FIRE CLAIMS PROCEDURE

• ON RECEIPT OF A CLAIM INTIMATION THE FIRST STEP IS TO VERIFY THAT:-

a. The policy is in force.b. The perils covered under the policy are the

same as the perils under which the loss is reported.

c. The items of properties affected & the location involved are the same as covered in the policy.

d. The interest involved is the same as referred to in the policy.

• After checking the policies, the claim is registered & a claim number allotted.

• After registration of the claim, a claim form is issued to the insured for completion & return. The claim form contains the following information:-

a. Name of the insured, policy number & address.

b. Date, time, cause & circumstances of the fire.c. Details of damaged property.d. Sound value of the property at the time of fire.

Where the insurance consists of several items, a declaration is required of the value of each item under which the claim is made.

e. Amount claimed after deduction of salvage value.

f. Situation & occupancy of the premises in which the fire occurred.( Location)

g. Capacity in which the insured claims, whether as owner, mortgage or the like.

h. If any other person is interested in the property damaged ( Insurable Interest).

i. If any other insurance is in force upon such property.(Contribution)

• If the amount of the loss is small within Rs.20,000/- ( Excld. LOP) & the claim is simple & straightforward, it is investigated by an official of the company & thereafter, processed & settled on the basis of the claim form & investigation report.

• If the loss is known or expected to be large, then independent Loss Surveyors & Loss Assessors are assigned the job of investigation & report on, inter alia, the cause & extent of loss.

• After completing his initial investigation, the surveyor submits a preliminary report which indicate briefly:-

i. The date of loss.

ii. The situation at which the loss occurred & the details of occupancy at the time.

iii. The cause of the loss, if ascertainable.

iv. A preliminary estimate of the loss or damage.

v. Any other relevant information.

• There after a final report is submitted giving full details of the adjustment of the loss & the Surveyor’s opinion on the question of liability under the policy.

• This final report is scrutinized along with other documents &, if everything is in order, a discharge voucher is sent to the insured for his signature & return, on receipt of which a cheque in settlement is sent.

• This discharge voucher is to be signed by all the persons named in the policy as “the Insured”, & the cheque is drawn in favour of all the parties mentioned in the policy. If the policy contains the ‘Agreed Bank Clause’ discharge given by the bank is final & the amount of the claim can be paid directly to the bank.

• In very large losses,if the insured desires & the Surveyor recommends, payment of ‘on account settlements’ where the insured has already spent or is in the course of spending, on repairs, replacement, etc of damaged property. This course of action is taken where the liability under the policy is not in doubt and the preparation of the final survey report will take time for various reasons.

• Where very large losses are involved, the reinsurance arrangements provide for ‘cash loss settlements’. If the loss amount exceeds a pre-agreed figure, the insurers are entitled to recover the reinsurer’s share immediately on payment of loss to the insured.

• When the insurance is on a co-insurance basis, the Surveyor is appointed by the leading office. Each co-insurer is sent a preliminary advice of the claim followed by a copy of the final survey report which would indicate the apportionment of the loss among the co-insurers, & each co-insurer would send the cheque for his share of the loss directly to the claimant. Alternatively, the leading office would settle the entire loss & recover the expenses & proportionate shares of the loss from the co-insurers.

• Arbitration

• This condition is inserted in the fire policy which insists on reference to arbitration any dispute as to the amount of settlement of claims.

• The salient point of this condition are:-

i. Difference in respect of quantum (amount) of claims are to be referred only to arbitration.

ii. Matters involving the liability under the policy cannot be referred to arbitration.

iii. A single arbitrator is to be appointed in writing by the insured & the insurer.

iv. If the Insurer/insured cannot agree upon a single arbitrator then two arbitrators may be appointed in writing, one arbitrator by the insured & the other by the insurer, within two calendar months.

v. If either insured or insurer fails to appoint the arbitrator the other party is at liberty to appoint, a sole arbitrator.

vi. If there be any disagreement between the arbitrators the difference is to be solved by Third Arbitrator appointed by the arbitrators. The THIRD ARBITRATOR decision is final & binding.

vii. The provision of Reconciliation & Arbitration act 1996, as amended from time to time is applicable.

