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IRDAI Surveyor Fire (S-02) study materials
IRDAI Surveyor Fire (S-02) study resources

IRDAI Surveyor Fire (S-02) practice questions

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Question 1Fire insurance principles and practice

Under the principle of indemnity, what is the maximum amount a fire policy can pay for a total loss of a building worth ₹80 lakh insured for ₹60 lakh?

  1. ₹1.2 crore, twice the sum insured
  2. ₹80 lakh, the full market value of the property
  3. ₹48 lakh after applying average clause
  4. ₹60 lakh, the sum insured actually purchased Correct answer.

Explanation

Indemnity restores the insured to the same financial position as before the loss, but never beyond the sum insured. With a building worth ₹80 lakh insured for only ₹60 lakh, the policy cannot pay more than the ₹60 lakh sum insured, leaving the balance as the insured's own under-insurance risk.

Question 2Fire insurance principles and practice

In fire insurance, the term 'insurable interest' means that the insured must:

  1. Have paid the full premium before the risk commences
  2. Own the property in freehold title at the time of proposal
  3. Register the policy with the local fire authority
  4. Stand to suffer financial loss if the insured property is damaged or destroyed Correct answer.

Explanation

Insurable interest exists where a person derives pecuniary benefit from the continued existence of the property and suffers loss from its destruction. Ownership is one source of such interest but not the only one; a mortgagee, tenant or bailee can also insure.

Question 3Fire insurance principles and practice

Which principle prevents an insured from recovering twice for the same fire loss from two different insurers?

  1. Contribution Correct answer.
  2. Proximate cause
  3. Utmost good faith
  4. Subrogation

Explanation

Contribution operates among insurers who cover the same interest against the same peril, so that each bears its rateable share and the insured receives no more than the total loss. Subrogation, in contrast, concerns the insurer stepping into the insured's rights against a third party.

Question 4Fire insurance principles and practice

A fire policy covering a factory excludes damage caused by 'its own fermentation, natural heating or spontaneous combustion'. What is the purpose of such an exclusion?

  1. To avoid liability for losses arising from an inherent vice within the insured property itself Correct answer.
  2. To transfer liability to the local municipal fire brigade
  3. To exclude all losses occurring during the monsoon season
  4. To limit cover to buildings only, excluding machinery

Explanation

Inherent vice exclusions remove losses that originate from the internal condition of the insured property rather than from an external accidental peril. Spontaneous combustion, fermentation and natural heating are treated as predictable internal deterioration that the insured should control.

Question 5Fire insurance principles and practice

Under the standard fire policy wording, damage caused by a fire brigade in the course of extinguishing a fire is:

  1. Excluded, because the damage was not caused by flames
  2. Covered only if a separate endorsement is purchased
  3. Covered as damage resulting from a peril insured against Correct answer.
  4. Excluded unless the fire brigade admits negligence

Explanation

Standard fire cover extends to damage caused by the insured peril and by the steps reasonably taken to extinguish or contain it, including water and foam damage by firefighters. The loss is treated as proximately caused by the fire itself.

Question 6Fire insurance principles and practice

What does the 'average clause' in a fire policy do when the sum insured is less than the value of the property?

  1. It averages the premium over the policy period
  2. It splits the loss equally between insurer and insured regardless of under-insurance
  3. It increases the sum insured automatically at renewal
  4. It reduces the claim payment in the same proportion that the sum insured bears to the property value Correct answer.

Explanation

The average clause applies the ratio of sum insured to the value of the property at the time of loss, so an under-insured insured bears a share of every claim. It is a penalty for under-insurance rather than a fixed 50:50 sharing.

Question 7Fire insurance principles and practice

Which of the following losses would be payable under a standard fire policy covering a dwelling house?

