Fire Insurance

This book is a part of the course by Jaipur National University, Jaipur.This book contains the course content for Fire Insurance.

JNU, JaipurFirst Edition 2013

The content in the book is copyright of JNU. All rights reserved.No part of the content may in any form or by any electronic, mechanical, photocopying, recording, or any other means be reproduced, stored in a retrieval system or be broadcast or transmitted without the prior permission of the publisher.

JNU makes reasonable endeavours to ensure content is current and accurate. JNU reserves the right to alter the content whenever the need arises, and to vary it at any time without prior notice.

I/JNU OLE

Index

ContentI. ...................................................................... II

List of FiguresII. ..........................................................VI

List of TablesIII. ......................................................... VII

AbbreviationsIV. ....................................................... VII

Case StudyV. .............................................................. 114

BibliographyVI. ......................................................... 123

Self Assessment AnswersVII. ................................... 126

Book at a Glance

II/JNU OLE

Contents

Chapter I ....................................................................................................................................................... 1Introduction to Fire Insurance ................................................................................................................... 1Aim ................................................................................................................................................................ 1Objectives ...................................................................................................................................................... 1Learning outcome .......................................................................................................................................... 11.1 Origin of Fire Insurance ........................................................................................................................... 21.2 Fire Insurance Policy ............................................................................................................................... 21.3 Scope of Fire Insurance ........................................................................................................................... 4 1.3.1 Ordinary Scope ........................................................................................................................ 51.4 Purpose of Fire Insurance ........................................................................................................................ 7Summary ....................................................................................................................................................... 8References ..................................................................................................................................................... 8Recommended Reading ............................................................................................................................... 8Self Assessment ............................................................................................................................................ 9

Chapter II ....................................................................................................................................................11Fire Insurance under Indian Insurance Law ...........................................................................................11Aim ...............................................................................................................................................................11Objectives .....................................................................................................................................................11Learning outcome .........................................................................................................................................112.1 Basic Principles of Fire Law .................................................................................................................. 122.2 Laws Governing Fire Insurance ............................................................................................................. 12 2.2.1 Fire Insurance Contract .......................................................................................................... 13 2.2.2 Essential Ingredients of Fire Insurance Contract ................................................................... 14 2.2.3 Risks Covered Under Fire Insurance Policy .......................................................................... 16 2.2.4 Risks Not Covered by Fire Insurance Policy ......................................................................... 172.3 Characteristics of Fire Insurance Contract ............................................................................................. 17Summary ..................................................................................................................................................... 19References ................................................................................................................................................... 19Recommended Reading ............................................................................................................................. 19Self Assessment .......................................................................................................................................... 20

Chapter III ................................................................................................................................................. 22Types of Fire Policies ................................................................................................................................. 22Aim .............................................................................................................................................................. 22Objectives .................................................................................................................................................... 22Learning outcome ........................................................................................................................................ 223.1 Introduction ........................................................................................................................................... 233.2 Types of Fire Insurance Policies ........................................................................................................... 23 3.2.1 Valued Policy ......................................................................................................................... 23 3.2.2 Specific Policy ....................................................................................................................... 24 3.2.3 Average Policy ....................................................................................................................... 24 3.2.4 Floating Property Policy ........................................................................................................ 25 3.2.5 Replacement or Re-instatement Policy .................................................................................. 25 3.2.6 Consequential Loss Policy ..................................................................................................... 26 3.2.7 Comprehensive Policy ........................................................................................................... 28 3.2.8 Blanket Policy ........................................................................................................................ 29 3.2.9 Declaration Policy .................................................................................................................. 29Summary ..................................................................................................................................................... 31References ................................................................................................................................................... 31Recommended Reading ............................................................................................................................. 31Self Assessment ........................................................................................................................................... 32

III/JNU OLE

Chapter IV .................................................................................................................................................. 34Fire Underwriting and Procedures ........................................................................................................... 34Aim .............................................................................................................................................................. 34Objectives .................................................................................................................................................... 34Learning outcome ........................................................................................................................................ 344.1 Introduction ............................................................................................................................................ 354.2 Fire Insurance Underwriting .................................................................................................................. 354.3 Fire Risk Assessment ............................................................................................................................. 36 4.3.1 Fire Risk Assessment Process ................................................................................................ 364.4 Detailed Description of Fire Risk Assessment Process ......................................................................... 38 4.4.1 Step 1: Identify Fire Hazards ................................................................................................. 38 4.4.2 Step 2: Identify People at Risk .............................................................................................. 39 4.4.3 Step 3: Evaluate, Remove, Reduce and Protect from Risk .................................................... 39 4.4.4 Step 4: Record, Plan, Inform, Instruct and Train ................................................................... 43 4.4.5 Step 5: Review ....................................................................................................................... 45Summary ..................................................................................................................................................... 49References ................................................................................................................................................... 49Recommended Reading ............................................................................................................................. 49Self Assessment ........................................................................................................................................... 50

Chapter V .................................................................................................................................................... 52General Fire Hazards ................................................................................................................................ 52Aim .............................................................................................................................................................. 52Objectives .................................................................................................................................................... 52Learning outcome ........................................................................................................................................ 525.1 Introduction to General Fire Hazards .................................................................................................... 53 5.1.1 Originating or Inception Hazards .......................................................................................... 53 5.1.2 Contributory Hazards ............................................................................................................. 545.2 General Hazards ..................................................................................................................................... 54 5.2.1 Exposure Hazard .................................................................................................................... 55 5.2.2 Electrical Hazards .................................................................................................................. 57 5.2.3 Fire and Explosion Hazards ................................................................................................... 57 5.2.4 Hazards of Dangerous Atmosphere ....................................................................................... 59 5.2.5 Hazards of Metals .................................................................................................................. 595.3 Fire Protection Systems ......................................................................................................................... 60 5.3.1 How Fires are Extinguished ................................................................................................... 60 5.3.2 Common Fire Extinguishing Appliances ............................................................................... 61 5.3.3 Smoke Detectors .................................................................................................................... 625.4 Management and Housekeeping ............................................................................................................ 62 5.4.1 Segregation ............................................................................................................................ 62 5.4.2 Arrangement of Premises ....................................................................................................... 63 5.4.3 Supervision ............................................................................................................................ 63 5.4.4 Smoking ................................................................................................................................. 63 5.4.5 Disposal of Trade Waste ........................................................................................................ 635.5 Loss Prevention Association of India .................................................................................................... 64Summary ..................................................................................................................................................... 65References ................................................................................................................................................... 65Recommended Reading ............................................................................................................................. 66Self Assessment .......................................................................................................................................... 67

Chapter VI .................................................................................................................................................. 69Fire Hazards of Specific Industries .......................................................................................................... 69Aim .............................................................................................................................................................. 69Objectives .................................................................................................................................................... 69Learning outcome ........................................................................................................................................ 69

IV/JNU OLE

6.1 Introduction ............................................................................................................................................ 706.2 The Textile Industry ............................................................................................................................... 70 6.2.1 Spinning Preparatory and Spinning Process .......................................................................... 70 6.2.2 The Weaving Preparatory and the Weaving Process .............................................................. 70 6.2.3 Chemical Processing of Cloth ................................................................................................ 70 6.2.4 Auxiliary Departments ........................................................................................................... 71 6.2.5 Fire Hazards and Loss Prevention Measures ......................................................................... 71 6.2.6 Other Hazards ........................................................................................................................ 726.3 The Jute Industry .................................................................................................................................... 72 6.3.1 Jute Press ................................................................................................................................ 72 6.3.2 Jute Mills ................................................................................................................................ 73 6.3.3 Jute Warehouses ..................................................................................................................... 766.4 The Rubber Industry .............................................................................................................................. 76 6.4.1 Manufacturing Process of Rubber ........................................................................................ 77 6.4.2 Fire Hazards ........................................................................................................................... 786.5 Paper Industry ........................................................................................................................................ 78 6.5.1 Raw Material Process ............................................................................................................ 78 6.5.2 Pulp Production ...................................................................................................................... 78 6.5.3 Paper Making ......................................................................................................................... 78 6.5.4 Fire and Explosion Hazards and Loss Prevention Measures ................................................. 796.6 The Chemical Industry ........................................................................................................................... 79 6.6.1 Sources of Ignition ................................................................................................................. 80 6.6.2 Chemical Processes ................................................................................................................ 806.7 The Hydrocarbon Processing Industry ................................................................................................... 81 6.7.1 Characteristics of Hydrocarbons Leading to Fire and Explosion .......................................... 82 6.7.2 Hazards in the Hydrocarbon Processing Industry .................................................................. 82 6.7.3 Other Hazards Related to Process Units/Production Plants ................................................... 83Summary ..................................................................................................................................................... 85References ................................................................................................................................................... 85Recommended Reading ............................................................................................................................. 85Self Assessment ........................................................................................................................................... 86

Chapter VII ................................................................................................................................................ 88Fire Insurance Claim and Settlement ..................................................................................................... 88Aim .............................................................................................................................................................. 88Objectives .................................................................................................................................................... 88Learning outcome ........................................................................................................................................ 887.1 Legal Aspects of Fire insurance Claim .................................................................................................. 89 7.1.1 The Doctrine of Proximate Cause .......................................................................................... 89 7.1.2 Rules of Interpretation of Policies ......................................................................................... 91 7.1.3 The Amount of Claim Payable ............................................................................................... 91 7.1.4 Types of Properties Affected .................................................................................................. 92 7.1.5 Important Terms Relating to the Claim ................................................................................ 947.2 Procedural Aspects in Fire Claims ......................................................................................................... 957.3 Important Aspects of Survey .................................................................................................................. 95 7.3.1 Process of Surveying and Loss Assessment .......................................................................... 96 7.3.2 The Important Issues Involved in any Survey Job ................................................................. 967.4 Final Survey Report ............................................................................................................................... 97Summary ..................................................................................................................................................... 98References ................................................................................................................................................... 98Recommended Reading ............................................................................................................................. 98Self Assessment ........................................................................................................................................... 99

Chapter VIII ............................................................................................................................................. 101Fire Consequential Loss Insurance ........................................................................................................ 101

V/JNU OLE

Aim ............................................................................................................................................................ 101Objectives .................................................................................................................................................. 101Learning outcome ...................................................................................................................................... 1018.1 Fire - Consequential Loss Insurance .................................................................................................... 1028.2 Basis of Profits Insurance .................................................................................................................... 102 8.2.1 The Measure of Indemnity ................................................................................................... 102 8.2.2 Indemnity Period .................................................................................................................. 103 8.2.3 The Sum Insured .................................................................................................................. 1038.3 The Operative Clause of the Policy ..................................................................................................... 1038.4 Important Terms for Various Calculations ........................................................................................... 1048.5 Specification – Turnover Basis ............................................................................................................ 105 8.5.1 Consequential Loss Insurance Premium Rate ..................................................................... 1078.6 New Business Clause ........................................................................................................................... 109 8.6.1 Claims Procedure ................................................................................................................. 109Summary ....................................................................................................................................................111References ..................................................................................................................................................111Recommended Reading ............................................................................................................................111Self Assessment ..........................................................................................................................................112

VI/JNU OLE

List of Figures

Fig. 1.1 Loss caused by fire ........................................................................................................................... 3Fig. 1.2 Fire by accident ................................................................................................................................ 4Fig. 4.1 Steps in risk assessment .................................................................................................................. 37Fig. 4.2 Identification of fire hazards ........................................................................................................... 38Fig. 5.1 Types of hazards ............................................................................................................................. 54Fig. 5.2 Danger from exposure .................................................................................................................... 55Fig. 5.3 Classification of exposures ............................................................................................................. 56Fig. 5.4 Types fuel storage .......................................................................................................................... 58Fig. 6.1 Processes in jute mill ...................................................................................................................... 74Fig. 6.2 Manufacturing process of rubber .................................................................................................... 77Fig. 7.1 Types of properties covered under fir insurance ............................................................................. 92Fig. 7.2 Important terms in fire insurance .................................................................................................... 94Fig. 8.1 trading losses from stopping business .......................................................................................... 102Fig. 8.2 Reasons for the loss of gross profit .............................................................................................. 105

VII/JNU OLE

List of Tables

Table 2.1 Basis for fixing sum insured ........................................................................................................ 15Table 3.1 Advantages and disadvantages of valued policy .......................................................................... 24Table 3.2 Advantages and disadvantages of reinstatement policy ............................................................... 26Table 3.3 Advantages and disadvantages of declaration policy ................................................................... 30Table 4.1 Fire safety requirements for various building type and heights ................................................... 48Table 8.1 Percentages of basic rates........................................................................................................... 108Table 8.2 Rate of gross profit earned on the annual and standard turnover ............................................... 109

VIII/JNU OLE

Abbreviations

GIC - General Insurance Corporation of IndiaI.B.N.R. Claims - Incurred But Not Reported ClaimsLOP - LossofProfitLPA - Loss Prevention AssociationLPG - LiquefiedPetroleumGasNOC - NoObjectionCertificatePBR - Poly Butadiene RubberRIV - Reinstatement ValueSBR - Styrene Butadiene RubberTNT - Trinitrotoluene

1/JNU OLE

Chapter I

Introduction to Fire Insurance

Aim

The aim of this chapter is to:

introducetheconceptoffireinsurance•

elucidatetheoriginoffireinsurance•

explainthenatureoffireinsurancepolicy•

Objectives

The objectives of this chapter are to:

explainthescopeoffireinsurance•

discussthelosscausedbyfire•

highlightthepurposeoffireinsurance•

Learning outcome

At the end of this chapter, you will be able to:

understandthetypesoffireinsurance•

explainordinary,specialandcomprehensivescopeoffireinsurance•

discusswhatiscoveredunderfireinsur• ance and what is not

Fire Insurance

2/JNU OLE

1.1 Origin of Fire InsuranceInsurance in its modern form originated in Lombardy, Italy, in 1182 A.D., with Marine Insurance. Attempts to organisefireinsuranceinthemodernformweremadeonlyaftertheGreatFireofLondonin1666.

