Fire Insurance Principles and Practice
What the exam tests
This domain tests whether you can apply the core principles of fire insurance to real claim facts, not just recite definitions. Questions often turn on insurable interest, indemnity, proximate cause, contribution and subrogation.
Core rules
- Insurable interest is a legally recognised financial relationship with the property. It must exist when the loss occurs; a person cannot insure a stranger's building and collect.
- Indemnity restores the insured to the pre-loss financial position. Betterment is not allowed unless a reinstatement value endorsement applies.
- Utmost good faith requires disclosure of material facts in the proposal and during the policy period.
- Proximate cause is the dominant, effective cause of loss, not merely the last event in the chain.
- Contribution applies when two or more policies cover the same interest, peril and loss. Each insurer pays its rateable share.
- Subrogation lets the insurer pursue third parties after paying the claim, but only to the extent of payment and not against its own insured.
- Average reduces the claim where the sum insured is less than the value at risk.
Worked example
Stock worth ₹50 lakh is insured under Policy A for ₹20 lakh and Policy B for ₹30 lakh, both covering fire. A fire causes ₹15 lakh loss. The policies are concurrent, so contribution applies: A pays 15 × 20/50 = ₹6 lakh; B pays 15 × 30/50 = ₹9 lakh. The insured recovers ₹15 lakh in total, not ₹15 lakh from each policy.
Traps
Do not confuse subrogation with assignment of the policy. Do not treat the nearest event in time as the proximate cause. Do not ignore average merely because the loss is below the sum insured. Do not allow consequential loss, such as lost profit, under a standard fire policy unless specifically insured.