  1. Damage to the structure caused by gradual settlement of foundations
  2. Damage to furniture caused by a lightning strike Correct answer.
  3. Damage caused by war or warlike operations
  4. Damage caused by a nuclear reaction

Explanation

Lightning is one of the named perils in the standard fire policy, and damage to contents from a lightning strike is payable. Settlement, nuclear risks and war are excluded perils under standard wording.

Question 8Fire insurance principles and practice

An insured deliberately sets fire to his own insured stock to claim the money. How does the principle of utmost good faith affect the claim?

  1. The claim is payable because the fire peril occurred
  2. The claim is payable only if the insured cooperates with the surveyor
  3. The claim is void and the insurer may repudiate liability for the fraudulent act Correct answer.
  4. The claim is payable at 50 per cent as a goodwill measure

Explanation

Utmost good faith requires honesty from both parties; a wilful act by the insured to cause loss is a fundamental breach that entitles the insurer to repudiate. Fraudulent claims are also barred under the policy conditions and general contract law.

Question 9Fire insurance principles and practice

A fire policy is issued to a textile mill for ₹5 crore. A fire causes damage assessed at ₹1 crore, but the surveyor establishes the property's value at the time of loss was ₹10 crore. What amount is payable if the average clause applies?

  1. ₹1 crore, the full assessed loss
  2. ₹5 crore, the sum insured
  3. ₹50 lakh, being the loss reduced in the ratio of sum insured to value Correct answer.
  4. ₹10 crore, the reinstatement value

Explanation

The average clause reduces the loss in the proportion that the sum insured bears to the value of the property: ₹5 crore ÷ ₹10 crore = 50 per cent of ₹1 crore, giving ₹50 lakh. This makes the insured bear the shortfall caused by under-insurance.

Question 10Fire insurance principles and practice

An insured has two fire policies on the same building: Policy A for ₹6 lakh and Policy B for ₹4 lakh. A loss of ₹5 lakh occurs. Under contribution, how much does Policy A pay?

  1. ₹5 lakh
  2. ₹3 lakh Correct answer.
  3. ₹2 lakh
  4. ₹4 lakh

Explanation

Contribution is rateable: Policy A bears 6/10 of the loss and Policy B bears 4/10. Policy A therefore pays ₹3 lakh and Policy B pays ₹2 lakh, so together they settle exactly the ₹5 lakh loss.

Question 11Fire insurance principles and practice

A fire at a warehouse is caused by an earthquake that toppled a heater, which then ignited packing material. The policy covers fire but excludes earthquake. How should the claim be treated under proximate cause?

  1. Payable only if the earthquake was of low magnitude
  2. Not payable, because earthquake is the proximate cause and is excluded Correct answer.
  3. Payable at 50 per cent as a compromise
  4. Payable, because the final damage was by fire

Explanation

Proximate cause looks at the dominant, effective cause rather than the last event in the chain. Where an excluded peril such as earthquake sets the chain in motion and fire is merely a consequence, the excluded peril is treated as proximate and the claim fails.

Question 12Fire insurance principles and practice

After paying a fire claim caused by the negligence of a contractor, what right does the insurer exercise under subrogation?

  1. It can recover from the insured's neighbours regardless of fault
  2. It can recover the amount paid from the negligent contractor standing in the insured's shoes Correct answer.
  3. It can cancel all other policies held by the insured
  4. It can retain the salvage and also recover the full amount from the contractor

Explanation

Subrogation gives the insurer, after indemnifying the insured, the right to pursue the insured's legal remedies against the party responsible for the loss. Recovery is limited to the amount paid and cannot exceed the insured's own rights.

Question 13Fire insurance principles and practice

A proposal for fire insurance conceals the fact that the godown stores fireworks. A fire later destroys the stock. What is the insurer's position?

  1. Liable, but only for the building and not the stock
  2. Entitled to avoid the policy for non-disclosure of a material fact Correct answer.
  3. Liable, because the fire peril is covered
  4. Entitled to pay the claim less a 10 per cent penalty

Explanation

The nature of goods stored is a material fact affecting the risk, and its concealment breaches utmost good faith. The insurer may avoid the contract and repudiate the claim, returning the premium where appropriate.