In1666,thegreatfirebrokeoutinLondon,whichcontinuedforfourdaysandnightsandspreadover436acresofterritory. This was an alarming and appalling calamity. Over 85 per cent of the buildings in London were destroyed, while the property loss is estimated to have been about ten million pounds. In the absence of insurance, this was a blow from which London was slow to recover, as is shown by the fact that in 1673, seven years later, about one thousand buildingswereyettobereplaced.Relatively,thisLondonfirewasthegreatestinthehistoryoftheworld.Immediatelyafterthefire,variousplansfortheprotectionofindividualsagainstlossbyfirebegantobedevised.In1667,thefirstregularsystemforinsuringbuildingsagainstfirebegan.

A London builder, Dr. Nicholas Barbon, started the Fire Office in 1680. This company, for a given consideration, engaged to pay the assured the amount of indemnity declared in the policy, or contract, should his house or building bedestroyedbyfire,ortorepairit,shoulditbeonly‘damnified’—i.e.,damaged.Noliability,itwasnoted,restedupon the assuredbeyond thepaymentof thepremium.OtherOffices soon followedbut their operationswereconfinedtotheinsuranceofbuildings.In1681,afewyearsafterthisfirstcompanywasestablished,anattemptwasmade by the city of London to establish an insurance account, or business, and funds and property were put aside and dedicated for that purpose.

In1708,anofficewasestablishedtoinsuregoodsandmerchandise.Bythebeginningofthe19thcentury,therewerenolessthan32fireoffices.Theseofficesrecognisedtheneedforjointactiontodealwithcommonproblems.

In1832,theLondonofficesformedonecommonfirebrigadeandactionwasinitiatedforthecollectionoflossexperience on a common basis for charging agreed rates. This led to the formulation of various tariffs such as the Liverpool Warehouse Tariff, Cotton Mills Tariff, etc. Eventually, in 1858, an Association of English and Scottish FireOfficeswasformedwhichcametobeknownin1868,astheFireOfficesCommittee.

The Industrial Revolution brought about a great increase in material wealth in the form of factories, machinery andmerchandise,whichhadtobeprotectedbyfireinsurance.Withtheintroductionofcomplexmanufacturingprocessesinindustry,thesystemoffireinsuranceratingbecamecomplicated.Themarketalsointroducedthelossofprofitspolicyin1900,followedbyinsurancesagainstspecialperils.Insurancesonre-instatementvaluebasiswereintroducedduringtheinter-warperiod.Onthetechnicalside,theFireOfficesCommitteeestablishedaTestingStation for research purposes, in 1935. In 1946, this was converted into the Joint Fire Research Organisation.

1.2 Fire Insurance PolicyThe term insurance has been used in describing the fund accumulated to meet uncertain losses. It is evident that in a static state, all producers who are exposed to risk must accumulate such funds. While it is uncertain, whether the accumulation of any individual producer will be enough to meet the loss the individual suffers; that of the entire body of producers in any industry must be large enough to cover the losses of the group, as a whole. Otherwise, there would be in the end, a great diminution in the amount of capital in hazardous industries, and a serious disturbance of the static adjustment. Such a phenomenon is inconsistent with the notion of the static state. For example: A fruit-dealer, who at irregular intervals, suffers loss through decay must add to the price of his fruit enough to cover such uncertain loss.

Definition of Fire: Thetermfireinafireinsurancepolicyisinterpretedintheliteralandpopularsense.Firecauseswhensomethingburns.Ithasbeenheldthatthereisnofireunlessthereisignition.

For example: Stanley vs. Western Insurance Company. Fire produces heat and light but neither of them isolated, canbecalledfire.Lightingisnotfire.However,iflightingignitessomething,thedamagemaybecoveredbyafirepolicy. The same is the case with electricity.

3/JNU OLE

Loss caused by fire

Fig. 1.1 Loss caused by fire(Source:http://www.isplonline.com/firefighter.htm)

Heatingunaccompaniedbyignitionisnotfire.Lossordamagethroughtheuncontrolledmediumoffireeitherbyignition of the articles consumed or by damage either by ignition of the articles caused by ignition of that part of thepremises,wherethearticleis.Inonecasethereisloss,intheothercase,adamageoccasionedbyfire.Thus,itcanbestatedthatnoclaimpossiblewithoutflame.

Inthefollowingcases,thelossbyfireisnotconsidered:Loss of goods through excessive heat due to the closure of doors and ventilations.•Damage to goods due to high humidity.•Changesofsolidparticles(eg.Sugar)intoliquidformduetosunshine.•Evaporation of items through chemical reaction or heat.•Damage of articles due to high climatic temperature.•Damage through explosives; provided the explosion causes no actual ignition.•Damage through lightning, provided it does not cause actual ignition.•Loss or damage through earthquake, riot, military power or civil commotion.•Damagetousersofthearticlesasaresultofsmokewithoutflame.•Loss or damage caused by electricity.•

Allthesesituationsdonotfallunderthedefinitionof‘fire’andtherefore,thelossesincurredinsuchcircumstancesarenottobecoveredbythefireinsurancepolicy.Thelossesbythefollowinginstancesorlossessubsidiarytofireare as follows:

Damagewhichoccursasaresultofsmokeorofputtingoutthefirewouldbecoveredbythefirerisks.•Anylossresultingfromapparentlynecessaryandbonafideeffortstoputoutafire,whetheritbebyspoiling•goodsbywaterorthrowingarticlesoffurnitureoutofthewindow,arecoveredbythefirerisks.Evenbydamagestoaneighbouringhousebyexplosiondoneforthepurposeofarrestingfire,wouldbecovered•bythefirerisks.Everyloss,directlyorifnotdirectly,atleastconsequently,resultingfromthefireisinsuredinthepolicy(In•StanleyV/sWesternIns.Co.,1968).Losstheftduringafireiscoveredasafirerisk(InStanleyV/sBailey,1831).•Evenlossbyfirecausedbytheinsured’snegligenceiscoveredbythepolicy(INHarrisV/sPoland,1941).•Anylossoccurredwhileputtingoutthefire.•

Fire Insurance

4/JNU OLE

Fire by accident

Fig. 1.2 Fire by accident(Source:http://somersfirerescue.org/SomersWebPages/FirePrevention.html)

Incaseoffireinsurance,theoccurrenceoffireisaccidental,andonlythen,isitcoveredbythepolicy.Incasethefireisadeliberateactoftheinsured,theinsurerisnotliabletocompensate.Thefirewhichisusedforordinarydomesticpurposesorevenformanufacturingisnotfireaslongasitisconfinedwithintheusualorproperlimits.Thus,firebyaccidentmeanstheproductionoflightandheatbycombustion,whilsttheactualignitionandheatingunaccompaniedbyignitionisnotfire.

According toS.2(6A),the‘fireinsurancebusiness’meansthebusinessofeffecting,otherwisethanincidentallytosomeotherclassofinsurancebusiness,contractsofinsuranceagainstlossthroughorbyfireorotherrelatedoccurrence,iscustomarilyincludedamongtherisksinsuredagainstinthefireinsurancebusiness.

According to Halsbury, it is a contract of insurance by which the insurer agrees for consideration to indemnify the assureduptoacertainextentandsubjecttocertaintermsandconditionsagainstanylossordamagebyfire,whichmayhappentothepropertyoftheassuredduringthespecificperiod.

Thus,fireinsuranceisacontractwherebytheperson,seekinginsuranceprotection,entersintoacontractwiththeinsurertoindemnifyhimagainstthelossofproperty,accidentalorincidentaltofire/lightning,explosionandsoon.Thispolicyisdesignedtoinsureone’spropertyandotheritemsfromlossoccurringduetocompleteorpartialdamagebyfire.

Initsstrictsense,afireinsurancecontractistheone:whoseprincipleobjectisinsuranceagainstlossordamageoccasionedbyfire.•theextentofinsurer’sliabilitybeinglimitedbythesumassuredandnotnecessarilybytheextentoflossor•damage sustained by the insured andthe insurer having no interest in the safety or destruction of the insured property apart from the liability undertaken •under the contract.

Fire insurance policyStandardfirepolicythatusuallycoversfireduetoanycausesubjecttosomeexceptionswhichtoomaybecoveredwithadditionalpremium.Thesepoliciesmaybeextendedfurther(bypayingadditionalpremium)toincludecollateraldamages or losses such as loss of income.

1.3 Scope of Fire InsuranceThescopeoffireinsuranceismuchwider.ThiscanbeunderstoodfromSection2ofIndianInsuranceAct,1938.Accordingtothisprovision,thescopeoffireinsuranceinvolvesthefollowingtypesofrisks:

5/JNU OLE

therisksdirectlyinvolvedbyfire•therisksindirectlyinvolved(thathavebeentraditionallyincludedwithinthefireinsurancepolicy)•

1.3.1 Ordinary ScopeBeforeMay2000,threetypesoffireinsurancepolicies(A,BandCpolicies)wereissuedinIndia.Therefore,thescopeoffire insurancepolicies isclassifiedbasedonthesecriteria.AfterMay,2000,onlyasingle typeoffireinsurancepolicyisissuedinIndiabythefireinsurancecompanies,whichisknownas‘StandardandSpecialPerilPolicy’.Thepolicycoversthefollowingtypesofperils:

Perils covered:Loss caused by fire•

Excluding loss, destruction or damage caused to the property insured by: �It’sownspontaneous,fermentationofhalting,or �It’sundergoinganyheatingordryingprocess �Burning of the property insured by the order of any Public Authority �

Explosion/Implosion:• Excluding loss, destruction or damage caused to the property insured by bursting of boilers(otherthandomesticboilers),economisersorothervesselsinwhichsteamisgenerated,machineryorapparatus subject to centrifugal force.

Aircraft Damage:• Loss, destruction or damage caused by aircraft, other aerial or space devices and articles dropped there from, excluding those caused by pressure waves.

Riot Strike, Malicious and Terrorism:• Visible physical loss, destruction or damage by external violence means damage caused to the property insured but excluding those caused by:

Total or partial cessation of any process or operations or commission of any kind; �Confiscation, commandeering, requisition or destruction by order of theGovernment or any lawfully �constituted authority.Permanent or temporary dispossession of any building or plant or unit or machinery resulting from the �unlawful occupation by any person of such building or plant or unit or machinery or prevention of access to the same.

