lop/14 of 25
Rates provided in this section are for the entire insured property in the same industrial compound i.e. all
process areas, storage areas, offices, utilities, miscellaneous blocks, pipelines, roads, compound wall, cables,
street light etc.
In cases where more than one product is manufactured in the same block, the highest rate applicable shall be
charged overall
If two or more factories are situated in the same compound or independent products are manufactured in the
same compound the manufacturing blocks shall be rateable `per se if located detached.
Auxiliaries/miscellaneous blocks/utilities and godowns / tank farms, pipelines, roads, compound wall etc. in
such cases shall carry highest rate of all such manufacturing blocks.
RULES:
1. Operations incidental to the main process shall be rated at par with the main process block(s) if such
operations are carried out inside the main process block(s).
2. Dwelling houses located inside the factory compound may be rated per se.
3. In case of any doubt, Underwriting offices may refer the matter to the Head office through proper
channel after charging a provisional rate as per General Rule 1 (f), Section I.
4. Detached / Segregated block(s) within a risk which are protected by automatic sprinkler installation
with its own independent pumping arrangements, etc. as per the specifications for sprinkler
installation shall be allowed 5% reduction on the basic rate(s).
5. The reduction in premium rates for deletion of STFI and /or RSMD perils at the inception of the
policy shall be as under: STFI Rs. 0.25%o, RSMD Rs. 0.10%o

SECTION V: UTILITIES LOCATED OUTSIDE THE COMPOUNDS OF INDUSTRIAL /


MANUFACTURING RISKS
RULES:
1. The reduction in premium rates for deletion of STFI and /or RSMD perils at the inception of the
policy shall be as under: STFI Rs. 0.25%o, RSMD Rs. 0.10%o
2. Detached/Segregated block(s) within a risk which are protected by automatic sprinkler installation
with its own independent pumping arrangements etc. as per the specifications for sprinkler
installation shall be allowed 5% reduction on the basic rate(s).

SECTION VI: STORAGE RISKS LOCATED OUTSIDE THE COMPOUNDS OF


INDUSTR./MANUF. RISKS
RULES :
1. Rates shown in this section shall apply to Buildings/Areas used for storage of materials
2. Operations such as packing/selecting/assorting/mending/stitching/ battery charging and like which
do not materially alter the nature of risk are allowed to be carried out in premises.
3. The presence of hazardous goods of higher category (as per Companys list of hazardous goods
booklet) not exceeding 5% of the total value of the stocks may be ignored.
4. Utilities and miscellaneous blocks shall be rated at Rs. 0.80%o.
5. The reduction in premium rates for deletion of STFI and /or RSMD perils at the inception of the
policy shall be as under
a) Materials in Godown: STFI Rs. 0.25%o, RSMD Rs. 0.10%o
b) Materials in Open: STFI Rs. 1. 50%o, RSMD Rs. 0.10%o
6. Incidental open storages up to 2% of sum insured on stock can be allowed when the risk is rated
under materials stored in godowns.
7. Detached / Segregated block(s) within a risk which are protected by automatic sprinkler installation
with its own independent pumping arrangements, etc. as per the specifications for sprinkler
installation shall be allowed 5% reduction on the basic rate(s).

SEC. VII: TANK FARMS / GAS HOLDERS LOCATED OUTSIDE THE COMPOUND OF
INDUST./ MANUF. RISKS
RULES:
1) The reduction in premium rates for deletion of STFI and /or RSMD perils at the inception of the
policy shall be as under: STFI Rs. 0.25%o, RSMD Rs. 0.10%o
2) All tanks located in the same dyke shall carry the highest rate applicable to any one tank overall.
3) Utilities and Miscellaneous blocks shall be rated at Rs. 0.80%o
Fire_Lop/15 of 25
4) Associated properties such as Pumping Stations, Compressor Houses, and Blower Houses etc. shall
be rated at par with the rate applicable to respective Gas Holders / Bullets / Spheres / Vessels /
Tanks.