Question 14Fire insurance principles and practice

A fire policy contains a 'reinstatement of sum insured' condition. What does this condition provide after a claim is paid?

  1. The sum insured is automatically increased by 10 per cent
  2. The sum insured is restored on payment of additional pro-rata premium Correct answer.
  3. The sum insured remains reduced by the claim amount until renewal
  4. The policy is cancelled and a fresh proposal is required

Explanation

The reinstatement condition allows the insured to restore the sum insured to its original level after a loss by paying pro-rata premium on the amount restored. Without it, the sum insured stays reduced by the claim already paid.

Question 15Fire insurance principles and practice

In fire insurance, what is the significance of the 'declaration policy' for stocks that fluctuate in value?

  1. The insured declares the loss before the surveyor visits
  2. The insured declares the value of stock periodically and premium is adjusted to the declared value Correct answer.
  3. The insured declares all other insurance held on the property
  4. The insurer declares the sum insured at renewal

Explanation

A declaration policy suits fluctuating stocks: the insured pays a provisional premium on a maximum value and declares the actual stock value periodically, with premium adjusted accordingly. This avoids persistent over- or under-insurance of inventory.

Question 16Fire insurance principles and practice

A surveyor finds that a fire in a factory started from an electrical short-circuit. Which standard fire policy practice applies to loss or damage caused by short-circuiting?

  1. Damage by fire following a short-circuit is covered, though damage to the electrical apparatus itself by short-circuit is excluded Correct answer.
  2. All damage is excluded because short-circuiting is an electrical fault
  3. Cover is available only if a machinery breakdown policy is also held
  4. Only the electrical wiring is covered, not the surrounding stock

Explanation

The electrical exclusion in the standard fire policy removes damage to the apparatus caused by short-circuiting or other electrical failure, but a resulting fire is still an insured peril. Damage to surrounding property and stock from the ensuing fire is therefore payable.

Question 17Fire insurance principles and practice

What is the principal purpose of a fire survey conducted before acceptance of a large industrial risk?

  1. To fix the premium rate without reference to the insurer
  2. To satisfy a statutory requirement for all commercial buildings
  3. To assess the physical hazards, protection measures and loss potential so that terms can be decided Correct answer.
  4. To determine the market value of the insured's land

Explanation

A pre-acceptance fire survey identifies construction, occupancy, exposure and fire protection features, enabling the insurer to decide acceptance, rating and deductibles. It is a risk assessment exercise, not a valuation of land or a statutory formality.

Question 18Fire insurance principles and practice

A fire policy is issued with a 'replacement value' basis of settlement for machinery. How does this differ from indemnity value?

  1. It pays the cost of replacing the asset with a new one without deduction for depreciation Correct answer.
  2. It pays the original purchase price without any adjustment
  3. It pays only the scrap value of the damaged machinery
  4. It pays the written-down book value of the machinery

Explanation

Replacement value settlement pays the cost of replacing the damaged property with new property of similar kind, without deducting for depreciation, subject to the sum insured being adequate. Indemnity value, by contrast, deducts depreciation from the replacement cost.

Question 19Fire insurance principles and practice

An insured fails to inform the insurer that a fire-safe godown has been converted into a paint storage facility. A fire occurs and the insurer discovers the change. What is the likely consequence under the 'material change' condition?

  1. The claim is payable with a 25 per cent reduction
  2. The policy is automatically renewed on revised terms
  3. The claim is payable in full because the premium was paid
  4. The insurer may decline liability because the risk was materially altered without notice Correct answer.

Explanation

Fire policies require the insured to notify material changes in the risk, such as a change of occupancy increasing the hazard. Failure to do so entitles the insurer to decline liability for a loss arising from the altered risk.