Natural Disasters:• Storm,cyclone,typhoon,tempest,hurricane,tornado,floodandinundation.Impact Damage:• Impact by any rail/road vehicle or animal by direct contact not belonging or owned by:

The insured or any occupier of the premises, or �Their employees while acting in the course of their employment �

Subsidence and Land slide including Rock slide:• Loss, destruction or damage caused by subsidence of part of the site on which the property stands or land slide/rock slide excluding-the normal cracking, settlement or bedding down of new structures•the settlement or movement or made up ground•coastal or river corrosion•defective design or workmanship or use or effective materials•demolition, construction, structural alternative or repair of any property or ground works or excavations•Physical exhaustion of capacity:• Burstingand/oroverflowingofwatertanks,apparatusandpipesWarfare testing: • Missile testing operationsLeakage from Automatic Sprinkler Installations:• Excluding loss, destruction or damage caused by:

Repairs or alterations to the buildings or premises; �Repairs, removal or extension of the sprinkler installation; and �

Fire Insurance

6/JNU OLE

Defects in construction known to the insured. �

Bush Fire:• Excludingloss,destructionordamagecausedbyforestfire

Followingrisksdonotfallunderpurviewofthefireinsurance:losses due to by the acts of the god/natural calamity•lossesarisingoutofwarattacks(declaredwarorotherwise)•loss/damage out of poultry effects•damagetogoodsstoredincoldstorageduetofluctuationsintemperature,andsoon•

1.3.2 Special ScopeCertainspecialkindsofrisksarealsoincludedinthefirepolicy.Bypayingextrapremium,theinsuredcanincludesuchspecialrisksasgivenbelowwithinthescopeofthefireinsurancepolicy:

The fees paid to the architect, surveyor or consultant engineer, if such fees exceed more than 3 percent of the •claim money.The expenses incurred in connection with removal of wastages from the construction site, if that amount exceeds •more than 1 per cent of the claim money.Losstothegoodskeptinthecoldstorageduetofluctuationsinelectricity/powerbutwithinthecausesstated•in the policy.Lossarisingoutofearthquakes,fire,throughcombustion•Forestfire•Loss incurred through the falling of goods from the forklifts, or from the own vehicle of the insured and so •on.Loss due to spontaneous combustion•

1.3.3 Comprehensive Scope Almostalltheinsurablerisksareincludedinthecomprehensivescopeoffireinsurance.Itincludesnotonlytheordinary and direct risks, but also, the consequential losses. This way, the following risks are included within the comprehensive scope:

risks of standard policies•special risks which can be insured by paying extra rate of premium•excluded perils in the standard policy•consequentiallossesorrisksarisingconsequenttofire•

Consequential losses:Theconsequentiallosses/risksarethosethathavebeencreatedbythefire.Suchrisksarealsoknownas‘LossofProfit’loss.Whenfiretakesplaceinafactory,notonlyareitsassets/properties(machine,rawmaterial,finishedgoods,building,andsoon)damagedorlost,buttheproductionworkinthefactoryisalsoheldupforaconsiderabletime.Consequently,theprofitsfromthefactoryarestopped,buttheburdenoffixedcostsandadditional expenses also are to be borne. Thus, the following types of losses are included in consequential losses:

lossofnetprofit•lossoffixedexpenses,e.g.,salariestoemployees,buildingrent,interestonloans,andsoon•increasedcostonaccountofproblemsarisingoutoffire•rent of the building taken on hire, till the time on getting the damaged building repaired or renovated, and so •on

Allthesetypesoflossescanbeincludedinthecomprehensivescopeoffireinsurancepolicy;thepremiumsofsuchpolicies are much higher than the ordinary policies.

7/JNU OLE

1.4 Purpose of Fire InsuranceThe industry, trade and commercial articles have been developing and diversifying at a faster rate in India. Along with the growthof industrial and commercial articles, the infrastructuralfields like transport, communication,finance,advertising,stockmarketingandsoon,havealsobeendevelopingcontinuously,soastocopewiththepace of economic development. The importance of foreign trade also has been very much for a developing country likeIndia.Allthesedevelopmentsinvariousfieldsbroughtinmuchrisksanduncertaintiesinbusinessactivities.Insuranceistheonlyfieldthatprovidessecurity,againstbusinessrisks.Theroleofthefireinsurancehasbeenincreasingday-by-dayasameansagainstdestructionordamageofbusinesspropertycausedbyfire.

Thesignificanceoffireinsurancecanbediscussedunderthefollowingpoints:As a source for minimising losses:• Firecandestroypropertyingoodsandfixedassetsworthcroresofrupeesorcancreatedamagetothebusinessproperty.FireInsuranceindemnifieslossesordamagesdonetofireandresources the mental worries of businessmen.Decreases in probabilities of fire losses:• The increasing uses of energy petrol like electricity, gas and other such items have increased the probability of losses or damages to goods and property. In order to minimize this calamity,varioustypeoffireextinguishingdeviceshasbeendestroyedthroughouttheworld.Moreover,thefireinsuranceisanotherdevicetoindemnifythelosses,thusremovingmentalworriesbyextendingfinancialsupport.Increase in production of fire proof materials:• Fireinsurancecannotpreventoccurrenceoffire,butcanreducethelosses.Todayvariousdevicesareproducedinthecountrylikefireextinguisher.Firebrigadesaresetupateverycitiesandtownstoextinguishfirebythegovernmentandlocalbodies.Decrease in social loss of fire:• Socialawarenesshasbeencreatedinthecountrytoputoutfireandtoreducetheeffectoffire.Thesocialorganisationsprovidetrainingtothepeopleintheuseofthefireextinguishingdevicesandcautionthemintheuseofsuchitemswhichcausesorproducesfireliabilities.Asset valuation:• Assetsarevaluedforobtainingafire insurancepolicy.It requires theinsuredtobemorecautious in protecting his property or goods.Loss preventing efforts and advice by the insurer: • Aninsurernotonlyoffersindemnityagainstfirelosses,butalsoadvisestheinsuredtoreducetheincidenceoffire.FireInsurancecompaniesestablish,‘salvagecorps’,toextinguishfiresothattheextentoflosscanbeminimised.Helpful in business progress: • Due to the facilities provideby thefire insurance companies, thebusinessenterprises undertake large scale production and invest in business and marketing activities without any botheration. This lead to continuous progress in industrial and commercial activities, leading to economic growth.Beneficial for new industries:• Thenewindustrialunitsusuallyfacecomplexproblemsofproduction,finance,competitionandsalesandsoon.Insuchasituation,theycannotaffordthelosses/damagesduetofire.Thefire insurancerelievessuchentrepreneursfromworriesbyindemnifyingthe loss/damages, ifany,fromtheoccurrenceoffire.Credit facility:• Wheretheassetsaresecuredbyfireinsurance,itbecomeseasierforsuchenterprisestogetcreditfrombanksandotherfinancialinstitutions.Thiswillincreasethecreditworthinessoftheenterprise.Distribution of risks:• Fire insurance is an effective device to distribute the risks in a group, enabling the individualortheinstitutiontomaintainitsefficiency.Other important milestones:• They include the following:

Development of small industries becomes easier. �Contribution towards timely completion of national plans. �There will be regularity in the national income and the ways for national development. �Therecanbecontinuityintheproductionprogramofbusinessenterprisesandtheoperatingefficiencywill �increase.

Fire Insurance

8/JNU OLE

SummaryInsurance,initsmodernform,originatedinLombardy,Italy,in1182A.D.Attemptstoorganisefireinsurance•inthemodernformweremadeonlyaftertheGreatfireofLondonin1666.Immediatelyafterthefire,variousplansfortheprotectionofindividualsagainstlossbyfirebegantobedevised.•In1667,thefirstregularsystemforinsuringbuildingsagainstfirebegan.ALondonbuilder,Dr.NicholasBarbon,startedthefireinsuranceofficein1680.•The industrial revolution brought about a great increase in material wealth in the form of factories, machinery •andmerchandisethathadtobeprotectedbyfireinsurance.Themarketalsointroducedthelossofprofitspolicyin1900,followedbyinsurancesagainstspecialperils.•Thefireofficescommitteeestablishedin1935,atestingstationforresearchpurposes.In1946,thiswasconverted•into the Joint Fire Research Organisation.The term insurance has been used in describing the fund accumulated to meet uncertain losses.•‘Lossordamage’occasionedbyfire,meanslossordamageeitherbyignitionofthearticlesconsumedorby•damage either by ignition of the articles caucused or by ignition of that part of the premises, where the article exists.Inthecaseoffireinsurance,theoccurrenceoffireisaccidental,andthenonly,itiscoveredbythepolicy.•Fire insurance is a contract whereby the person, seeking insurance protection, enters into a contract with the •insurertoindemnifyhimagainstlossofpropertybyorincidentaltofireorlightning,explosionandsoon.Thescopeoffireinsuranceinvolvesthefollowingtypesofrisks:therisksdirectlyinvolvedbyfire,andthe•risks indirectly involved.Scopeoffireisclassifiedintothreecategoriesnamely:ordinary,specialandcomprehensive.•Theroleof thefireinsurancehasbeenincreasingday-by-dayasameansagainstdestructionordamageof•businesspropertycausedbyfire.

ReferencesGoel, K., 2011. • Non-life insurance [Online] Available at: <http://www.scribd.com/doc/50915844/2/OBJECTIVES>. [Accessed 9 June 2011].Ten, 2009. • Fire insurance [Online video] Available at: < http://www.youtube.com/watch?v=J8oPCmebnmc&feature=related>. [Accessed 9 June 2011].Authorstream.com, 2011. • Fire insurance [Online] Available at: < http://www.authorstream.com/Presentation/niru.007-752229-fire-insurance/>. [Accessed 9 June 2011].Jpht197, 2009. The great fire of London [online video] Available at: < • http://www.youtube.com/watch?v=b7vXcYmKFDQ>. [Accessed 9 June 2011].

Recommended ReadingShepard, S., 2009. B• e fire safe: how to avoid fire, reduce loss, and recover from insurance if you have a fire. Ronin Publishing.Darrach, H., 2008. • The standard fire insurance policy. BiblioLife.Ketcham, E., 2010. • Fire Insurance; The Essentials of the Fire Insurance Business. General Books LLC.

9/JNU OLE

Self Assessment

What are consequential losses/risks also known as?1. “Loss of value”a. “Loss of money”b. “Lossofprofit”c. “Loss of property”d.

Fireinsurancepolicyisdesignedtoinsureone’spropertyandotheritemsfromlossoccurringdueto__________2. damagebyfire.

complete or partiala. complete b. partialc. minord.

Heatingunaccompaniedby__________isnotfire.3. ignitiona. damageb. pollutionc. noised.

Which of the following statements if FALSE?4. Firecandestroypropertyingoodsandfixedassetsofcoreofrupeesorcancreatedamagestothebusinessa. property.The importance of foreign trade also has been very much for a developing country like India.b. Inthecaseoffireinsurance,theoccurrenceoffireisaccidental,andthenonlyitiscoveredbythepolicy.c. Lightingisfire.d.

Theincreasingusesof_____________likeelectricity,gasandothersuchitemshaveincreasedtheprobability5. of losses or damages to goods and property.

solar energya. energy petrolb. petrolc. natural energyd.

Which of the following statements is TRUE?6. It is evident that in a dynamic state, all producers who are exposed to risk must accumulate such funds. a. Fireproducesheatandlightbuteitherofthemaloneisnotfire.b. Thefirewhichisusedforordinarydomesticpurposesorevenformanufacturingisfireas longas it isc. confinedwithintheusualorproperlimits.Fire Insurance indemnifies lossesordamagesdonebyfire to the resources thus, relieving themateriald. worries of businessmen.

Fire Insurance

10/JNU OLE

Almostalltheinsurablerisksareincludedinthe__________scopeoffireinsurance.7. comprehensivea. ordinaryb. consequentialc. speciald.

The term insurance has been used in describing the fund accumulated to meet:8. uncertain lossesa. property lossb. goods lossc. life lossd.

Thescopeoffireinsurancecanbeunderstoodfrom:9. Section 3 of Indian Insurance Act, 1938a. Section 2 of Indian Insurance Act, 1939b. Section 4 of Indian Insurance Act, 1937c. Section 2 of Indian Insurance Act, 1938d.

Fireinsuranceisaneffectivedeviceto_________therisksinagroup,enablingtheindividualortheinstitution10. tomaintainitsefficiency.

maintaina. distributeb. detailc. reduced.