• Condition Of Limitation

• The liability of the insurer for any loss ceases after expiry of 12 month from the date of loss, unless the claim is subject of pending legal action or arbitration.

• If the liability for any claim is disclaimed by the insurer & the insured has not filed a suit in court of law, within 12 calendar months from the date of disclaimer then the claim is deemed to be abandoned & cannot be recovered thereafter. In other words, the claim becomes time-barred.

• Rights & Duties Of Insured• This condition lays down the duties of the

Insured in the event of loss or damage & the procedure to be followed by him:-

a. Immediate notification of loss to insurers.b. Submission of written statement of the claim

within 15 days of loss giving full particulars of loss or damage & of property affected & details of other insurers covering the same property against the same peril.

c. Submission of all reasonable information & proof in respect of the loss at Insured’s own expenses.

d. Declaration of oath about details furnished.

• Rights Of Insurer

• Under the condition, the insurer, on the happening of the loss, is having rights.

a. To enter, take & keep possession of the premises where the loss has occurred.

b. To take possession of or require to be delivered to them any insured property on the premises at the time of loss.

c. To deal with such property by way of removal, sorting, examination, etc.

d. Sell such property for account of all concerned.

• The condition specifically provides that the exercise of these power does not diminish the insurer’s rights to rely upon any of the conditions of the policy to repudiate liability.

• The condition also provides that all benefit under the policy shall be forfeited if the insured or any person on his behalf (1) shall not comply with the requirements of the insurers; or (2) shall hinder or obstruct the insurers in the exercise of their powers.

• The condition provides that the insured has no right to abandon the property of the insurers whether taken possession of by the insurers or not.

• If some property is saved from loss i.e. Salvage Salvage the value of such Salvage is deducted from the amount of claim. Even if the Salvage has no value & a total loss settlement is made the Insured cannot abandon the salvage.

• Miscellaneous Legal Aspects

• The doctrine of estoppels is closely connected with the doctrine of waiver. Estoppels is the legal bar raised by a person’s own action against asserting a right that he once possessed, or making a choice that once was open to him.

• For example:- If the insurer has sought to fix the amount of the loss through arbitration, it is Estopped from exercising its operation to repair or replace.

• In this context, the insurer has the right to enter & keep possession of the insured premises where there is a fire.

• If insurers exercise these rights, it may lead to the conclusion that a valid claim has been made & that all that is required is to fix the amount of loss.

• By taking & keeping possession of the premises, the insurers may be Estopped from contending that the claim is invalid through non-compliance with some condition of the policy. E.g. failure to furnish proofs amount of loss in the form of vouchers, receipts etc.

• Therefore, the condition is so worded as to eliminate the question of Estoppels. The condition provides that the exercise of the powers by the insurers under this condition shall not impose any liability upon the insurers or affect their right to rely upon any condition of the policy.

• Amount Recoverable

• The sum insured is the maximum limit of payment & does not necessarily mean that it will be payable even in the event of a total loss of the subject matter.

• The operative clause of the fire policy states that “the company will pay to the insured the value of the property at the same time of happening of its destruction or the amount of such damage or at its option reinstate or replace such property or any part thereof, provided that the liability of the company shall in no case exceed in respect of each item the sum expressed in the said schedule to be insured thereon or in the whole the total sum insured hereby, or such other sum or sums as may be substituted thereof by memorandum hereon or attached hereto signed by or on behalf of the company.

• The extent of indemnity is therefore subject to two main limitations:

• (1)Value of the subject matter of the insurance affected. The value is calculated taking into account the following factors:-

a. The value at the time of loss.

b. The value at the place of loss.

c. The real or intrinsic value excluding any sentimental value.

d. Prospective profit or other consequential & indirect losses are excluded.