Question 20Fire insurance principles and practice

Which of the following best describes the scope of the standard fire policy's cover for 'riots, strikes and malicious damage'?

  1. It is available only by a specific add-on cover with additional premium Correct answer.
  2. It is covered only for residential buildings
  3. It is included automatically in all fire policies
  4. It is implied by the fire peril itself

Explanation

Riot, strike and malicious damage are not part of the basic fire peril and are added by a specific extension on payment of extra premium. The extension is subject to its own terms and exclusions.

Question 21Fire insurance principles and practice

A building insured for ₹1 crore under a fire policy is totally destroyed, but a mortgagee bank also holds a separate policy on the same building. What principle governs the settlement between the two insurers?

  1. Contribution, because both policies cover the same interest against the same peril Correct answer.
  2. Utmost good faith, because the bank failed to disclose its policy
  3. Indemnity, because the insured must choose one policy
  4. Subrogation, because the bank can sue the insurer

Explanation

Where two policies cover the same insurable interest against the same peril, the insurers share the loss rateably under contribution. The insured cannot recover more than the actual loss, and the mortgagee's interest is protected within that limit.

Question 22Fire insurance principles and practice

A fire policy has a sum insured of ₹40 lakh on a building valued at ₹50 lakh, and the policy contains an 80 per cent co-insurance clause. A loss of ₹10 lakh occurs. How is the claim affected?

  1. The full ₹10 lakh is payable because the loss is below the sum insured
  2. The claim is reduced because the sum insured is below the 80 per cent co-insurance requirement of ₹40 lakh Correct answer.
  3. The claim is reduced to ₹8 lakh as a fixed penalty
  4. No claim is payable because the property is under-insured

Explanation

An 80 per cent co-insurance clause requires the insured to carry at least 80 per cent of the property value, here ₹40 lakh. Since the sum insured exactly meets that requirement, no co-insurance penalty applies and the ₹10 lakh loss is payable within the sum insured.

Question 23Fire insurance principles and practice

An insured's factory is damaged by fire, and the surveyor finds that the insured had failed to maintain the fire hydrant system as required by the policy's 'protection and preservation' condition. How does this affect the claim?

  1. The claim is payable only for the building and not for machinery
  2. The policy is void from inception in all circumstances
  3. The claim is payable in full because the fire was accidental
  4. The insurer may reduce or decline the claim to the extent the breach prejudiced its position Correct answer.

Explanation

Breach of a protection and preservation condition affects the claim only to the extent that the insurer has been prejudiced by the failure. The insurer may reduce or decline liability accordingly, rather than avoiding the policy from inception.

Question 24Fire insurance principles and practice

A fire policy covers a stock of timber. The insured also holds a marine cargo policy covering the same timber during storage at the port. A fire destroys the timber at the port godown. How should the two insurers settle?

  1. Each insurer pays half the sum insured regardless of the loss
  2. Both insurers contribute rateably to the loss because both cover the same interest against fire Correct answer.
  3. The fire insurer pays in full and the marine insurer pays nothing
  4. The insured must claim from the marine insurer first and then from the fire insurer

Explanation

Where two policies cover the same subject matter, interest and peril, contribution applies and each insurer bears its rateable proportion of the loss. The insured cannot recover more than the actual loss, and the order of claim does not change the rateable sharing.

Question 25Fire insurance principles and practice

A surveyor assessing a fire loss finds that the insured's stock records were destroyed in the same fire and the insured claims a stock value far above the pre-fire book figures. What is the surveyor's proper approach?

  1. Assess the loss from available independent evidence such as purchase invoices, sales records, bank statements and stock statements Correct answer.
  2. Reject the claim entirely because records are unavailable
  3. Accept the insured's figure because records were lost in the fire
  4. Apply a flat 25 per cent deduction to the claimed value

Explanation

Loss assessment must rest on the best available evidence, and the absence of stock records does not entitle the insured to an unverified figure. The surveyor reconstructs the stock position from purchase invoices, sales data, bank records and any stock statements filed with the insurer or lender.