11/JNU OLE

Chapter II

Fire Insurance under Indian Insurance Law

Aim

The aim of this chapter is to:

introduce the concept of insurable property•

elucidatethebasicprinciplesoffirelaw•

explainthelawsgoverningfireinsurance•

Objectives

The objectives of this chapter are to:

definefireinsurancecontract•

discuss the examples of insurable property•

explainessentialingredientsoffireinsurancecontract•

Learning outcome

At the end of this chapter, you will be able to:

understandriskscoveredunderfireinsurancepolicy•

enlistthecharacteristicsoffireinsurancecontract•

discusstherisksnotcoveredbyfirein• surance policy

Fire Insurance

12/JNU OLE

2.1 Basic Principles of Fire LawTheneedforfireinsurancearisesoutofthreebasicfacts:

Theexistenceofmaterialpropertysusceptibletodamageordestructionbyfireorotherperil•The fact that material property has intrinsic value measurable in terms of money recognised by the economic •beliefs of society.Thefactthattheoccurrenceofafirewillresultnotonlyinlossofordamagetomaterialpropertybutalsoother•consequentiallossessuchaslossofproductioncausinglossofprofits.

Thefunctionoffireinsuranceistomakegoodthefinanciallosssufferedasaresultoffire.Itisnotthefunctionoffireinsurancetoreplacetheeconomiclosstermed‘Firewaste’rather,fireinsuranceeffectstheequitabledistributionof this waste among all those who are insured. Distribution among the insuring public is achieved by assessing the sum which each should pay in the form of premium so that, in the aggregate, a fund or pool is created from which the losses of the unfortunate few are compensated. Thus, the cost of replacement of property destroyed is transferred from the individual to the mass of insured members.

Insurable property:Thefireinsurancepolicyismeanttocovererectedfixedassetsandmoveableassetswhilstlying in a particular location and declared accordingly for insurance.

Examples of insurable property are:Buildings•Electrical installations in buildings•Contents of buildings such as, machinery, plant and equipment, accessories, and so on•Goods(rawmaterials,stockinprocess,semifinished,finished,packingmaterials,etc).infactories,godowns•Goods in the open•Contents in dwellings, shops, hotels, and so on•Furniture,fixturesandfittings•Pipelines(includingcontents)locatedinsideoroutsidethecompound•

TheFireInsurancecontractmaybedefinedasanagreementbetweentheinsurersandtheinsuredwherebytheinsurershavingreceivedpremium,undertaketomakegoodthefinancialloss,(subjecttothelimitofaspecifiedamount)sufferedbytheinsuredasaresultofdamageordestructionoftheinsuredpropertybyfireorotherspecifiedperils, during a stated period.

2.2 Laws Governing Fire InsuranceThereisnostatutoryenactmentgoverningfireinsurance,asinthecaseofmarineinsurancewhichisregulatedbythe Indian Marine Insurance Act, 1963. The Indian Insurance Act, 1938 mainly dealt with regulation of insurance businessassuchandnotwithanygeneralorspecialprinciplesofthelawrelatingfireofotherinsurancecontracts.SoistheGeneralInsuranceBusiness(Nationalization)Act,1872,intheabsenceofanylegislativeenactmentonthesubject,thecourtsinIndiahave,indealingwiththetopicoffireinsurance,havereliedsofaronjudicialdecisionsof the courts and opinions of English jurists.

Indeterminingthevalueofpropertydamagedordestroyedbyfireforthepurposeofindemnityunderapolicyoffireinsurance,itwasthevalueofthepropertytotheinsured,whichwastobemeasured.Primafaciethatvaluewas measured by reference of the market value of the property before and after the loss. However, such method of assessment was not applicable in cases where the market value did not represent the real value of the property to the insured, as where the property was used by the insured as a home or, for carrying business. In such cases, the measure of indemnity was the cost of reinstatement. In the case of Lucas vs. New Zealand Insurance Co. Ltd., where the insured property was purchased and held as an income-producing investment, and therefore the court held that thepropermeasureofindemnityfordamagetothepropertybyfirewasthecostofreinstatement.

13/JNU OLE

2.2.1 Fire Insurance ContractFireinsuranceisacontractunderwhichtheinsurerinreturnforaconsideration(premium)agreestoindemnifytheinsuredforthefinanciallosswhichthelattermaysufferduetodestructionofordamagetopropertyorgoods,causedbyfire,duringaspecifiedperiod.Thecontractspecifiesthemaximumamount,agreedtobythepartiesatthe time of the contract, which the insured can claim, in case of loss. This amount is not, however, the measure of theloss.Thelosscanbeascertainedonlyafterthefirehasoccurred.Theinsurerisliabletomakegoodtheactualamountoflossnotexceedingthemaximumamountfixedunderthepolicy.

Afireinsurancepolicycannotbeassignedwithoutthepermissionoftheinsurerbecausetheinsuredmusthaveinsurable interest in the property at the time of contract as well as at the time of loss. The insurable interest in goods may arise on account of:

ownership•possession•contract•

A person with a limited interest in a property or goods may insure them to cover not only his own interest but also theinterestofothersinthem.Underfireinsurance,thefollowingpersonshaveinsurableinterestinthesubjectmatter:

owner•mortgage•pawnee•pawn broker•officialreceiverorassigneeininsolvencyproceedings•warehouse keeper in the goods of customer•apersoninlawfulpossessione.g.commoncarrier,wharfinger,commissionagent•

Theterm‘fire’isusedinitspopularandliteralsenseandmeansafirewhichhas‘brokenbounds’.‘Fire’whichisusedfordomesticormanufacturingpurposesisnotfireaslongasitisconfinedwithintheusuallimits.Inthefireinsurancepolicy,‘Fire’meanstheproductionoflightandheatbycombustionorburning.Thus,fire,mustresultfromactualignitionandtheresultinglossmustbecausedbysuchignition.Thephrase‘lossordamagebyfire’alsoincludesthelossordamagecausedbyeffortstoextinguishfire.

Fireinsuranceappliestoinsuranceagainstlossofordamagetopropertyarisingfromtheperiloffireinanycontractmade in the province except:

Insurance falling within the classes of aircraft, automobile, boiler and machinery, inland transportation, marine, •plate glass, sprinkler leakage and theft insurance.Wherethesubject-matteroftheinsuranceisrents,chargesorlossofprofits.•Wheretheperiloffireisanincidentalperiltothecoverageprovided.•Where the subject matter of the insurance is property that is insured by an insurer or group of insurers primarily •as a nuclear risk under a policy covering against loss of or damage to the property resulting from nuclear reaction or nuclear radiation and from other perils.

Statutory conditionsMisrepresentation: • If any person applying for insurance falsely describes the property to the prejudice of the insurer, or misrepresents or fraudulently omits to communicate any circumstance which is material to be made known to the insurer in order to enable the adjudgement of the risk to be undertaken, the contract shall be void as to any property in relation to which the misrepresentation or omission is material.

Fire Insurance

14/JNU OLE

Property of others: • Unlessotherwisespecificallystatedinthecontract,theinsurerisnotliableforlossordamage to property owned by any person other than the insured, unless the interest of the insured therein is stated in the contract.Material change:•

Any change, material to the risk and within the control and knowledge of the insured, shall avoid the contract �astothepartaffectedthereby,unlessthechangeispromptlynotifiedinwritingtotheinsureroritslocalagent;andtheinsurerwhensonotifiedmayreturntheunearnedportion,ifany,ofthepremiumpaidandcancel the contract, or may notify the insured in writing that, if he desires the contract to continue in force, hemust,withinfifteendaysofthereceiptofthenotice,paytotheinsureranadditionalpremium;andindefault of such payment the contract shall no longer be in force and the insurer shall return the unearned portion, if any, of the premium paid.

Termination of contract:• This contract may be terminated by:

theinsurergivingtotheinsuredfifteendaysnoticeofterminationbyregisteredmail,orfivedayswritten �notice of termination personally delivered;the insured at any time on request. �

2.2.2 Essential Ingredients of Fire Insurance ContractThe Fire Insurance contract must have the following essential ingredients in order to make it enforceable at law:

Utmost Good Faith• In insurance contracts, the legal doctrine of utmost good faith applies. This casts on the insured the duty to disclose all material facts which have a bearing on the insurance. A breach of this duty may make the contract void or voidable depending upon the nature of the breach. The insured should give notice to the insurers if there are any material alterations during the term of the policy. Hence, the duty of disclosure continues throughout the policy term.

The declaration clause in the proposal form will warrant the literal truth of the answers given in the form. Thus, the common law duty of utmost good faith is converted into the contractual duty of utmost good faith and the representations in the proposal form become warranties and have to be literally true. Where the premises are surveyed by the insurers, they are deemed to be in possession of the material information concerning the risk and the insurer cannot later penalise the insured for non-disclosure or misrepresentation. It is possible that after the inspection or survey,theinsuredmightcarryoutsomechangesintherisk.Itisimportantthatthesechangesarenotifiedtotheinsurer. The details of construction, occupation and communication need to be ascertained properly; if not, the rates charged by the insurance company may not be correct.

The insured is expected to behave as if uninsured at all times and safeguard his property from all the perils that are likely to affect the property. The insured is expected to salvage as much of the property as possible and ensure properfirefightingoperations.

Insurable Interest• Thecompetencyofapersontoaffectacontractoffireinsuranceisdeterminedbyhislegalcapacitytocontractandhislegalpecuniaryrelationshiptothepropertysothathewouldbenefitbyitssafetyorwouldsufferfinanciallossintheeventofloss/damagetotheproperty.Infireinsurance,personswhostandtogainfinanciallyfromthesafetyofapropertyorstandtolosefinanciallybyitsdestructionaresaidtohaveinsurableinterestonapropertyandtherebycan take an insurance policy. Examples of persons who can have insurable interest are as under:

Absolute ownership �Amortgagorasownerofthepropertycaninsureitforitsfullvaluebutthemortgagee’sinterestislimited �to the amount outstanding at the time of loss.InsurableinterestofabankorfinancialinstitutionthathasadvancedaloanisrecognisedbytheAgreed �Bank Clause.

15/JNU OLE

Infireinsurance,insurableinterestshouldexistatthetimeoftakingthepolicy,continuethroughitsterm �and should exist at the time of a loss.Fire Insurance policies are personal contracts. Hence, if the property is sold or transferred, the policy is not �transferred automatically.

Principle of Indemnity• The principle of indemnity is strictly adhered to in this branch of insurance. Though the reinstatement value policy isamodificationofthisprinciple,italsoseekstomaintaintheprincipleofindemnitybystipulatingthatthesuminsured must represent the current new reinstatement/replacement value. In simple terms, the principle of indemnity meansputtingtheinsuredbacktothesamefinancialpositionhewasin,beforetheoccurrenceoftheloss.Thepersonisindemnifiedonlytotheextentoftheloss;noprofitorunduebenefitisallowed.

Reinstatement Value (RIV)• This is the value at which the damaged property can be reinstated or replaced by new property.

Market Value• The term commonly refers to the amount at which property of the same age and conditions can be bought or sold. In otherwords,itisthe‘Second-handValue’.Itisdeterminedforinsurancepurposes,withreferencetothepresentcostof construction of a similar building after deducting from the cost, depreciation based on age, usage, maintenance, and so on.

Similarly, for plant and machinery, market value for insurance purposes, is arrived at by deducting suitable depreciation for age, usage, wear and tear and so on, from the current replacement cost. In all these cases, depreciation refers to actual intrinsic, physical depreciation.

Book Value• It is arrived at by applying depreciation on the original cost of the property. At some point of time, this value may be nominalandnotadequateforinsurancepurposes.Hence,thisvalueshouldbeignoredwhilefixingthesuminsured.Thefollowingarethebasisonwhichsuminsuredisfixed.

Property Sum Insured

Building plant, Machinery and Accessories Market value or reinstatement value

Fixtures, furniture&fittings,electrical installations Market value

Stocks: raw material•semifinishedgoods•finishedgoods•

Market value, i.e., the cost at which the insured can purchase it in the market to replace the damaged raw material.Market value, i.e., the cost of raw materials including the expenses (labourplusoverheads)incurreduptothestagetheyhavebeenprocessed.Market value, i.e., the cost of raw material plus all the overheads and labour expenses that have been incurred by the proposer till it reachesthefinishedgoodsstage.

