BRIEF NOTES ON SOME USEFUL INSURANCE TERMS FOR NEW COMERS (Continued) 13.

IMPLIED CONDITION

Implied conditions are those which are taken as part of stipulation even if these are not mentioned and/or attached with the policy. For example: Utmost good faith, Insurable interest, existence of subject matter, identity of subject matter. 14. EXPRESS CONDITIONS Express conditions are those which are mentioned and/or attached with the policy in writing and are taken as part of stipulation. Refer all printed conditions mentioned in the back of standard fire policy form. 15. CAUSA PROXIMA (PROXIMATE CAUSE) Causa Proxima refers to proximate cause of loss. What is covered in the policy is cause of loss and at the time of each and every loss the cause of loss is established by the surveyors. To establish the cause of loss for the purpose of insurance certain rules are followed. What important is to find out proximate cause of loss which means a cause which set in motion the train of events which brings about the result without the intervention of any event acting from any independent source. According to the doctrine of proximate cause it is not necessary for a cause to be immediate antecedent of the effect. What is required of an event to be considered as a cause is that it should be so dominant a factor that its relation with effect is clearly established. Under this criteria loss caused by water which used to extinguish the fire will also be treated as loss by fire. Similarly if a part of building on fire is blown out by fire brigade In order to arrest the spread of fire the loss by so blown-out would fall with in the scope. 16. CONDITIONS AND WARRANTIES Contract of insurance is subject to various conditions and warranties, some are implied where as others are express. Conditions and warranties are stipulations and must be strictly complied with. Condition and warranty have different effect on the contract however e.g. the condition goes to the roots of contract and non-compliance of it may render a contract as void or voidable. Breach of warranty renders the contract as voidable at the option of the insurers. In some cases a breach of warranty affects the liability and not leads the contract as void. Insurers may avoid to pay a certain claim on breach of warranty but do not tend to let the contract void. But it depends. If the insured has no insurable interest in the subject matter of insurance the insurance contract would be void. 17. SUM INSURED The sum insured refers to the maximum limit of liability of the insurers and also taken as the basis of claim settlement. The sum insured should be adequate to reflect the full market value of the subject

matter at the time of fire. Under insurance may take place in case the sum insured falls short than the value at risk. The standard formula to apply average is LOSS X SUM INSURED/VALUE AT RISK. In case of non-concurrent policies another methods are applied to deal with prorate condition of average which is termed as independent liability method or splitting sum insured method. In case of re-instatement policy the case is dealt with differently. Value at risk refers to the prevailing market value at the time and place of loss. 18. POLICY A policy is a stamped document embodying the contract of insurance. The main contents of fire policy are listed below: HEADING, RECITALS, PREAMBLE, NAME OF THE INSURED, DESCRIPTION OF THE SUBJECT MATTER, SUM INSURED, INSURERS UNDERTAKING TO INDEMNIFY THE INSURED, THE CONDITIONS, EXCEPTIONS, PERIOD OF COVERAGE, RISK GRANTED, LOCATION, EXTENDED PERILS, ANY SPECIAL TERMS/CONDITONS AND WARRANTIES, DETAIL OF PREMIUM, DETAIL OF MORTGAGORS AND MORTGAGES, EXCESS OR DEDUCTIBLES, CLAUSES ETC. 19. DECLARATION POLICY This type of policy is granted to the insured against the stocks and intended to give an adequate cover at reasonable premium where the stocks quantum/value keeps on fluctuating regularly. This type of insurance is meant to avoid over insurance and over charge of premium. The insured declares maximum level of sum insured which is likely to be at risk during the period of insurance and Insurers charges usually 75% of annual premium initially. Insured is asked to send stocks declaration on monthly, weakly or daily basis through out the period of insurance. At the end of period the premium is adjusted on the average value at risk. 20. FIRE CLAIMS SURVEY In order to meet with the requirements of insurance ordinance 2000 and subsequent rules 2000 and 2002 when ever claim intimation is received a SECP License holder surveyor who holds a license in that particular class of survey, is appointed. The mandatory function of a surveyor is to examine the property, goods, or interest insured under a contract of non-life insurance to express an independent opinion as to the cause, extent, location and amount of any loss incurred or claimed to be incurred under that contract. By appointing a Surveyor the underwriters are relieved from all implications which could otherwise arise in course of direct interaction of insured with the insurers. After appointment a surveyor visit the site of loss for the purpose he is licensed for and obliged to submit the survey report without any delay after the completion of survey proceedings not later than 90 days which is mandatory. After completion of survey proceedings usually a letter of claim acceptance is obtained from the insured which is just an obligatory phenomenon and not mandatory which binds the insured, not the insures to accept the claim cheque of net loss as adjusted by the surveyor. It is stipulated that the insured would facilitate the insurers and surveyor by supplying all the relevant information/documents they so required with in a reasonable time.

