Property and Fire Insurance Claims
This domain covers the fire and property portfolio: whether a fire is a "fire" in the policy sense, which extensions respond, how stock and buildings are valued, and how average, salvage and business interruption interact in the final figure.
Cover analysis
- A standard fire policy responds to fire, lightning and explosion, with extensions for riot and strike, storm and flood, impact, burglary and sprinkler leakage on separate terms.
- "Fire" requires actual ignition, be it accidental or fortuitous and not the insured's deliberate act: scorching without ignition is not fire.
- Proximate cause decides; a fire following a burglary is assessed on the fire peril, not the theft peril, unless theft cover exists.
Quantum
- Establish the basis of settlement: indemnity (depreciated), reinstatement, or agreed value. Reinstatement conditions usually require repair on the same site within a stated period.
- Average applies where the sum insured is below value at the date of loss. Stock is normally valued at cost price; machinery at market value or reinstatement depending on the basis.
- Credit salvage to the insurer, deduct the excess, and pay debris-removal and professional fees only where the wording includes them. Business interruption is a separate section with its own sum insured, indemnity period and increased-cost-of-working provision.
Worked example
A factory insured for 500m has a value of 600m; fire damage is 120m, salvage 5m, excess 2m, on a proportional basis. Average: 120 × (500/600) = 100m; less salvage 5m; less excess 2m = 93m payable.
Traps that cost marks
- Ignoring average because the loss is below the sum insured.
- Treating lost profit as direct fire damage with no BI extension.
- Forgetting that parts of stock may be undamaged and saleable.
- Applying reinstatement when the policy is on indemnity terms.