Table 2.1 Basis for fixing sum insured

Fire Insurance

16/JNU OLE

On the basis of the table above, the following points should be noted:Thesuminsuredisalwaystobefixedbytheinsured. �It is the limit of liability under the policy. �It is the amount on which the rate is applied to arrive at the premium under the policy �The sum insured should represent the actual value of the property. �

Subrogation• The principle of subrogation is a corollary of the principle of indemnity. If the loss suffered by the insured is recoverablefromthirdpartieswhoareresponsiblefortheloss,theinsured’srightsofrecoveryaretransferredorsubrogated to the insurers when they indemnify the loss.

Contribution• The principle of contribution which is also a corollary of the principle of indemnity provides that if the same property is insured under more than one policy, the insured cannot recover more than his loss; he can recover only a rateable proportion of the loss under each policy.

2.2.3 Risks Covered Under Fire Insurance PolicyThe date of conclusion of a contract of insurance is issuance of the policy which is different from the acceptance or assumption of risk. Section 64-VB only covers broadly that the insurer cannot assume risk, prior to the date of receipt of premium. Rule 58 of the Insurance Rules, 1939 speaks about the advance payment of premiums in view of sub section of Section 64 VB which enables the insurer to assume the risk from the date onwards. If the proposer did not desire a particular date, it was possible for the proposer to negotiate with insurer about that term. Precisely, thereforetheApexCourthassaidthatfinalacceptanceisthatoftheassuredortheinsurerdependssimplyontheway in which negotiations for the insurance have progressed. Though, the following are risks which seem to have been covered in the Fire Insurance Policy but are not totally covered under the policy. Some of contentious areas are as follows:

Fire: • Destruction or damage to the property insured by its own fermentation, natural heating or spontaneous combustionoritsundergoinganyheatingordryingprocesscannotbetreatedasdamageduetofire.Forexample,paintsorchemicalsinafactoryundergoingheattreatmentandareconsequentlydamagedbyfireisnotcovered.Further, burning of property insured by order of any public authority is excluded from the scope of cover.

Lightning: • Lightningmayresultinfiredamageorothertypesofdamage,suchasaroofbrokenbyafallingchimneystruckbylightningorcracksinabuildingduetoalightningstrike.Both,fireandothertypesofdamagescaused by lightning are covered by the policy.

Aircraft damage: • Thelossordamagetoproperty(byfireorotherwise)directlycausedbyaircraftandotheraerial devices and/ or articles dropped there from is covered. However, destruction or damage resulting from pressure waves caused by aircraft travelling at supersonic speed is excluded from the scope of the policy.

Riots, strikes, malicious and terrorism damages: • The act of any person taking part along with others in any disturbanceofpublicpeace(otherthanwar,invasion,mutiny,civilcommotionetc.)isconstruedtobeariot,strike or a terrorist activity. Unlawful action would not be covered under the policy.

Storm, cyclone, typhoon, tempest, hurricane, tornado, flood and inundation: • Storm, cyclone, typhoon, tempest, tornado and hurricane are all various types of violent natural disturbances that are accompanied by thunder or strong winds or heavy rainfall. Flood or inundation occurs when the water rises to an abnormal level. Floodorinundationshouldnotonlybeunderstoodinthecommonsenseoftheterms,i.e.,floodinriverorlakes,butalsoaccumulationofwaterduetochokeddrainswouldbedeemedtobeflood.

17/JNU OLE

Impact damage: • Impact by any rail/ road vehicle or animal by direct contact with the insured property is covered. However, such vehicles or animals should not belong to or be owned by the insured or any occupier of the premises or their employees while acting in the course of their employment.

Subsidence and landslide including rockslide: • Destruction or damage caused by subsidence of part of the site on which the property stands or landslide/rockslide is covered. While subsidence means sinking of land or building to a lower level, Landslide means sliding down of land usually on a hill.

Bursting and/or overflowing of water tanks, apparatus and pipes: • Loss or damage to property by water or otherwiseonaccountofburstingoraccidentaloverflowingofwatertanks,apparatusandpipesiscovered.

Missile testing operations: • Destruction or damage, due to impact or otherwise from trajectory/ projectiles in connection with missile testing operations by the insured or anyone else, is covered.

Leakage from automatic sprinkler installations: • Damage, caused by water accidentally discharged or leaked outfromautomaticsprinklerinstallationsintheinsured’spremises,iscovered.However,suchdestructionordamage caused by repairs or alterations to the buildings or premises; repairs removal or extension of the sprinkler installation; and defects in construction known to the insured, are not covered.

Bush fire: • This covers damage caused by burning, whether accidental or otherwise, of bush and jungles and theclearingoflandsbyfire,butexcludesdestructionordamage,causedbyforestfire.

2.2.4 Risks Not Covered by Fire Insurance PolicyClaims not maintainable/covered under this policy are as follows:

Theft during or after the occurrence of any insured risks•War or nuclear perils•Electrical breakdowns•Ordered burning by a public authority•Subterraneanfire•Loss or damage to bullion, precious stones, curios (valuemore thanRs.10,000), plans, drawings,money,•securities, cheque books, computer records except if they are categorically includedLoss or damage to property moved to a different location (except machinery and equipment for cleaning, repairs •orrenovationformorethan60days)

2.3 Characteristics of Fire Insurance ContractItisameansofsecurityagainstriskoffireonanymaterialorproperty.•It is an indemnity contract.•The insurer undertakes to indemnity the insured against actual loss subject to the maximum limit of sum •insured.It is a contract of utmost good faith, the insurer and the insured must disclose all material facts relating to the •subject matter of insurance.Afireinsurancepolicyisusuallyissuedforoneyearonlywiththeoptiontothepartiestorenewitforafurther•period on payment of stipulated premium.Ifthepropertyisinsuredwithmorethanoneinsurerandonlossbyfire,alltheinsurersarecalleduponto•contribute towards the claim.Theinsurerisnotliableforpaymentoftheclaim,ifthefireiscauseddeliberately.•InBritishlaw,thefireinsurancepoliciescanbeassignedonlywithpriorpermissionoftheinsurer,butunder•

Fire Insurance

18/JNU OLE

Indian law, the consent of the insurer is not necessary to make a valid assignment of policy, only a notice of informationissufficient.Onoccurrenceoffire,anoticeoffireshouldbegiventotheinsurersothattheinsurermaytakepromptsteps•goingaheadtosafeguardhisinterests,indealingwithsalvageandalso,judgethecauseandnatureofthefire,and the extent of the loss. It is the duty of the insured to act as a man of ordinary prudence to take necessary steps to save the property •fromlossoffire,asintheabsenceofanyinsuranceagainsttheproperty.Sometimes,theinsurerissuesa‘CoverNote’or‘InterimPolicy’totheinsured.Inthecaseoflossbyfirebefore•theAbsolutePolicyisissued,theclaimispaidinviewof‘CoverNote’.Theriskcommencesassoonastheinsureracceptstheproposal,buttheinsurerhastherighttofixthedateof•commencement of risk at a future date also.The rate of premium varies according to the degree of hazard or risk involved.•Itisbecomingverycommoninfireinsurancepoliciestoinsertaconditioncalledthe‘averageclause’bywhich•the insured is called upon to bear a portion of the loss himself. The condition is called the pro-rata condition of average.The insured must have insurable interest in the subject matter both at the time of affecting the policy and at the •time of the loss. Thewordfirerefersto‘lossbyfire’.•Inconsequentiallosspolicy,theinsuredisindemnifiedforthelossofprofitswhichhesustainsthroughinterruption•orcessationofhisbusinessasaresultoffire.Shouldthelossbyfirebemorethanonce,thentheindemnitycanbeclaimed.However,thetotalclaimshall•not be more than the sum assured.Fire Insurance is also based upon certain principles, viz, insurable interest, utmost good faith and principle of •indemnity etc. Fire insurance is different from life insurance and marine insurance. It is indemnity insurance where as life •insurance involves the elements of security and investment. In marine insurance, insurable interest must be presentattimeofloss,butinfireinsurance,insurableinterestmustbepresentatthetimeofaffectingthepolicyas well as at the time of loss.

19/JNU OLE

SummaryThefunctionoffireinsuranceistomakegoodthefinanciallosssufferedasaresultoffire.•Distribution among the insuring public is achieved by assessing the sum which each should pay in the form of •premium so that, in the aggregate, a fund or pool is created from which the losses of the unfortunate few are compensated.Thefireinsurancepolicyismeanttocovererectedfixedassetsandmoveableassetswhilstlyinginaparticular•location and declared accordingly for insurance.Examples of insurable property are: buildings, electrical installations in buildings, goods in open and so on.•Thefireinsurancecontractmaybedefinedasanagreementbetweentheinsurersandtheinsuredwherebythe•insurershavingreceivedpremium,undertaketomakegoodthefinancialloss,(subjecttothelimitofaspecifiedamount)sufferedbytheinsuredasaresultofdamageordestructionoftheinsuredpropertybyfireorotherspecifiedperils,duringastipulatedperiod.Thereisnostatutoryenactmentgoverningfireinsurance,asinthecaseofmarineinsurancewhichisregulated•by the Indian Marine Insurance Act, 1963.The essential ingredients offire insurance contract are: utmost good faith, insurable interest, principle of•Indemnity,reinstatementvalue(RIV),marketvalue,bookvalue,subrogation,andcontributionThe date of conclusion of a contract of insurance is issuance of the policy which is different from the acceptance •or assumption of risk. Riskscoveredunderfireinsurancepolicyare:fire,aircraftdamage,riots,strikes,maliciousandterrorismdamages,•storm,cyclone,typhoon,tempest,hurricane,tornado,floodandinundation,impactdamage,subsidenceandlandslideincludingrockslide,burstingand/oroverflowingofwatertanks,apparatusandpipes,missiletestingoperations,leakagefromautomaticsprinklerinstallations,andbushfire.Risksnotcoveredbyfireinsurancepolicyare:theftduringoraftertheoccurrenceofanyinsuredrisks,waror•nuclearperils,electricalbreakdowns,orderedburningbyapublicauthority,subterraneanfireandsoon.Characteristicsoffireinsurancecontractmeanssecurityagainstriskoffireonanymaterialorproperty.•

ReferencesZandramari, 2010. Essentials of Fire Insurance Contract [online video] Available at:<• http://www.youtube.com/watch?v=Plqsw1u85U4>. [Accessed 9 June 2011]NPCCAR, 2008. • 20-C, Fire Insurance, Cancellation [Online video] Available at: < http://www.youtube.com/watch?v=ZG8iwifGsbE>. [Accessed 9 June 2011]Rutter & Russin, 2000. • Fire Insurance Law [Online] Available at: <http://library.findlaw.com/2000/Oct/1/127239.html>. [Accessed 9 June 2011]Balaji, T., 2010. • Fire insurance of the Indian Act insurance [Online] Available at: <http://policybazaarinsurance.blogspot.com/2010/12/fire-insurance-of-indian-act-insurance.html>. [Accessed 9 June 2011]

Recommended ReadingInsurance Society of New York, 2010. • The fire insurance contract: its history and interpretation. Nabu Press.Kitchin, F., 1904. • The principles and finance of fire insurance. E. Wilson.Riegel, R., 1947. • Fire insurance; from insurance principles and practices. 3rd ed., Prentice-Hall.

Fire Insurance

20/JNU OLE

Self Assessment

FloodorInundationoccurswhenthewaterrisestoan___________level.1. abnormala. highb. lowc. maximumd.

Thefunctionoffireinsuranceistomakeupfor________losssufferedasaresultoffire.2. materiala. physicalb. financialc. economicd.

Which of the following statements is FALSE?3. Fire insurance is same as life insurance and marine insurance. a. The rate of premium varies according to the degree of hazard or risk involvedb. In insurance contracts, the legal doctrine of utmost good faith applies.c. The declaration clause in the proposal form will warrant the literal truth of the answers given in the form.d.

What is the principle of subrogation a corollary of?4. Principle of faitha. Principle of identityb. Principle of insurancec. Principle of indemnityd.

Which of the following is arrived at by applying depreciation on the original cost of the property?5. Market valuea. Book valueb. Reinstatement valuec. Contributiond.

Which of the following statement is TRUE?6. Afireinsurancepolicyisusuallyissuedforwholelifewiththeoptiontothepartiestorenewitforafurthera. period on payment of stipulated premium.Ifthepropertyisinsuredwithmorethanoneinsurerandonlossbyfire,alltheinsurersarecalledupontob. contribute towards the claim.Theinsurerisliableforpaymentoftheclaimifthefireiscauseddeliberately.c. Ifthelossbyfireismorethanonce,theindemnitycannotbeclaimed.d.

