Short-Circuit Fire: Electrical Exclusion vs Insured Peril
A candle manufacturing unit has a Standard Fire and Special Perils Policy covering stock for a sum insured of Rs 50 lakh. The actual stock at risk on the date of loss is Rs 60 lakh. A wall-mounted electrical distribution board develops a short circuit; sparks ignite packing material stored below, and fire spreads through the stock room. The distribution board, its wiring and a nearby inverter are burnt. The insured claims Rs 18 lakh: stock Rs 12 lakh, distribution board and wiring Rs 3 lakh, inverter Rs 2 lakh, and Rs 1 lakh for loss of production for ten days. The policy has no business interruption or electrical installation add-on. The insurer's engineer recommends repudiation of the entire claim, saying electrical breakdown is excluded. The surveyor's investigation confirms the fire originated at the distribution board and spread to the stock; there was no maintenance contract for the board. The surveyor must separate what is covered from what is excluded.
1. Is the insurer's engineer correct to repudiate the entire claim on the ground of electrical breakdown? Apply the electrical exclusion and proximate cause.
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No. The SFSP electrical exclusion is limited. It excludes loss or damage to electrical machines, apparatus, appliances, wiring and cables caused by electrical or mechanical breakdown or short circuit. It does not exclude fire damage to other insured property. The proximate cause of the stock damage is fire, an insured peril; the short circuit is the remote cause. The exclusion must be read narrowly.
Therefore the stock loss of Rs 12 lakh is prima facie covered, subject to average and excess. The distribution board and wiring (Rs 3 lakh) are electrical apparatus and are excluded. The inverter (Rs 2 lakh) is an electrical machine and is excluded if damaged by the short circuit. Loss of production (Rs 1 lakh) is not covered because there is no business interruption add-on. A blanket repudiation is wrong.
2. Quantify the admissible claim and explain each exclusion.
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Stock loss: Rs 12 lakh. Sum insured Rs 50 lakh; actual stock at risk Rs 60 lakh; average = 50/60 = 5/6. Admissible stock loss = Rs 12 lakh x 5/6 = Rs 10 lakh. Less policy excess, if any.
Electrical items: distribution board and wiring Rs 3 lakh and inverter Rs 2 lakh are excluded under the electrical apparatus/machine exclusion. They are not 'other property' damaged by fire; they are the apparatus that failed.
Loss of production: Rs 1 lakh is excluded; the policy has no business interruption cover and no standing charges or profits cover.
Net admissible before excess: Rs 10 lakh. The surveyor should state that the insurer remains liable for the stock damage and should not repudiate the whole claim.
3. What evidence and reasoning should the surveyor include in the report on cause and damage separation?
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The report should include the fire brigade report, the electrician's inspection report, photographs of the distribution board and the stock area, witness statements, and the maintenance and testing history of the board. The surveyor should describe the origin and spread: short circuit at the board, sparks igniting packing material, fire spreading to stock. He should separate damage caused by the short circuit from damage caused by the fire.
He should quote the exact exclusion clause and explain why it applies to the electrical items but not to the stock. He should also record that no business interruption cover was purchased. This reasoning protects the insurer from an incorrect blanket repudiation and supports a defensible partial settlement.