Question 26Fire insurance principles and practice

Under the standard fire policy wording used in India, which peril is covered as a basic insured peril without payment of extra premium?

  1. Subsidence and landslide
  2. Burglary following forcible entry
  3. Lightning Correct answer.
  4. Deterioration of stock due to power failure

Explanation

The standard fire policy covers fire, lightning and explosion of gas used for domestic or lighting purposes as basic perils. Damage by subsidence, landslide, burglary and power-failure deterioration require separate covers or add-ons. Lightning is therefore payable under the basic premium itself.

Question 27Fire insurance principles and practice

In fire insurance practice, the principle of indemnity means that after a loss the insured should be placed in which position?

  1. The position he would have occupied if the loss had not occurred, subject to the sum insured Correct answer.
  2. A position equal to the reinstatement cost of the property irrespective of its actual value
  3. A better financial position than before the fire, because fire is a catastrophic event
  4. The position of the insurer, so that the insurer's loss is minimised

Explanation

Indemnity restores the insured financially to the position prevailing immediately before the loss, neither better nor worse. The sum insured is the upper limit of that restoration. Any settlement that leaves the insured better off offends the principle.

Question 28Fire insurance principles and practice

What is the main purpose of the 'condition of average' as applied in Indian fire insurance?

  1. To average the claim between the insurer and the insured on a fifty-fifty basis
  2. To average the premium over the policy period in equal instalments
  3. To penalise under-insurance by scaling down the claim in the proportion that the sum insured bears to the value at risk Correct answer.
  4. To average the loss among all insurers who share the same risk

Explanation

Average applies whenever the sum insured falls short of the value of the property at the time of loss. The claim is reduced in the same ratio as the sum insured bears to that value. This makes the insured share the burden of under-insurance.

Question 29Fire insurance principles and practice

Which document, prepared after inspection of a risk, records the occupancy, construction, protection and hazards of the property for underwriting fire insurance?

  1. The claim voucher
  2. The cancellation notice
  3. The premium register
  4. The survey report Correct answer.

Explanation

A survey report is the underwriter's factual picture of the risk, covering construction, occupancy, exposure and fire protection. It supports rating and acceptance decisions. The other documents relate to claims, accounts or policy termination.

Question 30Fire insurance principles and practice

In a fire policy, 'salvage' refers to which of the following?

  1. The discount allowed for good fire-protection features
  2. The value of damaged property that remains and is taken into account when computing the net loss Correct answer.
  3. The amount the insurer recovers from a reinsurer
  4. The commission paid to the intermediary on the premium

Explanation

Salvage is the residual worth of damaged property, which reduces the insurer's net outgo. The surveyor assesses it and it is deducted from the gross loss. It is distinct from reinsurance recoveries or rating discounts.

Question 31Fire insurance principles and practice

Which of the following terms in a fire policy describes the amount for which the property is actually insured under that policy?

  1. Reinstatement value
  2. Declared value
  3. Sum insured Correct answer.
  4. Assessed loss

Explanation

The sum insured is the limit stated in the policy for which premium has been paid. It caps the insurer's liability. Declared value and reinstatement value are bases of valuation, while assessed loss is the surveyor's quantification.

Question 32Fire insurance principles and practice

What is the effect of the 'contribution' clause when the same property is insured under two fire policies?

  1. Each insurer pays its rateable proportion of the loss so that the insured does not recover more than the loss Correct answer.
  2. The later policy is void and only the earlier policy responds
  3. The insured may recover the full amount from each insurer and retain the excess
  4. The insured must choose one policy and surrender the other

Explanation

Contribution requires insurers covering the same interest to share the loss rateably. This preserves indemnity by preventing double recovery. The insured may claim from any insurer, which then recovers shares from the others.

Question 33Fire insurance principles and practice

Under the standard fire policy, damage caused by the fire brigade while extinguishing a fire is treated in which way?