In case of some complicated or big claims where extraordinary investigation or lengthy procedure is required the surveyor is usually required to submit his preliminary report. As soon as the course is completed final survey report is issued. To complete survey proceedings a surveyor is required to: a. Examine thoroughly the physical and documentary evidence of loss. b. Collecting physical and documentary evidence of loss. c. Capturing physical evidence of loss in shape of photographs/movie etc. d. Collecting samples for test etc. e. Assessing the quantum, nature, type, value and quality of subject matter. f. Assessing the prevailing market value of sound and damaged affected items. g. Assessing the value of salvage. h. Providing guidance to minimize the loss. i. Investigating the cause of loss. j. Observation of any breach of warranty/condition. k. Obtaining witness statements in detail and cross examining the witnesses. l. Collecting relevant information from independent agencies like Police, Fire brigade etc. m. Identifying the subject matter of insurance and insurable interest. n. Identifying the location. o. Assessing the value at risk. p. Making apportionment of loss among the co-insurers. q. Suggesting any improvement of risk to minimize the chance of future losses. Surveyor issue the report which is always subject to terms and conditions of insurance policy and admittance of liability by the insurers. 21. BUILDING CLASSIFICATION For assessment of any risk to be underwritten classification of building plays an important roll. Physically tough and buildings constructed with high standard of non-combustible or fire resistant material minimize the risk of loss specially spread of fire. Premium rate is also applied considering the class of building. More is the strength of building providing more resistance to fire spread less is the premium rate. Weaken building structure constructed with combustible material would create more risk and so higher rate of premium would be charged. A separate section is provided describing the classification of building at depth in the fire tariff which may be gone through. Five classifications are made as under: CLASS 1-A (FIRE PROOF) CLASS 1 (PUCCA AS MENTIONED IN TARIFF) CLASS 11 (ORDINARY) CLASS 111 (KACHA PACCA) CLASS 1V (KACHA) The premium rate goes on increasing starting from class 1A down to class iv. Class iv is the weakest construction structure and prone to high fire risk. The contents of such type of buildings are also prone to high risk of fire and other perils.

Here one important factor is to be discussed. It is not always necessary to have class 1 construction for safe risk in all cases because it depends on the occupation of building. For example if explosive is to be stored then the roof structure should be of lighter nature like CIS or CAS so that in case of fire the roof should be blown off without doing much damage to the surrounding property. The important portions of the building are roof and walls and then openings, stair cases, ventilators, doors etc which are to be considered in classification. Then the construction material and thickness of walls, roofs and separation. The detail is given in depth in the relevant portion of fire tariff which must be gone through. 22. SEPERATION Here the separation refers to partitions in stores, godowns, buildings, halls, compounds as well as separation of different type of items i.e. separating hazardous material from other and so on. Departments occupied for different processes, separation from process departments and storage areas, and separation of departments containing hazardous and non hazardous goods. Premium rates fluctuate keeping in view this point as well. There is a popular insurance term perfect separation or PPW (perfect party wall) which is constructed keeping in view a given criteria. A PPW is a 13 thick sold wall constructed with concrete or stone or burnt bricks properly bonded in cement, lime or mortar carried through the roof by 18 inches. All above arrangements are considered for safety and to arrest fire spread in the direction to minimize the loss. Insured and Insurers both take due benefits out of this. Any opening in PPW should be provided with a DFD (Double fire proof door). Specification is given in the tariff which is a steel door fabricated with steel plates and which should resist the fire for at least 6 hours. 23. GOODS-HAZARDS Goods hazards refer to the susceptibility of certain goods i.e. liquids, gases and solids to loss/damage and/or to create risk for surrounding property. Insurers are quite concerned with this phenomenon and certain rules/procedures are designed to cope with this type of risk associated with the process/storage of hazardous material. The subject of risk assessment deals with this issue in depth and rate of premium as well as acceptance of risk is subjected to this phenomenon. For goods hazards the goods are classified in to 3 classes and that are: a. Liquids b. Gases c. Solids LIQUIDS: - In case of liquids the deciding factor is FP, flash point of liquids which is to be determined in order to assess the element of risk. FLASHPOINT: - Flash point is defined as the temperature at which the flammable liquids would give sufficient vapors to form an ignitable mixture with air. Thereafter the deciding factor is ignition point which is defined as, temperature at which the liquid will ignite in the presence of heat/ignition source. With reference to above the liquids is classified in to 3 classes as under: -

a. Extra hazardous: - Where the FP is below 73 degree F b. Hazardous: - Where the FP is in between 73 & 150 degree F c. Non-hazardous: - Where the FP is above 150 degree F GAS Explosive range is the deciding factor for Gas. To explode a certain percentage of gas vapors are required to be present in the air. So the range in which that percentage of gas vapors reaches to the level that it would explode on introduction of any heat/ignition source that is termed as explosive range. SOLID The deciding factors to decide whether the solid is hazardous or not are as under: a. COMBUSTIBILITY AND EASE OF IGNITION: - like wood, cotton, paper etc. b. SPREAD AND INTENSITY OF BURNING: - Like loose ginned cotton and wood shavings. c. METHOD OF PACKING: - Goods wrapped in non-combustible material or combustible material decides the factor. d. EXPLOSION: - Substances which by nature have tendency to explode. e. INTERACTION WITH OTHER MATERIALS F. TOXICITY g. SPONTANEOUS COMBUSTION h. DIFFICULT TO EXTIGUISH FIRE: - Like fire in rubber etc. There are many substances which if ignited can hardly be saved by using water. 24. DEFINITION OF FIRE Fire for the insurance point of view means an actual and accidental ignition of something which not ought to have been on fire. Fire means combustion and combustion is a chemical reaction resulting in producing heat and light.

25. LOSS OF PROFIT INSURANCE The insured some times face losses due to interruption of business as a result of fire and allied perils which are termed as consequential losses and may be covered against loss of profit type insurance covers. Loss of profit insurance is to provide indemnity against loss of earning profit for a business enterprise due to interruption in business by fire. Consequential loss insurance also refers to above sort of covers.

QAYYUM PERVEZ MALIK