PETROCHEMICAL TARIFF
Standard Fire and Special perils Policy shall be issued to cover manufacturing risks, storage risks and
miscellaneous blocks rateable under this Tariff.
1. Scope of Cover: This Tariff is applicable
a) For risks using Class A and/or Class B hydrocarbon/natural gas as basic raw materials and
b) Where the total sum insured in one compound/complex exceeds Rs. 50 crores and
c) The sum insured of plant(s) using hydrocarbon (Class A/Class B) /natural gas as basic raw materials is
in excess of 35% of the total sum insured of the risk.
Note 1 : Following types of risks are excluded from the scope of this tariff :
(a) Plants whose basic raw materials are not hydrocarbons although
the units constituting the plant may be manufacturing Class A/B hydrocarbons or further processing
them to make a final product
(b) Bottling plants of LPG and similar materials located outside the refinery premises.
2. Excess Clause:
This insurance does not cover 5% of the claim amount subject to minimum of Rs. 5 lakhs resulting from
each and every loss in Material Damage Insurance for all perils. The excess is applicable per event per
insured.
3. Definitions:
Plant: The physical equipment required to produce a principal product and the related by-products. A plant
may consist of one or more number of processing units to achieve the above objective.
Process Unit: Part of the plant that can be logically characterised as a separate entity with identifiable
boundaries separated from neighbouring areas either by a road or a stretch of land in which there are no
other processing equipment (like vessels, reactors, columns, pumps, compressors, etc.) excepting pipe racks
carrying process fluids from one block to another; and consisting of an integrated group of reactors, heaters,
furnaces and distillation columns together with their supports and enclosures, if any, and including related
appurtenances, compressors, control rooms, pumps, etc., all designed to perform an unified processing
operation.
Bulk Tankage/Tank Farms: Tanks or group of tanks for bulk storage of raw or finished products. These
shall not include intermediate tanks which are those tied on with the process flow of the plant. In case the
intermediate tanks are separated by an adequate distance from the plant as stipulated in this Tariff, they
should be treated at par with bulk Tankage.
Utilities or Auxiliaries: Plants such as Boilers, Water Pumps, Cooling Towers, Electric Generating Sets
and Substations, Air-conditioning or Refrigeration Units, Air or Inert Gas Compressors, Water Treatment
Plants, Effluent Treatment Plants and Air Liquefaction Plants shall be treated as Utilities or Auxiliaries.
Miscellaneous Buildings: Offices, Canteen, Mechanical and Electrical Workshops, Storage, Laboratories,
Bagging and Filling Stations, Fire Stations, Change Rooms and open storage.
Flash Point: The minimum temperature at which a flammable liquid gives off flammable vapour as
determined by means of Abel/Pensky Martin closed cup method unless otherwise specified.
Classification of Flammable Materials:
Class `A Products are those having flash point below and up to 23o C
Class `B products are those having flash point above 23o C and up to 65o C.
Class `C products are those having flash point above 65o C and up to 93o C.
Class `D products are those having flash point above 93o C.
Unstable liquids/ Gases: A liquid or gas may be termed as unstable if it has known characteristics of being
readily subjected to rapid chemical change under industrially approved storage or handling practices.
Examples are Ethylene Oxide, Acrylonitrite, Acrilene , Hydrogen Cyanide and the like. However,
substances which are subject to simple and harmless decomposition or polymerisation should not be
considered as unstable for the above purpose.
4. Silent Risks:

Fire_Lop/16 of 25
The risk shall be deemed to be `silent' only if all hydrocarbons/flammable materials/combustible materials
have been removed and it has been purged (i.e. all apparatus and piping have been thoroughly cleaned)
before the inception of the silent period and would continue to be so throughout the silent period, which
shall be at least a continuous period of 60 days.
5. Minimum requirements for granting cover:
a) Fire Protection: Plant area should be protected with hand appliances in accordance with Section 4
of the Fire Protection Manual and hydrant service complying with rules for Ordinary Hazard
Classification of Fire Protection Manual.
b) All hazardous storage areas and tank farms should be protected by hydrant service as above.
c) Electrical Installation throughout the premises should comply with Committees Regulations.

