III IC-57 cheat sheet

Fire insurance indemnifies direct physical loss or damage to insured property by fire, lightning, and explosion of gas or boilers used for domestic purposes; standard fire policies exclude special perils unless endorsed or bought as a package.

Insurable interest must exist at the time of loss for a fire claim (property insurance), not merely at inception; the insured must suffer actual pecuniary loss from the damage.

Indemnity principle: the measure is the cost of reinstatement less depreciation (actual cash value) unless the policy provides reinstatement/replacement basis; the insured cannot profit from a loss.

Average (underinsurance) clause: where the sum insured is less than the value at risk, the claim is reduced proportionally - Claim = Loss × (Sum Insured ÷ Value at Risk) - often subject to a minimum percentage condition.

Excess/deductible applies per occurrence and is deducted from the adjusted loss before applying the sum insured limit; some policies apply separate excesses per peril (e.g., higher windstorm or flood excess).

Proximate cause governs recovery: the dominant, effective cause must be an insured peril; if an excluded peril is the proximate cause, the loss is not recoverable even if an insured peril contributed.

Standard exclusions to test: war and nuclear risks, willful act/self-ignition by the insured, spontaneous fermentation or inherent vice, electrical short-circuit damage confined to the faulty item, and property insured elsewhere.

Subrogation: after paying, the insurer acquires the insured's rights of recovery against negligent third parties, limited to the amount paid and only after full indemnification of the insured; insured must not prejudice these rights.

Utmost good faith and disclosure: material facts affecting risk (occupancy, storage of hazardous goods, previous losses) must be disclosed; misrepresentation or non-disclosure permits avoidance of the policy.

Consequential loss (business interruption) covers loss of gross profit and increased cost of working following insured physical damage to property used by the business, not the physical damage itself.

Gross profit basis: Gross Profit = Net Profit + Standing Charges (fixed costs) insured for the indemnity period; turnover-based definitions must match the policy wording used.

Indemnity period runs from the date of damage until the business is restored to its pre-loss trading level, subject to the maximum indemnity period selected; it is not the repair period.

Rate of gross profit = (Net Profit + Standing Charges) ÷ Annual Turnover; applied to the reduction in turnover to establish the loss of gross profit.

Increased cost of working is payable only to the extent it reduces the loss of gross profit, subject to the economic limit: the extra cost must not exceed the gross profit saved plus any saving in insured standing charges.

Turnover definition usually excludes sales of capital assets and includes cash and credit transactions; output basis may replace turnover for manufacturing risks where sales data is unreliable.

Claims are usually subject to an initial waiting period (time excess) and to average where the sum insured on gross profit is less than the declared annual gross profit.

Prevention of access, loss of attraction, and suppliers'/customers' extensions must be specifically insured; standard BI wordings do not automatically cover them.

Sum insured must reflect gross profit for the full indemnity period, not annual turnover; under-declaration triggers average and a shortfall in recovery.