The insurerundertakes to indemnity the insuredagainstactual loss subject to the_________ limitof sum7. insured.

minimuma. givenb. maximumc. depreciationd.

21/JNU OLE

Fireinsurancepoliciesare__________contracts.8. personala. professionalb. mutualc. originald.

The date of conclusion of a contract of insurance is issuance of the policy which is different from the: 9. acceptance or assurance of riska. acceptance or assumption of riskb. application or assumption of riskc. acceptance or development of riskd.

Therateof_________variesaccordingtothedegreeofhazardorriskinvolved.10. interesta. riskb. premiumc. depreciationd.

Fire Insurance

22/JNU OLE

Chapter III

Types of Fire Policies

Aim

The aim of this chapter is to:

explaintheimportanttypesoffirepolicies•

highlightthefeaturesoffirepolicies•

discusstheappropriatenessofspecificfirepoliciesinspecifiedcircumstances•

Objectives

The objectives of this chapter are to:

explainthenatureandneedofdifferenttypesoffirepolicies•

discussthefactorsandclausesinvolvedinspecificfirepolicy•

evaluatethetypesoffirepolicies•

Learning outcome

At the end of this chapter, you will be able to:

understandtheconceptualbasisofeachtypeoffireinsurancepolicy•

comprehend important terms and method involved in calculating the measure of indemnity and the sum •

insured

recognisethesignifican• ceofeachofthefirepolicies

23/JNU OLE

3.1 Introduction Throughouthistory,protectingcommercialstructuresfromfirehasbeenimportant.Fireposesriskintermsofsafetyto occupants, building integrity, business interruption and the economic health of a community. Consequently there isagreatdealoffireinsurancepoliciesdesignatedtocatertheneedsoftheinsured.Insurancecompanieshaveissueddifferenttypesoffireinsurancepoliciestosatisfytheinsuredinthiscompetitivemarketofinsurance.Differenttypesofriskareincludedindifferenttypesoffireinsurancepoliciestosatisfytheinsuredparty.

3.2 Types of Fire Insurance Policies Theimportantfirepoliciesarediscussedbelow.

3.2.1 Valued Policy

Valuedpolicy(fireinsurance)requiresinsurancecompaniestopaytotheinsured,incaseoftotalloss,thefull•amount of the insurance, regardless of the actual value of the property at the time of the loss. It is a departure from the contract of indemnity and violates this principle. Undervaluedpolicy,theinsuredcanagreetopayacertainfixedamountagreedtothetimethepolicyistaken.•Theinsurerhastopaythespecifiedamountirrespectiveofmarketorcurrentvalueoftheinsuredpropertyatthe time of loss. Thus,• in a valued policy, the company especially contracts to treat the sum insured as the value of the property in case of a loss. The sum insured is only that amount beyond which the company cannot be called upon to pay. Theinsuredisbenefitedwhenthemarketvalueofthepropertydeclines,butsufferslosswhenthemarketvalue•appreciates. It is not frequently issued or used due to this reason. It may be issued only on artistic work, antiques and similar rare articles whose value cannot be determined •easily. It should further be observed that in exceptional cases where the value of property is essentially a matter for •anexpert’sopinion,theinsurermaybepreparedatthetimeofenteringintothecontracttoundertakethatanagreed value shall be payable in the event of a total loss. ItwasrecognisedinIrvingvs.Manning(1847),iH.L.,Case287,thatunderavaluedpolicytheinsuredmight•conceivably obtain more than an indemnity, and such insurance is not a perfect contract of indemnity. Whenever the insured desires to have a valuation named in his policy insuring any building or structure against •fire,hemayrequiresuchbuildingorstructuretobeexaminedbytheinsurerandthevalueoftheinsured’sinterestthereinshallbefixedatthattimebytheparties.

Measure of IndemnityIf an insured under a valued policy sustains a total loss, he can, in the absence of fraud or mistake, claim the •sum insured. For a partial loss, however, he must claim the actual amount of the damage sustained, subject to the sum insured •not being exceeded.

Features of valued policyThe following are the features of the valued policy:

Valuation of property is made at the time of affecting policy. •Theamountofclaimisnotrelatedtotheactuallosscausedbythefire.•The insured is benefitedwhen themarket value of property declines but suffers losswhenmarket value•appreciates.Itbecomeseasiertoevaluatelossatthetimeofthefire.•

Fire Insurance

24/JNU OLE

Advantages and disadvantages of valued policy

Advantages Disadvantages

There can be no dispute in determining the indemnity amount as insurer has agreed to payaspecificamountirrespectiveofloss.

The insured suffers loss where value of insured property appreciates at time of indemnity.

Insured need not suffer loss in case of decline in value of insured property. This policy violates principle of indemnity

The insurer need not pay more even if value of property appreciates. Insurer suffers loss in case market value of

property declines.The insured is certain about receipt of a fixedamount.

Table 3.1 Advantages and disadvantages of valued policy

3.2.2 Specific Policy

Itisapolicywhichcoversthelosstoadefiniteamountwhichisspecifiedinthepolicy.Theactualvalueof•property is not taken into consideration while determining the amount of indemnity. Theinsurerisliabletopayasetamountlesserthantheproperty’srealvalue.Theaverageclause,whichrequires•the insured to bear the loss to some extent, does not play a role in this policy. In case the insurer inserts the clause, the policy will be known as an average policy. •

Features of specific policyThispolicyisinsuredforaspecificfixedsum.•Incaseoflossbyfire,theinsurerisliabletotheextentofthisspecificsum.•The policy sum is usually less than the actual value of the property.•

3.2.3 Average Policy

Underafireinsurancepolicycontainingthe‘averageclause’theinsuredisliableforsuchproportionoftheloss•as the value of the uncovered property bears to the whole property.

For example, if a person gets his house insured for Rs. 4,00,000 though its actual value is Rs.6,00,000, if a �partofthehouseisdamagedinfireandtheinsuredsuffersalossofRs.3,00,000,theamountofcompensationto be paid by the insurer comes out to Rs. 2,00,000 calculated as follows:

Amount of claim =

=

= 2, 00, 000

Whenever a sum insured is declared to be subject to average, if the property covered by it shall at the time of •breakingoffirebeofgreatercostthanthesuminsuredthentheinsuredpersonwillbeconsideredtheinsurerfor the difference and will have to bear out the loss by him only. If a policy is subject to average, the full amount of the loss will not be payable if the property has been left •partially uninsured even if the loss may be less than the sum insured by the policy.

25/JNU OLE

In an average case only the particular proportion of the loss which the insurance bears to the value of the property •is payable. This rule applies whether the loss is large or small and whether within the amount of the policy or exceeding it. If the full value of the property is insured, a policy subject to average has the same position towards a loss that •a policy does which is not subject to average. Any loss would be recoverable in totality up to the amount of policy.The proportion an insured sum which is subject to average corresponds to the value of all the property •encompassed there under is the proportion which represents any part of that value. The contribution to a loss occurring in any part of the alleged property will be determined by this proportion •ofthewholeproperty.Theinfluentialfactorofthevalueofallthepropertyprotectedbyaninsuredsumbeingbrought into consideration provides an adequate and reasonable method of apportioning the insurance amongst any of the component parts of the said value. The second condition of average states that whenever the circumstances named therein are present, a primary •liability for the loss shall be attached to insurance. The enforcing circumstances come into play whenever the insurance provides protection of primary import to •a part only of the property to which insurance relates, and in the second place no property other than such part. Theinsurancefirstmentionedwouldbethemorespecificone.

Features of average policyThe features of average policy are as follows:

This policy contains average clause.•The sum insured under his property shall be lesser than market value of property insured.•The insurer shall be liable to compensate the loss in proportion of policy amount with market value of subject •matter when event took place.Theinsuredisbenefitedwheremarketvalueofpropertydeclines.•Theinsurergetsmorebenefitsunderthispolicy.Theinsuredisboundtomakepaymentofclaimonproportion•to the value of property.

3.2.4 Floating Property Policy

Afloatingpropertypolicyisthatwhichcoversthefluctuatingstocksofgoodsheldindifferentlotsforone•premium. Thefloatingpolicyisideallysuitedforbusinessman’swhosegoodsarelyingindifferentlocationsaswitheach•transactionthequantityofgoodskeptatdifferentplacevarieswhichmakesitdifficultfortheownertotakeapolicyforaspecificamount.Itisapolicywhichcoverslossbyfirecausedtopropertybelongingtothesamepersonbutlocatedatdifferent•places under a single sum and for one premium.

3.2.5 Replacement or Re-instatement Policy

It is a policy in which the insurer inserts a re-instatement clause, whereby he undertakes to pay the cost of •replacementof thepropertydamagedordestroyedbyfire.Thus,hemayre-instateor replace thepropertyinstead of paying cash. In such a policy, the insurer has to select one of the two alternatives, i.e., either to pay cash or to replace the •property, and afterwards he cannot change to the other option. The company may, at their option, reinstate or replace the property damaged or destroyed, or any part thereof, •duetofireinsteadofpayingtheamountofthelossordamageinmoneyorcollaboratewithotherinsuresinvdoing so. Reinstatement is deemed to be effected when it is reasonably practicable and adequate taking into consideration •the fact that the former appearance and condition of the property may not be precisely restored.

Fire Insurance

26/JNU OLE

If the company elect to reinstate or replace, the Insured shall have to provide them, when required, all such •plans and information as may be deemed necessary or convenient for the purpose. The option possessed by the company under this condition, of reinstating instead of paying in money, is one •the exercise of which lies entirely within their own discretion. They can consider exercising it or not. They are not bound to reinstate, but may decide on consideration to perform reinstatement. At present reinstatement is very rarely resorted to as it involves several complications for example the cost of •reinstatement may prove to exceed such sum as payment of the loss in money would have amounted to. Another problem is that the reinstatement of movable property is unlike that of buildings as there are obvious •limits to replacing the goods destroyed for example some descriptions of movable property again are absolutely irreplaceable, such as manuscripts, rare books, antique furniture and works of art. It is worth noting that with regard to movable property the company are not bound to reinstate upon the actual •sceneofthefireifpreventedbygoodreasonfromsodoing.Forinstance,itmayperhapsbethatthesettingofmachineryuponthepremiseswherethefireoccurredmaynotbepossiblebutthecompanycouldclaimtobefulfillingtheircontractbyproposingtosetitupuponalternativepremisesthataresuitablefortheInsured’strade.

Features of reinstatement policyThe features of reinstatement policy are as follows:

The market value of the insured policy is not calculated for indemnity, only value of replacement is •ascertained.Inrepairingtheburnedpropertytheinsurertriestoensurethatnosignificantchangeinsizeandvalueofthe•insured property is made and the property is restored to a reasonable extent.It entails moral issues which necessitates that it is issued only to reputable companies.•

Advantages and disadvantages of reinstatement policy

Advantages DisadvantagesThe insured has the advantage of havingthepropertyofthesamefirmbyreplacement as it was time of insurance.

Insurer has to expend more in replacement of damaged property.

The insured does not bear the increase in prices at time of replacement

Due to uncontrolled rise in prices the insurerfrequentlymayfinditdifficultto estimate the amount of indemnity correctly.

The insured has to pay higher rate of premium.