INDUSTRIAL ALL RISKS INSURANCE


1. Eligibility: All industrial risks (other than risks rateable under Petrochemical Tariff) having overall
Sum Insured of Rs.100 crores and above in one or more locations in India shall be eligible for
Industrial All Risks Policy.
2. Policy & Coverage: Policy consists of: Section I-Material Damage (MD) or Property Damage (PD) and
Section II-Business Interruption (BI)
The policy covers all risks/perils other than those which are specifically excluded. The cover in its widest
form will include the following perils/covers:
a) Fire and all Special Perils
b) Theft/Burglary
c) Machinery Breakdown/Boiler Explosion/Electronic Equipment Insurance
d) Business Interruption (Fire and all Special Perils) (FLOP)
The Machinery Loss of Profit (MLOP) cover is optional and can be included by deleting Special Exclusions
1.4, 1.5, 1.6 and 1.7 to Section II of IAR Policy.
3. Sum Insured:
a) The policy in so far as it relates to Buildings, Machinery, Furniture, Fixtures, Fittings &
Electrical Installations shall be on Reinstatement Value basis only, while the Stocks shall be
covered on Market Value basis. However, the facility of declarations for stocks shall not be
available under the IAR Policy.
b) The Policy shall be subject to condition of average. However, Under Insurance on each item of the
schedule will be ignored if it does not exceed 15% thereat.
c) Increase in Material Damage SI Premium shall be on pro- rata basis and decrease on short period
basis.
d) Business Interruption cover should be based on at least the previous years balance sheet.

4. Rates: Rates for this policy will be based on:


a) The detailed Risk Assessment Report of the Engineer.
b) Deductibles opted by the Insured
c) Claims Experience
Risk Assessment Report:
The Risk Assessment Report shall contain the following information:
a) Process details, b) Storage details, c) Operations, d) Maintenance, e) Electrical Installations,
f) Safety
g) Fire Protection, h) Security, i) Housekeeping, j) Probable Maximum Loss
j) Age of the Plant and general observations on the condition of the Plant.
k) Details of Claims Experience for all covers/perils.
l) History of natural hazards events at the locations viz. Earthquakes, STFI (Storms, Tempests,
Flood and Inundation etc. Group of perils) and Subsidence & Landslide
m) MLOP detailed inspection in the format given in Annexure VI - for Critical Machinery
identified.
n) Overall recommendations of the Engineer.
5. Compulsory Deductibles:
a) Material Damage (MD) claims: Deductible shall be 5% of the claim subject to
i. Minimum of Rs.5 lakhs up to SI 100 crore per location (MD + BI)
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ii. Minimum of Rs.10 lakhs for SI 100 to 1500 crore per location
iii. Minimum of Rs.25 lakhs for SI 1500 to 2500 crore per location
iv. Minimum of Rs.50 lakhs for SI above 2500 crore per location & Mega Risk Policies(>2500)
b) Business Interruption (BI) claims: Deductible shall be
i. Up to SI 2500 crore per location (MD + BI)
1. FLOP: 14 days of Standard Gross Profit(SGP) for Petrochemical risks, 7 days of SGP for
other than Petrochemical risks
2. MLOP: 14 days of Standard Gross Profit
ii. SI more than 2500 crore per location (MD + BI) and Mega Risk Policies (SI >2500 Crores)
1. FLOP: 14 days of Standard Gross Profit(SGP)
2. MLOP: 21 days of Standard Gross Profit
6. Voluntary Deductibles: Insured may opt for higher deductibles both for MD and BI claims for which
suitable discounts in Premium may be considered.
7. Clauses: Following clauses may be attached to the Policy by adjusting or providing additional Sum
Insured where applicable.
i. Agreed Bank Clause
ii. Architects', Surveyors' and Consulting Engineers' Fees Clause
iii. Designation of Property Clause
iv. Escalation clause
v. Omission to Insure Additions, Alterations or Extensions Clause
vi. Temporary Removal of Stocks Clause
INDUSTRIAL ALL RISKS INSURANCE POLICY
Section I - Material Damage:

The liability of the Insurer in respect of any one loss or in the aggregate in any one period of insurance shall
in no case exceed
a) As regards buildings, plants and machinery, furniture, fixture, fittings etc. the cost of replacement
or reinstatement on the date of replacement or reinstatement subject to the maximum
liability being restricted to the sum insured in respect of that category of the item under the policy.
b) As regards stocks the market value of the same not exceeding the sum insured in respect of that
category of item under the policy.
EXCLUSIONS: in two parts 1. Excluded clauses, 2. Excluded properties
Excluded Causes:
1. Interruption of the water supply gas electricity or fuel systems or failure of the effluent disposal systems
2. Collapse or cracking of buildings.
3. Faulty or defective design of materials, inherent vice, wear and tear.
4. Corrosion, rust, shrinkage loss of weight, contamination etc.
5. Larceny.
6. Dishonesty, inventory shortage.
7. Coastal or river erosion, normal settlement or bedding down of new structures
8. Willful negligence, cessation of work, loss of market.
9. War and war group of perils.
10. Nuclear group of perils.
11. Destruction of the property by order of public authority.

