Fire insurance

1. Meaning

Section 2(6A) of the Insurance Act defines fire insurance business as the business of effecting, otherwise than incidentally to some other class, contracts of insurance against loss by or incidental to fire or other occurrence customarily included among the risks insured against in fire policies. A fire policy is a contract by which the insurer, for a premium, agrees to indemnify the insured against loss or damage to the property described caused by fire and the allied perils named, during the period of insurance, up to the sum insured.

For a loss to be “by fire”:

• there must be actual fire or ignition, not merely heat, smoke without fire, or scorching from a source that never ignited;
• the fire must be accidental or fortuitous as far as the insured is concerned. A fire deliberately started by the insured to destroy the property is not covered; a fire caused by his negligence is;
• the fire must be the proximate cause of the loss. Damage by water used to extinguish it, by firemen breaking in, or by removal of goods to safety is covered as a loss proximately caused by fire.

The fire must be “hostile” rather than “friendly” in the sense that a fire kept in its proper place (a furnace, a grate) which damages only what it was meant to heat is not an insured fire; but property that accidentally gets into such a fire and is burnt is covered.

2. The leading cases on “fire”

• Austin v. Drewe (1816). A sugar refinery was insured against fire. A register at the top of a chimney was negligently left closed, so heat and smoke from the furnaces were forced into the room where sugar was being processed, damaging it. Nothing caught fire outside the furnace. Held, no loss by fire: the fire never went beyond its proper place, and heat and smoke without ignition are not fire.
• Harris v. Poland (1941). The insured hid her jewellery in the grate of her fireplace for safety, forgot, and lit the fire. The jewels were damaged. Held, the insurer was liable: the property was damaged by fire, which was an insured peril, and it was immaterial that the fire itself was deliberately lit in a proper place, since the jewels were not meant to be in it. The insured’s forgetfulness was negligence, which does not defeat a fire claim.
• Everett v. London Assurance (1865). Damage from the concussion of a distant gunpowder explosion, without fire reaching the property, was held not a loss by fire. Standard policies now cover explosion separately.

3. Basic principles applied to fire insurance

• Utmost good faith: accurate description of the property, its construction, occupancy and the trade carried on, and earlier losses.
• Insurable interest at the time of loss, and normally at inception (owner, mortgagee, bailee, tenant). A shareholder has no interest in the company’s property (Macaura v. Northern Assurance, 1925).
• Indemnity: market value at the time of loss (or reinstatement value if so agreed), never more than the sum insured.
• Contribution, subrogation, proximate cause: see the Unit II notes.
• Average: if property is under-insured, the claim is reduced in the proportion the sum insured bears to the value at risk.

4. The standard fire policy: perils, conditions and warranties

For many years Indian fire business was written on the Standard Fire and Special Perils Policy. Since 1 April 2021, under IRDAI direction, smaller risks are covered by standard products: Bharat Griha Raksha for homes, Bharat Sookshma Udyam Suraksha and Bharat Laghu Udyam Suraksha for micro and small enterprises; the Standard Fire and Special Perils form continues for larger risks.

Perils usually covered: fire; lightning; explosion and implosion; aircraft damage; riot, strike and malicious damage; storm, cyclone, flood and inundation; impact damage; subsidence and landslide; bursting and overflowing of water tanks and pipes; missile-testing operations; leakage from automatic sprinklers; bush fire.

Usual exclusions: loss by the property’s own fermentation, natural heating or spontaneous combustion; burning by order of a public authority; war and nuclear risks; theft during or after the peril (unless covered); consequential loss (covered by a separate loss of profits policy); loss of bullion, jewellery, documents and similar items unless specifically declared.

General conditions found in fire policies:

• the policy is voidable for misrepresentation, misdescription or non-disclosure of a material fact;
• alteration of risk: any material change in the building, occupancy or trade increasing the risk must be notified, or cover ceases for the affected property;
• notice and claim: immediate notice of loss and a written claim with particulars within the time stated in the policy, with supporting documents;
• fraud: a fraudulent claim forfeits all benefit;
• insurer’s rights after loss to enter and take possession of the damaged property to minimise loss;
• reinstatement at the insurer’s option instead of payment;
• average, contribution and subrogation clauses;
• arbitration of disputes on quantum (where liability is admitted);
• cancellation by either side on notice, with return of premium on the stated scale.

