In the event of a fire loss covered under the fire insurance policy, the Insured shall immediately give notice there of to the insurance company. Within 15 days of the occurrence of such loss the Insured should submit a claim in writing giving the details of damages and their estimated values. Details of other insurances on the same property should also be declared.

The Insured should procure and produce, at his own expense, any document like plans, account books, investigation reports etc. on demand by the insurance company.

Pro-rata Average Condition

If at the time of a loss, it is observed that the insured property is of higher value than the Sum Insured, the Insured has to bear the rateable proportion of the loss. Every item, if more than one, covered by the policy is separately subject to this condition.

For instance, a firm insures its building for Rs.10 lakhs and plant and machinery for Rs.20 lakhs. A fire occurs causing loss to plant and machinery and the damage is assessed at Rs.10 lakhs. The market value of the building at the time of occurrence of fire is assessed at Rs.5 lakhs and that of plant and machinery at Rs.25 lakhs.

The building is therefore over-insured, but the plant and machinery is under-insured if considered separately, as per the policy condition. Collectively, however, the market values of the assets are same as the value insured for. This does not give any advantage to the Insured.

Since plant and machinery is affected by the loss and its Sum Insured is under-insured by 20 percent in relation to the market value, the insurance company pays Rs.8 lakhs (i.e.80%) of the actual loss. The Insured has to bear a loss of Rs.2 lakhs for the under-insurance.

On the contrary if there was a loss to the building of say, Rs.2.5 lakhs, the insurance company would pay the full amount. Nothing extra is payable for over-insurance.

Contribution Clause

If at the time of loss or damage happening to any property hereby insured there be any other subsisting insurance or insurances, whether effected by the Insured or by any other person or persons covering the same property, the insurance company shall not be liable to pay or contribute more than its rateable proportion of such loss or damage.

For instance, a firm insures its finished goods stored in a warehouse for Rs.50 lakhs with X Insurance Company. Since the stocks are hypothecated to a Bank, they also insure the same property for Rs.30 lakhs with Y Insurance Company, thinking that the Insured has not insured them. There is a fire in the warehouse and the loss is assessed at Rs.10 lakhs.

In such a situation, X Insurance Co. pays 5/8th of Rs.10 lakhs that is Rs.6.25 lakhs and Y Insurance Co. pays 3/8th that amount to Rs.3.75 lakhs.

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