Excluded Property:
1. Money, cheques, securities of any description, jeweler, works of art, goods held in trust or on
commission, computer system records unless specifically covered.
2. Vehicle licensed for road use.
3. Property in transit outside the premises.
4. Property or structures in the course of construction, demolition or erection.
5. Land, Pavements, roads, runways, railways lines, etc. unless specifically covered.
6. Livestock, growing crops or trees.
7. Property damaged as a result of its undergoing any process
8. Property removed to other location for a period exceeding 60 days.
9. Loss payable to the property covered under marine policies.
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10. Property more specifically insured under any other policies.
GENERAL CONDITIONS: (Applicable to all sections)
Same as Standard Fire & Special Perils except condition of Average i.e. under insurance up to 15 % is
ignored.
Special Conditions to Section I:
Sums Insured: the sums insured stated in the Schedule shall not be less than the cost of reinstatement
which shall mean the cost of replacement of the insured items by new items in a condition equal to but not
better or more extensive than its condition when new.
The following items can be covered subject to amounts per item entered in the schedule:
1. Money and Stamps
2. Employees Pedal Cycle and other personal effects
3. Documents, Manuscripts and Business Records: only the value of stationery with the cost of clerical
labour expended in writing up and not the value of the information to the insured.
4. Computer System Records including in-built software: same as mentioned above
5. Plans and Designs: same as mentioned above.
6. Debris Removal
Section II - Business Interruption:
The Business Interruption cover as provided in the Consequential Loss of Profit is available under IAR.
1. Loss of Gross Profit following loss and / or Damage indemnifiable under Standard Fire & Special Perils
Policy and Burglary
2. Loss of Gross Profit following loss and / or Damage indemnifiable under Machinery Insurance, Boiler &
Pressure Plant Insurance or Electronic Equipment (optional cover)
Exclusions :
1.1 Any restriction on reconstruction or operation imposed by any public authority
1.2. Lack of sufficient capital for timely restoration or replacement of lost property
1.3. Suspension, Lapse or Cancellation of a lease licence or order
1.4. Damage to Boiler, Economizers, Turbine or other vessels resulting from their explosion / implosion
1.5. Damage to Electronic equipment, computer and data processing equipment
1.6. Damage resulting from corruption of information on computer systems or other records programs or
software, unless caused by Damage to the machine or apparatus (due to insured perils) in which the
records are mounted
1.7. Mechanical or Electrical breakdown or derangement of machinery
2. Deductibles as stated in the schedule
Basis of Insurance:
Cover is limited to loss of Gross Profit due to:
(a) Reduction in Turnover and
(b) Increase in cost of working
Basis of Settlement: The amount payable as indemnity will be -
(a) In respect of Reduction in Turnover =
Short-fall in Turnover (as compared to Standard Turnover) during the indemnity period multiplied by the
Rate of Gross Profit
(b) In respect of Increase in cost of working=
Reasonable additional expenditure incurred to avoid reduction in turnover
Less: any saving in Insured standing charges, subject to adequacy of sum insured (Average clause)

CLAIMS UNDER INDUSTRIAL ALL RISK POLICIES:


Claims under the industrial all risk policies will be dealt with as per the relevant section under which the
claim has arisen.