Table 3.2 Advantages and disadvantages of reinstatement policy

3.2.6 Consequential Loss Policy

Consequentialloss(fire)insurancepolicyiscomplimentarytothetraditionalstandardfireandspecialsperils•policy.Thispolicycanbetakenonlyinconjunctionwithfirepolicyormachinerybreakdownpolicy.Thispolicyisalsoknownasbusinessinterruptionpolicyorlossofprofitpolicy.Test.TheFireConsequential•LossPolicycanbeextendedtocoverlossofprofittotheinsureddueto:

Accidental failure of public electricity/gas/water supply. �Damagetocustomer’spremisesduetoperilscoveredunderFirePolicy. �DamagetoSupplier’spremisesduetoperilscoveredunderFirePolicy. �

Fire insurance, in its ordinary capacity, being strictly a contract of indemnity against direct loss or damage to •

27/JNU OLE

thepropertyactuallyaffectedbythefire,requiresalllossofanindirectorconsequentialcharactertobemadethe subject of a special policy. Suchconsequentiallosscomprisesrent,rates,fixedchargessuchasdebentureorotherinterest,salaries,and•allotheroutgoingswhichmaycontinuenotwithstandingthefire,whilsttothesemaybeaddedlossofprofits.Thus, the subject matter of consequential loss insurance is the business of the insured, i.e., the earning capacity of the property.Ifamajorlosscausedbyfireoccurs,itwillpossiblyleadtoaninterruptioninbusinessoperationwhichresults•inreductioninturnoverwhichultimatelycauseslossofprofits.However,standingorfixedchargescontinuetoaccrue regardless of whether there is any production or not. Suchlosscannotbecoveredunderfirepolicy.Consequentiallosspolicycompensatesfortherevenuelosssuffered•bytheenterpriseinsuchcase.Hence,consequentiallosspolicyisveryessentialinadditiontofireinsurancepolicyforprovidingcompleteprotectiontothebusinessenterpriseanditsprofitability.

Systems of covering the lossThere are several systems in force for recovering this indirect loss, all of which are based upon and have a •condition precedent to liability hereunder namely a direct loss payment being or about to be made. The policy covering the indirect loss is dependent upon the policy covering direct loss and its stipulations are •influencedbythepolicycoveringdirectlossinthatanyliabilitycannotbeclaimedundertheformerifitdoesnot come into the purview of the latter. The two are interlinked and interdependent when the question of liability arises but if the question of liability •is undisputed the settlement of the same may proceed separately.Theamountofindirectlosspayablemayalsobebasedupondecreasedoutputastheresultofthefire.Thesum•insuredagainstindirectlossrepresentstheprofit,afterallexpensesuponthestandardoutputoveracertainperiod, both, the amount of the said output and the extent of the said period being named in the policy, usually three or six months. Accordingtothedeficiencyinoutput,thesharepayableofthesumisinsured,butitisproportionedtothetime•duringwhichthedeficiencymaycontinue,untilthefullperiodnamedinthepolicyhasbeenreached,astatementbeing usually drawn up at monthly intervals. Byanothermethod,asumisinsuredagainstconsequentiallossinrespectofacertainfixedperiodandoutput,•and the payment is in proportion to the number of days the work may be stopped.The system which is probably more employed involves two sums being usually insured against consequential •loss of which one represents rent, rates and taxes, and salaries to permanent staff, and the other debenture or otherinterestorlossofprofits,overadefiniteperiodnamedinthepolicy,usuallysixmonths.

Scope of coverThepolicybroadlycoverslossofnetprofitcausedbyinterruptionofbusiness,resultingduetomaterialdamage•topropertybyfireoranyotherinsuredperilunderthestandardfireandspecialperilspolicy.It also covers the standing charges incurred in the period of interruption and cost of working which is necessary •within reasonable limits for continuing business at the normal level in order to avoid or minimise the loss of netprofitandstandingcharges.Wherethissystemhasbeenadopted,thesuminsuredagainstindirectlossconstitutesacertainfixedpercentage•ofthatinsuredagainstdirectloss,usuallytenorfifteenpercent.,andthesettlementsautomaticallyfollowoneupon the other.

Sum insuredThe estimatedgross profit for the indemnity period selected is calculated and the sum for that amount is•insured. The indemnity period is the maximum period commencing from the occurrence of damage for which the gross •profit loss is tobecoveredand itshouldalso indicate themaximumperiodexpectedfor restorationof the

Fire Insurance

28/JNU OLE

damaged property. The maximum indemnity period permissible under the policy is 3 years.Grossprofitcanbeinsuredononeofthefollowingbasis:•

Turnover basis �Output basis �Difference basis �Revenue basis �

PremiumBasisratedependsonfireandspecialperilsrate.FinalrateisaffectedbytheIndemnityPeriodchosen.•Thegrossprofitisdecideduponestimatedbasisatthebeginningandissubjecttodeclarationoftheactual•figuresafterexpiryofpolicybasedonfinalauditedaccounts.The rate of premium for the LOP policy basically consists of two components: •

Basic rate �Percentage for the indemnity period. �

Inthesystemofrating,thebasisadoptedisthefullaveragefirerateonthecontentsoftheprocessblocksofthe•premiseswhichreflectthematerialhazardsconsideredfromtheviewpointofthefireinsurers,andvariationismadeforthedegreeoftheinterruptionhazardwhichisreflectedinthelengthofthemaximumindemnityperiod selected by the insured.

Main extensionPolicy canbe extended to suppliers’ and customers’ premises or public utilities, onwhich the business is•dependent and cost of auditors fees, necessary for submitting claim on insurer.

Definitions of termsTurnover:• Turnover is the money paid or payable to insured for goods sold and delivered and for services rendered in course of business at premises.Indemnity period:• Indemnity period is the period commencing with date of damage during which business is affected by damage but limited to number of months selected by insured and inserted.Standard turnover:• As its name implies, standard turnover is the standard against which comparison is to be made in order to ascertain the shortage in turnover during the period in 12 months immediately before date of damage which corresponds with indemnity period.Gross profit:• Thisisthenetprofitaddedtotheamountoftheinsuredstandingcharges.Ifthereisnonetprofit,the amount of the Insured Standing Charges less such a proportion of the net trading loss as the amount of the Insured Standing Charges bears to all the Standing charges of the business, will be the basis of Indemnity.Rate of gross profit:• Rateofgrossprofitisdefinedasthatearnedduringthefinancialyearimmediatelybeforethe date of the damage. However, with most businesses, either they are making progress or they are losing ground. Provisionmustthereforebemadetoallowadjustmentstotheresultsofthepreviouscompletedfinancialyear.Suchadjustmentprovisoisbracketedagainsttherateofgrossprofit,annualturnover,andstandardturnover,whichthreedefinitionscoveralltheessentialfactorsincalculatingtheloss.

3.2.7 Comprehensive Policy

Thispolicycoverstherisksofthefirethatariseoutofanycausethatiscivilcommotion,lightening,riots,thefts,•labourdisturbancesandstrikesetc.Itisalsoknownas‘allinsurancepolicy’.Itisalsoknownas‘allinsurancepolicy’.Themajoradvantageofthispolicytotheinsuredishigherrateof•premium and protection against losses from various kinds of perils.

29/JNU OLE

3.2.8 Blanket Policy

Thispolicyisissuedtocoverallthefixedandcurrentassetsofanenterprisebyinsurance.•Thus,theblanketinsuranceprovidesseveraltypesofcoverage’sunderonepolicyandsotheblanketinsurance•is recommended for insurers with both buildings and personal property, or with multiple premises, either at the same or separate locations, or a combination of any of these. The blanket policy has a higher premium as more conditions are included than in standard, however is more •cost effective eventually.

3.2.9 Declaration Policy

In this policy, trader takes out a policy for the maximum value of stock which may be expected to hold during •theyear.Duringeachmonthatafixeddate,theinsuredhastomakeadeclarationconcerningtheactualvalueof stock at risk on that date. This declaration forms a basis for calculating the average amount of stock at risk in the year and this amount •becomes the sum assured. Thispolicyistakenforcoveringthestockwheregreatfluctuationsinthevaluecanhappenthroughoutthe•contractperiod.Theinsuredspecifiesthemaximumliabilityofinsurancecompanyinthepolicy.At the time of affecting the policy it is estimated that how much of the goods are to be covered by risk during •the tenure of policy, it is estimated that how much of the goods are to be covered by risk during the tenure of the policy. On the basis of this estimate insurance is affected on maximum value of goods. The insurer shall be liable to •this limit only. At beginning, the insurer charges 3/4• th of the premium on basis of maximum value of stocks. Thereafter the insured declares after certain time interval the value of his actual stock. Incaseof lossbyfire indemnity iscalculatedonbasisofvalueofgoodsdeclaredbythe insured inabove•manner.On maturity of policy, the average value of stock is ascertained and on basis of this average, the premium money •is determined. In case average premium is more than initial premium charged, the excess is claimed from the insured. On the other hand, the initial premium charged is more than average premium determined at maturity of policy, •the excess amount is returned to the insurer. 50% of initially paid premium is retained by the company. This way the insured is affected by the maximum •value of stock and payment of premium is made on average stock.

Features of declaration policyIn declaration policy, stock value declared at time of affecting the policy remains as insured sum.•Itisessentialtodeclarethestockofpremiumatcertainfixedintervals.•The premium is calculated at the end of every year.•Themoneytobeindemnifiedshallbethesamewhichwasdeclaredatbeginning.•This type of policy is suitable for such traders; commission agents and sale representatives whose sales are •affected even without placing supply orders. Thepolicyisalsosuitablefortradersofseasonalgoods,whosestocksmayfluctuateaccordingtoseasonal•variations.

Fire Insurance

30/JNU OLE

Advantages and disadvantages of declaration policy

Advantages Disadvantages

The premium rate is payable on basis of risk involved only.

Since the initial premium is charged on basis of estimated value of maximum stock there is a heavy burden on insurer who has to pay a huge amount as premium.

The excess amount paid towards initial premium is returned to insured

The insurer has to bear the risk of maximum stock, while charging premium for average stock only. Thefloatingpolicyisideallysuitedforbusinessman’swhosegoods are lying in different locations

Since the insured is affected not less than Rs. 1 crore the insured is secured against larger risks.

Table 3.3 Advantages and disadvantages of declaration policy

31/JNU OLE

SummaryIntoday’scompetitivemarketofinsurancetherehavebeenissuedvariousfirepoliciesbycompaniestosatisfy•the needs of the clientele which cover different types of risks to satisfy the insured party.The principle types of fire policies areValued Policy, Specific Policy,Average Policy, Floating Policy,•Reinstatement Policy, Consequential Loss Policy, Comprehensive Policy, Blanket Policy, and Declaration Policy.Theprocedureoftakingoutofthefirepolicy,thesuminsuredandmethodofcalculatingmeasureofindemnity•variesaccordingtothetypeofthefirepolicy.An average policy is one which contains the average clause. This clause required the insurance company to •pay only that portion of the loss which is borne by the insured amount to the actual value of the subject matter of the insurance.Under the reinstatement policy insurance company pays more than the actual value of the property destroyed •byfireinordertocoverthecostofreplacementofthesaidproperty.Itisalsocalledas“ReplacementPolicy”.This type of policy is not very common in these days.Thereinstatementpolicyisissuedtovoidtheconflictofindemnity.Inthispolicy,insurancecompanydoesnot•indemnitythelossbutitre-instatestheinsuredpropertylostbyfire.Consequentiallosspolicyisissuedtocoverupthelosscausedbyfireorotherconsequentialhappenings.This•policyindemnifiesthefinanciallossoftheinsured.Itcompensatesboththedirectandindirectlosseswhichhavebeenincurredduetothefire.The insured should take up any specific type of fire policy according to his discretion keeping in view•his requirements and factors such as risk and cost of premium and measure of indemnity, advantages and disadvantages of a particular policy.

ReferencesTaylor, H., 1949. • Fire insurance law [pdf] Available at: <http://www.archive.org/download/fireinsurancelaw032035mbp/fireinsurancelaw032035mbp.pdf>.[Accessed15June2011].Fire insurance• [Online]Availableat:<http://business.gov.in/manage_business/fire_insurance.php>[Accessed13 June 2011].Goel, K., 2011. • Non-life insurance [Online] Available at: <http://www.scribd.com/doc/50915844/5/TYPES-OF-FIRE-POLICIES> [Accessed 13 June 2011].Consequential-Loss • [Online] Available at: <http://www.icicilombard.com/app/ilomen/Businessproducts/Consequential-Loss.aspx>. [Accessed 13 June 2011].

Recommended ReadingDarrach, H., 2008. • The Standard Fire Insurance Policy, Pranava Books.Ketcham, E. • Fire Insurance; the Essentials of the Fire Insurance Business. Nabu press.Rochie H., 2010. • Fire Insurance Law: An Authoritative Analysis of the Standard Fire Insurance Policy, of Its Legal Aspects, and of the Standard Forms. Nabu press.

Fire Insurance

32/JNU OLE

Self Assessment

________________requiresinsurancecompaniestopaytotheinsured,incaseoftotalloss,thefullamountof1. the insurance, regardless of the actual value of the property at the time of the loss.