• (2)The sum insured under the policy for the affected item.

a. The extent of the insured’s insurable interest of the property affected. In case the interest of the insured is limited to only a portion of the property damaged, the indemnity will be paid only to the extent of the insured’s interest in such property.

b. The extent of value of salvage. In some cases valuable salvage may be available for disposal. The loss amount then will be settled with the insured after deduction of salvage value of the affected property.

• Salvage

• It is necessary to take into account salvage while setting the claim for the enforcement of the Principle of Indemnity. Salvage has acquired different meanings in insurance practice. The term is used to mean:-

1. All property covered by insurance which escapes destruction or damage from the operation of an insured peril.

2. The residual value of property which is partially damaged. This property may be reconditioned or sold in order to determine the amount of loss.

• The amount of money received from the sale of the damaged property. In fact this may be better expressed as proceeds from the sale of salvage.

• If the insured retains the salvage the loss is indemnified net i.e. the gross agreed amount of loss or damage, less the value of the salvage retained by the insured.

• Insurers may also take over the salvage if the insured is unwilling to retain it or unable to dispose it off. But the insured is not entitled to demand that the Insurer shall take over the salvage nor can abandon the property to the insurers.

• Excess:- This means the insured will have to bear a certain amount of the claim & in excess of this amount the insurer will have to pay.

• WHAT ARE WARRANTIES

• Warranties in insurance contract are stipulations imposed by the insurer because he wants to ensure that the risk remains the same throughout the currency of the policy and does not increase.

• A warranty is undertaking by the insured that:-

• 1)Something shall be done( e.g Cargo be packed in Double Gunny Bags)

• 2) Something shall not be done( e.g that in certain processes, no direct heat be applied)

• 3)A certain state of fact exists( e,g in burglary insurance that ao intruder alarm system is kept in good condition by regular servicing)

• 4)A certain state of the fact does not exit ( e.g.where no oils were stored and therefore not charged for in fire insurance it would be warranted that no oils be kept)

• Non – Standard Claims

• Where a breach of warranty or policy condition arises & where such breach is of a technical nature or is evidently beyond the control or knowledge of the insured or is not material to the cause of occurrence of the loss settlement is considered after rectifying the policy & collecting additional premium where due. In settling the claim, a deduction may be made from the assessed claim amount equivalent to the extra premium due for three years which have been charged had correct information been available originally.

• Where the breach is material to the loss or where an act of the insured has contributed to such a breach in such cases if the insured has acted with the best of intentions & has not consciously committed the breach or where the legal question of liability is in doubt payment may be considered on merit of each case up to a maximum of 75% of the assessed amount of loss.

• Ex – Gratia• Where there is a dispute with regard to the legal

interpretation of the policy condition or warranty or the scope of cover, the legal advisers may advise that considering the cost of litigation & chances of success, it is desirable to settle the claim by negotiation. Such settlements are termed Ex – gratia.

• There are also cases where the property damaged is either not insured or the policy does not cover the particular peril causing damage. The insured may be able to demonstrate that such absence of cover was purely through clerical error & that a well established practice exists to effect full insurance of all properties.

• Claim may be considered in respect of such exceptional cases on Ex –Gratia basis. Ex-gratia settlement may be considered upto a maximum of 60% of the assessed loss.

• Under Insurance ( Condition of Average)• To penalize the insured who does not insure property

up to its full value by a corresponding under payment of claim. This can be written into an equation as follows:-

• Amount Payable= SUM INSURED / X LOSS

VALUE AT RISK AT

THE TIME OF LOSS

Sum Insured Rs.5,00,000/-

Value at Risk Rs.10,00,000/-(On the date of Loss)

Loss Rs. 2,00,000/-

Amount Payable=5,00,000/10,00,000 X2,00,000

Rs. 1,00,000/-

• Concurrent & Non – Concurrent Policy• Concurrent policiesConcurrent policies are those which cover

only the same classes of property in the same situations & which do not include property which others do not cover. For example:- If Policy ‘A’ covers stocks in Godown for Rs.10,000 & policy ‘B’ cover stocks in the same Godown for Rs. 20,000 the policies are concurrent.