MEGA RISK POLICIES


The TAC has defined Mega Risks as under:
Where the threshold limit of probable Maximum Loss (PML) is Rs. 1054 crores or above at any location
OR
The Sum Insured at any location is Rs. 10,000/- crores and above.
Note:-
1. The formula of computing PML based on Swiss Re module to be considered.
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2. The group of companies under one management having units at different locations will also qualify as
Mega Risks, where the Companys products are inter dependent as inputs or outputs on one or both the
above criteria.
But now mega policies, are the ones with a sum assured of more than 2,500 crore.
Policy & Coverage: Mega risk policies are along the lines of the IAR policies but certain covers like Inland
Transit for consumables and spares are also packed in the same cover.
The sections of the policy are primarily:
1) All Risk Property damage section
2) Machinery Breakdown and Associated Engineering Risks.
3) Hull and Offshore Property like Jetty etc.
4) Loss of profit following Fire and Engineering Risks.
5) Cash in Transit and Fidelity guarantee if opted by the Insured.
6) Additional clauses or perils under Fire and Engineering policies are normally granted as part of the
cover for mega risk policies.
7) Property insured has to be on reinstatement value basis
Compulsory Deductibles:
High values in consonance with international levels and are higher than applied in the IAR policies.
EXCLUSIONS: in two parts 1. Excluded clauses, 2. Excluded properties
Excluded Causes:
1. Cessation of work
2. Failure of utilities like water, gas etc
3. Operation of plant beyond design of specification
4. Subsidence and settlement of soil
5. Normal wear and tear and Inherent vices of goods
6. Defective design
7. Leakage or overflow of contents
8. Loss of data, media and records
9. Seepage and pollution
Excluded Property:
1. Property or structures in the course of construction, demolition or erection
2. Vehicle licensed for road use
3. Goods in transit except for consumables and spare parts of machinery within India
4. Underground property unless specified
5. Offshore property unless specified
6. Cash, bullion and other valuables
Machinery Breakdown section specifies certain additional exclusion as under:
1. Losses those are recoverable under property damage section
2. Gradual deterioration
3. Willful overload of the machine
4. Consequential Loss of any nature
5. Willful neglect by employees
6. Loss or damage to consumables

SPECIAL CLAUSES:
The special clauses which are mentioned specifically in the policy are:
a) Minor alterations, construction or reconstruction or small additions or maintenance are held covered
up to a certain sub limit specified.
b) Capital addition to the extent of 5 % are automatically covered.
c) Deliberate damage to insured property to mitigate the pollution hazard (Though Pollution is
exclusion) is covered.
d) Shut Down and Start Up costs clause: Since mega risks are continuous plants, Shut down and Start
up is expensive and not covered under standard fire policy. But under Mega policy there is a specific
clause which accepts liability for payment of such expenses.

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e) Margin Clause: The policy covers increase or decrease in value up to 10 % without any adjustment
in premium.
f) Business interruption and Marine covers follow the respective policies.
g) Each proposal is rated on its merit in consultation with reputed international reinsurers.