  1. It is regarded as damage by fire and is payable Correct answer.
  2. It is excluded because the brigade is a third party
  3. It is payable only if a special peril extension is bought
  4. It is payable only where the brigade acted negligently

Explanation

Damage inflicted by firefighters in the course of extinguishing a fire is treated as damage by fire itself. It is therefore within the basic cover. No separate extension or proof of negligence is needed.

Question 34Fire insurance principles and practice

A surveyor investigating a fire claim finds that the insured had insured a godown building and its contents under one policy but the policy schedule lists only the building. What is the surveyor's proper approach?

  1. Ignore the contents entirely and assess only the building damage without comment
  2. Settle the contents claim as an ex-gratia payment without reference to the insurer
  3. Reject the claim outright because contents are not mentioned
  4. Report the discrepancy and recommend that the claim for contents be dealt with according to the actual terms of cover Correct answer.

Explanation

The surveyor's role is to report facts and recommend, not to decide. A discrepancy between the schedule and the insured's expectation must be highlighted so the insurer can apply the policy terms. Silently ignoring it or deciding unilaterally both exceed the surveyor's mandate.

Question 35Fire insurance principles and practice

A factory insured under a fire policy suffers a loss when a boiler bursts, and the resulting fire damages adjoining machinery. How should the surveyor treat the machinery damage?

  1. The whole loss is excluded because the originating cause was a boiler explosion
  2. The whole loss is payable only if the insured held a machinery breakdown policy
  3. The fire damage to machinery is payable, while the boiler explosion damage itself needs consideration under the separate boiler cover Correct answer.
  4. The whole loss is payable as fire damage because a fire followed the explosion

Explanation

The standard fire policy covers damage by fire, including fire that follows an excluded event. Damage caused by the explosion of the boiler itself falls outside the fire cover and belongs to boiler and pressure-vessel insurance. The surveyor must therefore separate the two components.

Question 36Fire insurance principles and practice

While assessing a fire loss on stock, a surveyor finds that the insured had purchased additional stock shortly before the fire but had not increased the sum insured. Which principle will most directly affect the settlement?

  1. Subrogation, because the insurer steps into the insured's shoes
  2. Utmost good faith, because the stock purchase was not disclosed
  3. Proximate cause, because the fire's origin must be traced
  4. Average, because the sum insured is less than the value at risk Correct answer.

Explanation

When the value at risk exceeds the sum insured, the average condition scales down the claim proportionately. The purchase itself is not a non-disclosure because stock values normally fluctuate. Subrogation and proximate cause do not determine the quantum of an under-insured claim.

Question 37Fire insurance principles and practice

An insured whose factory is destroyed by fire continues to pay rent on alternative premises while repairs proceed. Under a standard fire policy without consequential loss cover, how is this rent treated?

  1. It is payable as part of the fire damage to the factory
  2. It is payable as salvage expenses incurred to reduce the loss
  3. It is not payable, because it is a consequential loss requiring a separate cover Correct answer.
  4. It is payable automatically as an agency cost of the insurer

Explanation

Additional rent for temporary premises is a consequential loss, not physical damage to insured property. The standard fire policy covers material damage only. Such costs need a specific consequential loss or business interruption extension.

Question 38Fire insurance principles and practice

A fire policy on a hotel is issued with an 'agreed value' endorsement. What does this endorsement achieve at the time of loss?

  1. It converts the policy into a valued policy for all future additions to the property
  2. It guarantees that any claim will be paid in full up to the sum insured regardless of the cause of loss
  3. It removes the need for the insured to prove the extent of damage
  4. It fixes the value of the property in advance so that the sum insured is accepted as the measure of value without further average Correct answer.

Explanation

An agreed value endorsement records a value accepted by both parties at inception, so the sum insured is treated as the value for average purposes. It does not alter the perils covered or dispense with proof of loss. The insured must still establish the damage suffered.