• Non – concurrent policiesNon – concurrent policies are those which cover part only of the property covered by other policies or property not covered by other It is essential however that there must be some property common to all policies.

• Example:- Policy A covers cotton bales

Policy B covers cotton bales & Kuppas

Policy C covers cotton bales, kuppas & loose cotton

Non-Concurrent Policies :-

The following example will illustrate the concurrent policies method i.e. splitting the sum insured:-

Total value at risk

On cotton Bales Policy A Rs.1,00,000

On cotton Bales Policy B Rs.50,000

On Cotton Bales Policy C Rs.50,000

Rs.2,00,000

• For an account payment surveyor may be asked to submit interim reports with recommendation & confirmation about the admissibility of liability & comments of observance of Warranties, Conditions & Probable quantum of loss.

• Processing of claims• Documents generally required for processing of

claims

1. Copy of policy

2. Survey report

3. Claim form duly completed

4. Police report Can be Waived

5. Fire brigade report. Do

• Police report & fire brigade report can be waived where survey report does not cause any doubt on the occurrence as well as extent of the loss.

• In riot losses if the occurrence is in the public knowledge final investigation report & fire brigade report can be waived (FIR is a must).

• Act of God Perils (AOG) claims• Newspaper cutting photographs & meteorological

report required• If incident is localized (Not in newspaper nor

recorded by meteorological department) incident should be confirmed from local Govt./ Statutory authorities & support the description of the occurrence & the exact loss by photographs.

• While processing the claim attention may be paid to the protection of recovery rights, concurrent policies & financial institute clause.

• Disposal of salvage should be done on priority basis for & on behalf of the concerned parties even if the liability of claim is under consideration.

• Settlement of claims where all records required for the assessment of claim destroyed

• Wherever possible duplicate accounting records & other evidence may be created.

• Records may be called for from extraneous agencies like

1. Creditors of the insured who have supplied the goods.

2. Bills drawn for sale of goods 3. In case of loss of fixed assets schedule of

fixed assets of previous audit may be obtained from auditors.

4. Previous sales tax return, previous income tax return & statement of stock lodged with the banks to arrive amount of loss.

• Settlement of such losses will be normally negotiated one.

Common Requirement for all types of Claim

ClaimsIntimation

PolicyClaimform

SurveyReport

Specific Requirements

Fire &explosion

ImpactDamage

Earthquake Fire

&/or ShockSFTI perils,Lightning

RSMTD

1.FIR2.FIRE

BrigadeReport

FIR

1.MeteorologiocalReport

2.In the absence of Meteorological

reportLocal bodiesa. Certificateb. Cutting of newspaper

Police Report

• Co – Insurance• A decision by the leader regarding claim settlement

shall be final & binding on the coinsurers.• The leader will intimate to the coinsurer details of

claim settled by him with copies of all relevant papers & documents.

• The coinsurer will settle his claim within 15days from the date of receipt of such intimation from the leader.

• In case of a claim requreing board decision the decision taken by the board of leader shall be binding on the coinsurers (no separate need for the coinsurer to approach their boards for decision in such claims)

• Close Proximity cases

• When loss occurs within 5 days of the date of inception of the risk (new insurance or where there has been a break) detailed investigation should be done.

• Rectification of policy after a loss is reported for reasons other than breach of condition/ warranty

• Where rectification involves collection of additional premium the additional premium may be charged only on the affected policy period in within the claim has arisen.

• Rectification can be done by the authority competent for settlement of claim.

• Repudiation of claims

• The competent authority to settlement claim would be the authority to repudiate the claim.

• Letter of repudiation may state the reasons &/or policy condition under which it is repudiated.

• Reopening of claim files

• Reopening of claim file can be done by the authority one step higher than the claim settlement authority.

THANKS

ANY QUESTION ???