FIRE CLAIMS
FIRE: fire is defined as actual ignition or burning, of property which is not or ought not to e on fire, under
accidental or fortuitous circumstances, so far as the insured is concerned.
The important ingredients in the definition are a) Ignition, b) Accidental
a) Ignition: The fire should be actual one. There should be ignition which means flame is a pre-requisite.
Thus mere damage by smoke, heating, scorching or charring without actual burning is not considered in a
fire. Similarly, damage caused by acid is not fire damage. Chemical burning is not considered to be
synonymous with burning by fire.
b) Accident: The ignition has to be fortuitous or accidental. But this applies only to the insured. If a third
party deliberately sets fire to the insured property it is still accidental so far as the insured is concerned,
provided the third party is not acting with the connivance of the insured.
PROXIMATE CAUSE: The classic definition of proximate cause is:
a) The active and efficient cause
b) That sets in motion a train of events
c) Which brings about a result
d) Without intervention of any force started and working actively from a new and independent source
POCEDURAL ASPECT OF THE CLAIM:
Claim intimation is to be given immediately on occurrence of a loss with estimated amount. In case, claim
intimation is delayed, proper clarification is required to be obtained. Further, amount of loss is not
ascertainable instantly; the sum insured of the affected property may be the point of consideration for the
purpose of appointment of surveyor.
1) On receipt of claim intimation, the first step is to examine the policy from the underwriting point of
view to confirm the acceptance of liability under the policy.
2) After the Claim is registered and claim no. is allotted a claim form is issued to the insured for
completion and return.
3) Then a surveyor is appointed based on the estimated amount of loss declared (In-house survey up to
Rs.20000/-) and the surveyor should be furnished with a copy of the claim form and policy.
4) In case of large losses the insurers officials should visit the loss site and it is necessary to intimate
the reinsurers the details of the loss.
5) After completing his initial investigation, surveyor submits a preliminary/interim report (Generally
in case of large losses and for considering On-account payment) mentioning date, situation, cause
and preliminary estimate of the loss.
6) Eventually the surveyor will submit his final report on loss assessment.
ON ACCOUNT PAYMENT TO BE MADE: Under the following circumstances
a) Pending final assessment of a claim in case of large losses, an On Account payment may be
considered subject to confirmation of the following:
b) Loss due to occurrence of a peril covered by the policy.
c) The establishment of liability leaves no doubt.
d) The minimum liability based on assessment on market value basis (in case of Building, P&M and
accessories) that arises under the policy has been specifically examined & stated by the surveyor in his
preliminary or interim report.
PROCESSING & SANCTIONING OF CLAIMS:
1. On receipt of final survey report, the same along with all supporting documents are scrutinized
The documents generally required for processing fire claims:
i. Copy of the policy complete with term, conditions and warranties
ii. Section 64VB compliance confirmation
iii. Claim form duly completed by the insured
iv. Survey report which should include:
a. Occurrence of loss
b. Indication of the cause of loss
c. Establishment of liability
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d. Assessment of loss
e. Confirmation of compliance of policy terms, conditions and warranties
f. Admissibility of the claim
g. Photographs
h. Police Report*, Fire Brigade Report * and News Paper report*
(*these reports may be waived if the survey report is clear and does not cause and doubt)
i. Where the incident is localized, not reported in the media, the surveyor should enquire about the
incident from local government/statutory authorities.
2. On scrutiny of all documents the claim is sanctioned by the competent Authority if everything is in order
and thereafter a discharge voucher is sent to the insured for his/their signature (In case of Agreed Bank
Clause Banks signature is final). Then a cheque is to be drawn in favor of the insured.
3. Before sending the cheque Condition No 15 is to be applied and the additional pro-rata premium is to
be deducted from the net claim payable unless the insured notifies that he does not desire to reinstate the
sum. The SI then stands reduced by the amount of claim.
4. On settlement the payment is recorded in the claim file, claim register and co-insurers, if any, advised
with a copy of survey report. The U/W department may be suitably advised to take a note of the nature and
extent of loss for action to be taken in future. In case of a large loss the co-insurers may be consulted and a
prior approval may be obtained.
DISPOSAL OF SALVAGE:
The term salvage means
a) All property covered by insurance, which escapes the destruction or damage from the operation of
insured peril.
b) The residual value of the property, which is partially damaged. The property may be reconditioned
or sold in order to determine the amount of loss.
In some cases the insured may decide to retain the salvage in which case a value is fixed by the surveyor
and the amount is adjusted in the claim (Net of Salvage claim). But in many cases it is not possible due to
various reasons like Insured offers less price, Lack of space of insured, mixing up of salvages of more than
one insured and possibilities of salvage being included in future claims. In these cases the salvages are to be
sold off by the insurers by the methods such as through the Insured, Private Sale, By Tender and by Public
Auction.
When the surveyor is required to undertake reconditioning and sale of salvage on behalf of the
Account/interest concerned, he may be paid fees and actual expenses maximum up to 5% of value realized.
CLAIMS ASSESSMENT:
Market Value Basis:
1. Gross Loss
2. Less: Depreciation (Not applicable for Reinstatement Value Basis & for stock)
3. Less: Salvage
4. Gross Assessed Loss
5. Less: Under Insurance
6. Less: Excess.
7. Net Loss Payable.
CLOSE PROXIMITY CLAIM:
Detailed investigation should be initiated immediately when a loss is a close proximity claim (i.e. when the
claim occurs within 5 days of from the date of inception of the risk or renewal after the break). Reference is
to be made to R.O. along with underwriting details to verify the close proximity aspect.
NON STANDARD CLAIM: Generally claims are not payable if there is a breach of warranty (is a
condition which forms part of the contract) and a strict enforcement may cause hardship to the insured. In
practice, therefore, insurers will usually waive a breach of warranty, if such breach is merely of a
technical in nature and has not caused or contributed to or aggravated the loss. The loss is treated as a
non-standard claim and settled according to certain guidelines adopted by insurers.