Question 39Fire insurance principles and practice

A surveyor finds that a fire started because the insured stored oily rags next to a furnace, in breach of a policy warranty requiring safe storage. What is the correct consequence?

  1. The insurer may repudiate liability because breach of a warranty entitles it to avoid the claim Correct answer.
  2. The claim must be paid in full because the breach was merely negligent
  3. The claim is payable but the premium is increased for the next renewal
  4. The claim must be reduced by the average clause only

Explanation

A warranty is a condition whose breach entitles the insurer to repudiate liability, whether or not the breach caused the loss. The surveyor should report the breach with evidence. Negligence is irrelevant where a warranty has been broken.

Question 40Fire insurance principles and practice

When a fire destroys part of a building, how does the surveyor normally quantify the loss for a policy written on a market value basis?

  1. The sum insured stated in the policy schedule
  2. Full reinstatement cost of the entire building without deduction
  3. Cost of repairs to restore the damaged portion, less depreciation for age and less salvage value Correct answer.
  4. Original purchase price of the building as shown in the balance sheet

Explanation

Under market value, indemnity is measured by the cost of restoring the damaged part, reduced for depreciation and salvage. The undamaged portion is not payable. Reinstatement cost and book value are different bases.

Question 41Fire insurance principles and practice

An insured under a fire policy on a shop suffers a loss when a neighbouring building catches fire and the heat scorches his stock without direct flame contact. How should the surveyor view the claim?

  1. The claim is not payable because there was no actual ignition of the insured property
  2. The claim is payable only if the neighbouring building was also insured
  3. The claim is payable only under a special perils extension
  4. Damage caused by the fire's heat is damage by fire and is payable Correct answer.

Explanation

Fire damage includes loss caused by the heat and smoke of a fire, not only by direct burning. The insured property need not itself have ignited. The neighbour's insurance status is irrelevant to the insured's own cover.

Question 42Fire insurance principles and practice

A fire policy is issued on a building that is mortgaged to a bank. The policy names the bank as loss payee. What does this arrangement mean for settlement of a claim?

  1. The bank must pay the premium in place of the owner
  2. The bank becomes the sole insured and the owner loses all rights under the policy
  3. The bank's interest removes the owner's duty to mitigate the loss
  4. The insurer discharges its liability to the extent of the bank's interest by paying the bank Correct answer.

Explanation

A loss payee clause protects the mortgagee's financial interest by directing payment to it to the extent of its interest. The owner remains an insured with continuing duties. Premium liability and mitigation obligations are unaffected.

Question 43Fire insurance principles and practice

Which of the following best explains why fire insurance policies in India are generally annual contracts subject to renewal?

  1. Reinsurance treaties are always written for exactly twelve months
  2. The risk and value of property change over time, so the insurer needs periodic reassessment Correct answer.
  3. Premiums are collected monthly and must be reconciled each year
  4. Fire insurers are prohibited by law from issuing policies longer than one year

Explanation

Fire risks are dynamic: occupancy, construction, protection and values change, so annual renewal allows re-underwriting. There is no statutory bar on longer-term policies, and premium and reinsurance cycles are separate matters. The rationale is underwriting control, not legal prohibition.

Question 44Fire insurance principles and practice

A surveyor is asked to assess a fire claim on a large industrial risk. Which of the following would most strengthen the credibility of the stock loss assessment?

  1. Acceptance of the insured's own estimate of stock at the date of fire
  2. Use of the previous year's balance sheet without adjustment
  3. Reliance on the sum insured as evidence of the stock value
  4. Reconciliation of purchase invoices, production records and sales with the stock declared Correct answer.

Explanation

Stock loss assessment relies on triangulating records: purchases, production, sales and opening stock. This reconstructs the stock at the date of fire independently of the insured's assertion. The sum insured is a limit and not proof of value.