Warranties in fire policies are express undertakings by the insured, such as that no hazardous goods will be stored, that a watchman will be kept, that fire-fighting equipment will be maintained. A warranty must be strictly complied with. An exclusion is construed strictly against the insurer, who must also bring it to the insured’s notice: Texco Marketing Pvt. Ltd. v. Tata AIG General Insurance Co. Ltd., 2022 INSC 1186, concerning a Standard Fire and Special Perils policy on a shop in a basement and an exclusion for basement risks.

5. Rights and duties of the insured

Duties: disclose material facts; pay premium in advance (s.64VB); comply with warranties; give notice of alteration of risk; take reasonable steps to minimise loss during and after a fire; give prompt notice of loss and inform the police where malicious damage is suspected; submit a claim with particulars and proof; allow the insurer and its surveyor access; not abandon the property to the insurer (there is no abandonment in fire insurance); not make a fraudulent claim.

Rights: to be indemnified for loss by an insured peril up to the sum insured; to recover costs of minimising loss and of removal of debris if covered; to a reasoned decision on the claim within the time IRDAI regulations allow, with interest for delay; to receive any surplus recovered by the insurer by subrogation beyond what it paid; to dispute the amount by arbitration or before the Ombudsman or a Consumer Commission; to cancel the policy and recover the proportionate premium.

6. Claims and the surveyor’s report

Section 64UM of the Insurance Act requires the insurer, before admitting larger claims, to obtain a report from a licensed surveyor and loss assessor, but its proviso preserves the insurer’s right to settle at an amount different from that assessed. The report is important evidence, not the last word.

• New India Assurance Co. Ltd. v. Pradeep Kumar, 2009 INSC 472, (2009) 7 SCC 787: the surveyor’s report is not binding on the insurer or the insured, and a consumer forum may depart from it on other reliable evidence.
• Sri Venkateswara Syndicate v. Oriental Insurance Co. Ltd., 2009 INSC 1071, (2009) 8 SCC 507: cotton stock was destroyed by fire. The Act does not prohibit appointment of a second surveyor, but the insurer must give satisfactory reasons for not accepting the first report.

7. Problems

(a) Sugar damaged by heat from furnaces (January 2026). A has insured his godown containing sugar against fire. The sugar is damaged by heat from furnaces. Is the damage covered? Issue: whether heat without ignition is “fire”. Law: a fire policy covers loss by actual ignition, accidental to the insured; heat or smoke from a fire kept within its proper place is not fire (Austin v. Drewe); standard policies also exclude loss by natural heating. Application: the furnaces burned as intended; nothing outside them ignited; the sugar was spoiled by heat. Conclusion: not covered under a fire policy. It would be covered only if the sugar or the godown had actually caught fire.

(b) Jewels burnt in the fireplace (June 2025). Mrs. Vaishnavi insured her jewels against fire, hid them in a newspaper in the fireplace, forgot and lit the fire. Is the insurer liable? Issue: whether loss in a deliberately lit domestic fire is loss by fire. Law: Harris v. Poland: property damaged by a fire it was not meant to be in is lost by fire; the insured’s negligence is no defence; only wilful destruction is. Application: the fire was lit for warmth, not to destroy the jewels; their burning was accidental from her point of view. Conclusion: the insurer is liable, subject to the sum insured and to any condition requiring jewellery to be specifically declared.

(c) Gunny stock and the National Commission (June 2025). Mr. Sharan insured his stock of gunnies for ₹50 lakh. The entire stock was destroyed by fire. The surveyor recommended payment higher than the policy value, but the National Commission, without relying on the surveyor’s report, awarded less than the policy amount. Can it do so? Issue: whether a consumer forum may award less than both the surveyor’s figure and the sum insured. Law: a fire policy is indemnity, limited by the sum insured and by actual loss; the surveyor’s report is important but not binding (Pradeep Kumar; s.64UM proviso), though it cannot be discarded without reasons (Venkateswara Syndicate). Application: the surveyor’s figure above ₹50 lakh is irrelevant because liability can never exceed the sum insured. If the Commission found on evidence (stock registers, purchase bills) that the actual value of the stock lost was less than ₹50 lakh, it could award that lower figure, but it had to give reasons for rejecting the surveyor’s assessment. Conclusion: yes, provided the lower figure is supported by evidence and reasons; otherwise Sharan should get the full ₹50 lakh, the surveyor having found a loss above that amount.

How this is examined

Essays: “Define fire insurance. Explain insurable interest in fire insurance” (January 2026); “Explain the rights and duties of the insured in fire insurance” and “Discuss the general conditions in a standard fire policy” (February 2025). Problems: (a), (b) and (c) above. Open every fire answer with the meaning of “fire” in section 1.