EX-GRATIA SETTLEMENT: Ex-gratia payments are


1) Those made as an act of grace and the payments are linked to expenditure upon an advertisement.
2) Outside the terms of the policy and therefore is not subject to the principle of subrogation.
3) Not recoverable from reinsurer, unless reinsurance arrangements make provision for the same.

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4) Only a percentage of the total amount of loss and payment is subject to the approval of Board of
Directors. Such claims are paid without precedence.
WITOUT PREJUDICE: The words have the effect of leaving the question of ultimate liability under the
policy open. Taking such actions does not mean liability is admitted. Documents which are marked
without prejudice cannot be produced as evidence in court without the consent of the party concerned.
RECTIFICATION OF POLICY AFTER A LOSS:
1) Rectification of a policy after a loss is reported for reasons other than breach of condition/ warranty
can be done by the authority competent for settlement of the claim.
2) Where rectification involves collection of additional premium, the additional premium may be
charged only on the affected policy period in which the claim has arisen.

LOSS OF PROFIT (LOP) INSURANCE OR CONSEQUENTIAL LOSS (CL) ORBUSINESS


INTERRUPTION (BI)
Capital loss is protected by fire material damage policy, but trading loss is protected by fire loss of
profit policy (LOP).
The extension of LOP to Fire Insurance is known as FLOP (Fire Loss of Profit).
The extension of LOP to Engineering Insurance is known as MLOP (Machinery Loss of Profit).
The extension of LOP to Project Insurance is known as ALOP (Advance Loss of Profit).
SCOPE OF POLICY:
1) Net Profit: Margin of income over expenses (Loss of earning).
2) Standing Charges: These are overhead expenses such as salaries, taxes, interest, Electricity and
water charges etc., which continue to be incurred in spite of stoppage of business.
3) Increased Alternate Cost of Working: This is the abnormal expenditure incurred by the insured to
maintain the business as far as possible, at its normal level, so that the loss under net profit and
standing charges is avoided or at least minimized. For Example: Rent for temporary premises,
payment of overtime, hire of machinery, sub-contracting etc.
The indemnification under this policy is admissible only when the insurer admits the claim for material loss
or damage or destruction. Hence the insured must maintain a Material Damage Fire policy. (This is called as
Material Damage proviso of FLOP). Only exception is- when claim under MD policy is not paid
because it is within Excess.
PERILS COVERED:
Perils covered under C.L. policy shall be those covered under the material damage only. However some of
the perils covered under M.D. policy may not be included in C.L. cover.
DEFINITIONS:
T U R N O V E R: Money received or receivable for goods sold and services rendered in the course of
the business at the premises.
What does not fall under Turnover?
o Any sum receivable for the sale of redundant plant and machinery.
o Income from any source not insured under the policy. Example rental income from the tenants.
o Any other business carried out within the insured's premises or goods sold or services rendered but not
insured under the policy.
Turnover consists of the following three elements:
1. Variable Charge: These are expenses incurred in producing the goods (e.g. purchase of raw materials),
which vary in amount in direct proportion to the volume of business transacted.
2. Standing Charge: These expenses are fixed in amount irrespective of the volume of business. But in
LOP policy Insured Standing Charges are standing Charges opted by the insured and specified in the
proposal form and policy. Income tax and Profit are not coming under Standing Charges, whereas property
Tax and other taxes can be included.
3. Net Profit: Turnover minus variable and standing charges. (Gross Profit= Net profit + Stand. Charge)
I. ANNUAL TURNOVER:
It is the Turnover during the twelve months immediately preceding the incident. This is the most recently
recorded turnover before the fire occurs to interrupt business. It is not the Turnover taken from the Audited
accounts, as the figures shown in the Audited Final accounts must have become outdated.
II. STANDARD TURNOVER:
The Turnover during that period in the 12 months immediately before the date of incident, which correspond,
with the indemnity period. Example -Indemnity period for the restoration of the business disturbed is