Question 45Fire insurance principles and practice

What is the role of 'proximate cause' when a fire loss is preceded by a chain of events?

  1. It identifies the dominant, effective cause that sets the loss in motion and determines whether the peril is covered Correct answer.
  2. It identifies the most expensive cause so that the largest exclusion applies
  3. It identifies the last event in the chain, which is always the operative cause
  4. It apportions the loss equally among all causes in the chain

Explanation

Proximate cause is the efficient, dominant cause, not necessarily the last event in time. It decides whether the loss falls within an insured peril or an exclusion. Equal apportionment among causes is not the test.

Question 46Fire insurance principles and practice

A fire policy covering a warehouse is issued with a 'removal of debris' extension. What does this extension provide?

  1. It covers the cost of demolishing neighbouring structures to prevent spread of fire
  2. It covers the cost of removing undamaged stock to a safer location before a fire
  3. It meets the cost of clearing debris from the insured premises after a covered loss, up to the specified limit Correct answer.
  4. It covers the cost of removing a tenant who caused the fire

Explanation

A removal of debris clause pays for clearing wreckage and debris left by an insured loss. It is subject to a stated limit and does not extend to preventive demolition of other property or to pre-loss relocation. Eviction of a tenant is not an insurable property cost.

Question 47Fire insurance principles and practice

A surveyor assessing a fire loss finds that the insured had failed to operate the available fire extinguishers, allowing a small fire to become a large one. How should this be reflected in the report?

  1. The claim should be increased to compensate the insured for the loss of extinguishers
  2. The matter should be ignored because negligence is never relevant in fire claims
  3. The claim should be repudiated in full because negligence voids all fire cover
  4. The failure to mitigate should be reported, and the insurer may consider its effect on the loss under the policy conditions Correct answer.

Explanation

The insured has a duty to take reasonable steps to mitigate loss, and the policy usually contains a condition to that effect. The surveyor should report the facts so the insurer can assess the impact on the loss. Negligence of the insured does not automatically void fire cover.

Question 48Fire insurance principles and practice

In a fire insurance claim, what is the significance of the surveyor's 'assessment of loss' report being submitted within the time allowed by the regulations?

  1. It transfers the insured's claim to the surveyor for settlement
  2. It makes the insurer liable to pay interest automatically from the date of fire
  3. It fixes the sum insured for future renewals
  4. It enables the insurer to settle the claim within the statutory timeline after receipt of the report Correct answer.

Explanation

Indian insurance regulation prescribes timelines for surveyors to submit reports and for insurers to settle claims thereafter. Timely reporting keeps the insurer within the regulatory settlement period. The report does not transfer settlement authority or fix future sums insured.

Question 49Fire insurance principles and practice

An insured's building is insured on a reinstatement basis, but at the time of loss the insured decides not to rebuild. How should the surveyor assess the claim?

  1. On the market value basis, since reinstatement has not been carried out Correct answer.
  2. On the sum insured, since the insured has chosen not to rebuild
  3. On the original purchase price of the building
  4. On the full reinstatement cost, since the basis is stated in the policy

Explanation

Reinstatement cover presupposes actual rebuilding; if the insured does not rebuild, settlement reverts to the indemnity or market value basis. The policy basis is conditional on performance. Neither purchase price nor the sum insured measures the loss.

Question 50Fire insurance principles and practice

A fire policy has a 'designation of property' clause. What is the practical effect of this clause when the insured shifts stock between godowns covered under the policy?

  1. The clause restricts cover to the godown named in the schedule
  2. The clause requires the insured to obtain a fresh survey before every shift
  3. Each godown must be separately insured and any shifting voids the policy
  4. The sum insured is treated as a single amount covering the designated property at all locations, so shifting does not create under-insurance at any one site Correct answer.

Explanation

A designation of property clause allows the sum insured to float across the locations specified, treating them as one risk for average purposes. This avoids under-insurance at a particular site. It does not require fresh surveys or void the policy on shifting.