Saturday, July 11th 2020

Fundamental Principles In Every Insurance Cover

  1. Utmost Good Faith – The Contract of Insurance requires not only from the Insurer but also from the Insured the observance of Utmost Good Faith or Uberrimae Fidae. Both parties must disclose conditions affecting the risk and other material facts, as such shall be the basis of the agreements of the contracting parties. Failure of either party to declare in utmost good faith may avoid the contract.
  2. Insurable Interest – It is the relationship of the Insured to the thing that is subject of insurance, where the former would suffer loss, pecuniary or otherwise, in case of loss.
  3. Indemnity – The obligation of the Insurer to make good any loss or damage which the Insured has incurred, provided the cause of loss or damage and the thing are covered in the contract of insurance, within a given period of coverage.
  4. Subrogation – It is the substitution of the Insurer to the rights of the Insured after the former has paid or settled, in whole or in part, the supposed obligation of the latter to a third person.
  5. Premium – It is the consideration being required by the Insurer for undertaking to indemnify the Insured against loss, damage or liability arising from unforeseen, unknown or contingent event.
  6. Proximate Cause – It is the Responsible Cause of an event or happening. That cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result event or result would not have occurred.


Fire Insurance Defined

Fire Insurance is a contract whereby one (Insurer) promises, for a consideration (Premium) to indemnify another (Assured) for direct loss or damage of the latter’s property by fire or lightning.

Requisites of “FIRE”

  1. “Fire” must have flame or ignition of sustaining velocity
  2. “Fire” must be hostile
  3. “Fire” must be of accidental origin on the part of the insured
  4. “Fire” must be the proximate cause of the loss or damage


Sum Insured

It is the Insurer’s maximum liability and a basis on which the premium is calculated.

Who May Be Insured

  1. Absolute or Registered owner
  2. Part or Joint Owner
  3. Mortgagor or Mortgagee
  4. Lessor or Lessee
  5. Bailee – to whom property was entrusted

What May Be Insured

Building (completed/under construction)

Contents – Absolute or Registered owner; May include Stocks in trade, goods, merchandise, Machineries, Equipment, spare parts, accessories and tools, Business or household appliances, and Personal effects (except cash & jewelries)

Perils Covered

  • Perils Covered by Fire Insurance Policy Fire (subject to certain exclusions)
  • Lightning, whether fire ensues or not
  • Smoke or Scorching
  • Falling walls and the like
  • Damage by fire brigade or other competent authority in the discharge of their duty
  • Damage to property removed from a burning building in an effort to save it.

General Exclusions

  1. Inherent vice, process of decay war, invasion, act of foreign enemy, hostilities or warlike operations (whether war be declared or not) civil war, mutiny, civil commotion
  2. Insurrection, rebellion, revolution • Military or usurped power • Riot, Strike, malicious action
  3. Impact by vehicle, forest fire
  4. Earthquake, volcanic eruption, flood, inundation, windstorm, tempest, water damage, removal of debris, consequential loss
  5. Nuclear reaction, nuclear radiation

Special Perils (Extended Cover)

Some excluded perils can be covered by paying additional premium such as;

  • Earthquake Fire and Shock
  • Typhoon and Flood
  • Riot and Strike
  • Vehicle Impact/Falling Object
  • Bursting or overflow of water tank, apparatus or pipes
  • Explosion
  • Aircraft
  • Smoke

Other Forms of Fire Insurance Contracts

1. Declaration Policy – designed to cover large inventories of stocks which fluctuates from time to time.

2. Blanket Policy – This policy usually features a single amount of insurance as a ‘blanket’ cover for

a. the same kind of property in different locations.
b. different kinds of property in a single location.

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