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01.06.2001 to 30.10.2001 and this period is the period of interruption. The standard turnover for this purpose
means the turnover for a period from 1.6.2000 to 30.10.2000.
G R O S S P R O F I T: Net Profit + Standing Charges opted by Insured or in case of loss, Standing
Charges minus Net Loss. If all Standing Charges are not insured it is equitable to apportion the net loss over
those insured and those not insured. The Sum Insured of LOP is linked with loss of Gross Profit.
Example:
ITEMS BEFORE FIRE AFTER FIRE
Turnover 50,00,000 25,00,000
Production Cost (Variable Charges) 35,00,000 (70 %) 17,50,000 (70 %)
Standing Charges 10,00,000 (20 %) 10,00,000 (40 %)
Net Profit 5,00,000
Net Loss 2,50,000
Measure of Indemnity: Indemnity is the loss of Gross profit. In the above example variable charges
constitute 70 % of turnover. So Rate of Gross Profit =
Gross Profit (Net Profit + Standing Charges)
_____________________________________ x 100 = 30 %
Turnover
In LOP the Rate of Gross Profit is calculated for the financial year immediately before the date of loss.
Hence Indemnity in above Example = Rate of Gross Profit X Reduction in turnover = 7,50,000/- ( i.e. 30 %
of 25,00,000/-)
ADJUSTMENT CLAUSE:
Rate of G.P., Annual turnover and Standard turnover figures are to be adjusted if required for the
following:-
a) Trends
b) Variations
c) Special circumstances
PERIOD OF INSURANCE:
Period of insurance of LOP policy is usually in consonance with material damage policy. It runs and expires
almost simultaneously.
PERIOD OF INDEMNITY: (To be opted by the Insured from 3 months to 3 years)
The indemnity period commences with the date of damage and lasts till the business is restored to its pre-
damaged level or the period stipulated in the policy, whichever is earlier.
A consequential loss insurance policy insures earnings of the business lost during the indemnity period.
SUM INSURED: The Sum Insured is based on the gross profit of the business. A sum to be insured needs to
be drawn from the previous years accounts and an upward adjustment is done in such a way that takes care of
any future influence of inflationary factors. The Sum Insured should represent the Gross Profit of the indemnity
period. Where the Indemnity period is 12 months or less the SI should be the annual amount of Gross
Profit and where the indemnity period is 24 months the SI should be twice the Annual Gross Profit and so on.
GENERAL EXCLUSION:
1) Impact of under Insurance under fire MD policy.
2) Litigation cost
3) Difference between value of stock at the time of fire and value at the time of subsequent
replacement.
4) Loss of goodwill
5) Fines & Penalties
6) Cost of claim like Auditors Fees (Extension available)
7) Third party claim
8) Loss in recovery of debt due to destruction of records
9) Depreciation of undamaged stocks after a loss
10) War and allied perils
11) Pollution
12) Leakage/Contamination
13) Cold storage- damage to stocks due to change in temperature.
14) Loss due to mechanical/electrical breakdown (MLOP)
WAGES INSURANCE: Wages can be insured as per the following
As standing charges
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On separate item on annual basis
Separate item on period basis (pro- rata basis).
Separate item on Dual basis. (Advantages are Carryover of saving & Option to Consolidate)
Lay off and retrenchment compensation (Add on).
ADD ON COVER:
1) Auditors fees ( For claim purpose, not for Normal Audit fees which are insured as standing charges)
2) Earthquake
3) Terrorism
4) Spontaneous combustion
5) Spoilage cover
6) Premises in the Insureds own occupation (Insureds Property at other locations)
7) Damage at Suppliers & customers premises (Unspecified location and suppliers abroad are not
covered)
8) Electricity station, gas works, and water works
9) Lay off and retrenchment compensation (As per Industrial Dispute Act 1947, but not exceeding
wages payable, had no damage occurred. Under Insurance applicable. Excludes those employees,
whose remuneration is insured as a standing charge under gross profit. )
CLAIM PROCEDURE:
All most same as MD policy except
1. Particulars of claim supported by necessary evidence must be furnished within 30 days after expiry of the
indemnity period.
2. The company shall not be liable for any claim after expiry of 1 year from the end of Indemnity period or
if later, 3 months from the date on which payment shall have been made or liability admitted under MD
policy.
Compulsory Deductibles:
14 days of Standard Gross Profit (SGP) for Petrochemical risks,
7 days of SGP for other than Petrochemical risks

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