Valued-policy a. Consequential loss policyb. Declaration policyc. Blanket policyd.

Which of the following is a 2. policythatcoverslossbyfirecausedtopropertybelongingtothesamepersonbutlocated at different places under a single sum and for one premium?

Average policya. Floating property policyb. Comprehensive policyc. Declaration policyd.

Consequentiallosspolicyisalsoknownas_______________.3. business interruption policya. all purposes policyb. floatingpropertypolicyc. specificpolicyd.

__________isapolicywhichcoverslossbyfirecausedtopropertybelongingtothesamepersonbutlocated4. at different places under a single sum and for one premium.

Floating policya. Standard policyb. Lossofprofitpolicyc. Adjusting policyd.

Indeclarationpolicyinsurertakesoutapolicyforthe_________valueofstockwhichmaybeexpectedto5. hold during the year.

maximuma. minimumb. appreciatedc. depreciated d.

In________policy,theinsurerhastoselectoneofthetwoalternatives,i.e.,eithertopaycashortoreplace6. the property.

reinstatement policya. comprehensive policyb. valued policy c. specifiedpolicyd.

33/JNU OLE

Inordertodiscourageunder-insurance,fireinsurancepoliciesoftenincludea_________clause.7. exclusion a. operational b. nuclear exclusion c. averaged.

____________isnotanexampleofstandingchargesinsuredunderconsequentialloss(fire)policy.8. Purchase cost of raw materials a. Salaries to permanent staffb. Insurance premiumc. Officeandgeneralestablishmentexpensesd.

Which of the following statements is true?9. Theestimatedgrossprofitfortheindemnityperiodselectediscalculatedandthesumforthatamountisa. insured. The maximum indemnity period permissible under the policy is 4 years.b. Theamountofindirectlosspayablemayalsobebasedupondecreasedoutputastheresultofthefire.c. Afloatingpropertypolicyisthatwhichcoversthefluctuatingstocksofgoodsheldindifferentlotsforoned. premium.

Match the following10.

Reinstatement 1. policy

The sum insured under this policy shall be lesser than market A. value of property insured.

Declaration policy2. CoversallthefixedandcurrentassetsofanenterprisebyB. insurance.

Average policy3. Insurance company pays more than the actual value of the C. propertydestroyedbyfire.

Blanket policy4. The premium rate is payable on basis of risk involved only.D. 1-C, 2-B, 3-D, 4-Aa. 1-A, 2-D, 3-B, 4-Cb. 1-C, 2-D, 3-A, 4-Bc. 1-B, 2-D, 3-A, 4-Cd.

Fire Insurance

34/JNU OLE

Chapter IV

Fire Underwriting and Procedures

Aim

The aim of this chapter is to:

explaintheconceptoffireunderwriting•

discuss the tariff and non-tariff scenario•

describetheprocessoffireriskassessment•

Objectives

The objectives of this chapter are to:

identify the steps in risk assessment process•

explainthefiredetectionandwarningsystems•

evaluatethefirefightingequipmentsandfacilities•

Learning outcome

At the end of the chapter, you will be able to:

learn escape routes and emergency plans•

understandthefirerulesandregulations•

comprehendfireregulationsforeducationalinstitutions,building,industriesandsoon•

analysetheimportanceoffiresafet• y training

35/JNU OLE

4.1 IntroductionInsurance underwriting is the process of choosing who and what the insurance company decides to insure. This is based on a risk assessment. It is pretty much the “behind the scenes” work in an insurance company where they determine who is insured and how much in insurance premiums they will charge the insured person. Insurance underwriting also involves choosing who the insurance company will not insure. Underwriting in the insurance industry refers to the process used by insurance companies to determine how much of your liability to accept. This measure of risk helps insurance companies make coverage decisions.

Underwriting involves measuring risk exposure and determining the premium that needs to be charged to insure that risk.Thefunctionoftheunderwriteristoacquire—orto“write”—businessthatwillmaketheinsurancecompanymoneyandtoprotectthecompany’sbookofbusinessfromrisksthattheyfeelwillmakealoss.Insimpleterms,itis the process of issuing insurance policies.

Each insurance company has its own set of underwriting guidelines to help the underwriter determine whether or not the company should accept the risk. The information used to evaluate the risk of an applicant for insurance will dependonthetypeofcoverageinvolved.Forexample,inunderwritingautomobilecoverage,anindividual’sdrivingrecord is critical. As part of the underwriting process for life or health insurance, medical underwriting may be used toexaminetheapplicant’shealthstatus(otherfactorsmaybeconsideredaswell,suchasageandoccupation).

Insuranceisbasedonrisk.Asaresult,it’simportantforinsurancecompaniestobeabletousedataandstatisticstoaccurately determine risk. Underwriting is the component of insurance that deals with assessing risk. Underwriting is used to ensure that insurance companies charge the right amount for insurance coverage. If they charge too much, they will lose customers to their competitors who charge less for coverage. On the other hand, if an insurance company charges too little for coverage, they will eventually run out of money after paying for large claims. In addition to helping insurance companies accurately set prices, underwriting is also used to aid in the detection and prevention of fraud.

Illustration: Jane went to her insurance agent to get a car insurance policy. After she told the insurance agent that she had driven without a license and insurance for 5 years and was in jail for reckless driving three times, the insurance agent said that their insurance underwriting department would not insure her because they feel she is too much of a risk.

4.2 Fire Insurance UnderwritingUnderwritingoffireandexplosionrisksinsurersgenerallyoffertheprotectionagainstfire,explosion,lightening,•actofGodperilslikeearthquake,flood,storm,inundation,riot,strikeandmaliciousdamageandsoon,asasingle package cover. Someinsurersusedtoofferterrorismalsoasapackageoffirecover,howeverthispracticehasbeendiscontinued•as an aftermath of 11/9. Terrorismriskiscoveredasaseparatecoveroradd-oncoverunderfireinsurancesubjecttotheacceptanceand•conditions of reinsurers. Similarly, spontaneous ignition/combustion that may occur in areas like coal stores can be covered as part of •thecoverorasaddoncovertothenormalfireinsurance.

Tariff ScenarioTariffscenarioinsomecountrieslikeIndia,fireinsuranceistariffdrivenandtariffoffersdiscountsonthebasic•premiumthathasbeenfixedforthecementindustrybasedonthepastclaimexperienceoftheinsurersandtherisk potential assessed by the regulatory authorities. Insuchconditions,discountsareofferedforthegoodfeatureslikeprovisionandmaintenanceofcertifiedfire•protection systems, past claim experience and so on. Loadingisdoneonthebasicpremiumiftheclaimexperienceexceedsthelimitsspecifiedinthetariff.•

Fire Insurance

36/JNU OLE

Though past claim experience can be related to the maintenance of the systems indirectly, there exists a limit •on the optimisation of the insurance through better maintenance practices. This is due to the element called probability of occurrence. Generally,fireinsurancedependsonthefactorofuncertaintyandglobalinsurancepracticesuggeststhatall•propertyneedstobecoveredforfireinsurance.However, the optimisation can be done by means of opting for a higher voluntary deductible based on predictive •maintenancesystems,underthefireinsurance.

Non Tariff ScenarioInmatureinsurancemarketslikeEurope,thefireinsuranceisnotdrivenbytariff.Also,countriessuchasChina•and India, which are major cement producers, are moving out of the tariff regime. Fire insurance underwriting is driven by market conditions and individual merit of the corporate to be covered •under insurance. As the cement industry is capital intensive, none of the local insurers will choose to retain the risk of any major cement company. As they prefer to go in for reinsurance considering the risk potential, the quote by the reinsurer plays a crucial •role. Reinsurers check the favourable and adverse features of the cement company concerned and their past claim experience. The logic of selecting the higher voluntary deductible based on the maintenance practices is more relevant in •the open insurance market scenario. The loss potential of the critical equipment of cement industry due to explosion can be reviewed to decide on the •special maintenance practices in addition to the routine inspections that are carried out as part of maintenance schedule.

4.3 Fire Risk AssessmentAfireriskassessmentisanorganisedandmethodicallooktowardsthepremises,theactivitiescarriedonthere•andthelikelihoodthatafirecouldstartandcauseharmtothoseinandaroundthepremises.Theaimsofthefireriskassessmentareto:•

Identifythefirehazards. �Reduce the risk of those hazards causing harm to as low as reasonably practicable. �Decidewhatphysicalfireprecautionsandmanagementarrangementsarenecessarytoensurethesafetyof �peopleinyourpremisesifafiredoesstart.

Therefore,whiledecidingwhatfireprecautionsandmanagementarrangementsarenecessarywhichwillneed•todefinehazardandrisk.

Hazard: � Anything that has the potential to cause harm.Risk: � The chance of harm occurring.

Ifanorganisationemploysfiveormorepeople,orapremisesarelicensedoranalterationsnoticerequiring•itisinforce,thenthesignificantfindingsofthefireriskassessment,theactionstobetakenasaresultoftheassessmentanddetailsofanyoneespeciallyatriskmustberecordedanditwillprobablyfindithelpfultokeeparecordofthesignificantfindingsoffireriskassessment.

4.3.1 Fire Risk Assessment Process

Afireriskassessmentwillhelptodeterminethechancesofafirestartingandthedangersfromfirethatthe•premises present for the people who use them and any person in the immediate vicinity. Itisimportanttocarryoutfireriskassessmentinapracticalandsystematicway.Itmusttakethewholeofthe•premises into account, including outdoor locations and any rooms and areas that are rarely used. If the premises is small it can be assess it as a whole. Insomepremisesonemayfindithelpfultodividethemintoaseriesofassessmentareasusingnaturalboundaries,•forexample,assemblyspaces,processareas(suchascookingfacilitiesinvillagehalls),offices,stores,aswell

37/JNU OLE

as corridors, stairways and external routes. If the premises are in a multi-use complex then the information on hazard and risk reduction will still be •applicable. However, any alterations to the use or structure of individual unit will need to take account of the overallfiresafetyarrangementsinthebuilding.The premises may be simple, with few people present or with a limited degree of activity, but if it forms part of •a building with different occupancies, then the measures provided by other occupiers may have a direct effect ontheadequacyofthefiresafetymeasuresinyourpremises.Under health and safety law, it is necessary to carry out a risk assessment in respect of any work processes at •workplace and to take or observe appropriate special, technical or organisational measures. It is necessary to appoint one or more competent persons to carry out any of the preventive and protective •measures needed to comply with the order.

Thestepsinfireriskassessmentareasfollows:

Fig. 4.1 Steps in risk assessment

STEP IIdentify fire hazards(identifysourcesofignition,fuel,oxygenandsoon)

STEP IIIdentify people at risk (people in and around the premises, and people especiallyatrisk)

STEP IIIEvaluate(Evaluatetheriskofafireoccurring,risktopeoplefromfire)Remove, reduce(firehazards,risktopeopleProtect from risk (detectionandwarning,lightning,maintenance)

STEP IV RecordsignificantfindingandactiontakenPrepare an emergency planInform and instruct relevant people; co-operate and co-ordinate with othersProvide training

STEP VKeep assessment under review

Fire Insurance

38/JNU OLE

4.4 Detailed Description of Fire Risk Assessment ProcessFivestepsinfireriskassessmentprocessareexplainedindetailasshownbelow:

4.4.1 Step 1: Identify Fire HazardsForafiretostart,threethingsareneeded:

Fig. 4.2 Identification of fire hazards Source of ignitionOne can identify the potential ignition sources in the premises by looking for possible sources of heat, which could get hot enough to ignite material found in your premises. These sources could include:

cookingequipment,hotducting,fluesandfilters•smokers’material,e.g.,cigarettes,matchesandlighters•electrical,gasoroil-firedheaters(fixedorportable),roomheaters•hot processes, e.g., welding by contractors•faulty or misused electrical equipment•lightfittingsandlightingequipment,e.g.,halogenlampsordisplaylighting•hot surfaces and obstruction of equipment ventilation•central heating boilers•nakedflames,e.g.,candlesorgasorliquid-fuelledopen-flameequipment•flares,fireworksandpyrotechnics•arson•

Sources of fuelAnythingthatburnsisfuelforafire.Itisnecessarytolookforthethingsthatwillburnreasonablyeasilyandareinenoughquantitytoprovidefuelforafireorcauseittospreadtoanotherfuelsource.Someofthemostcommon‘fuels’foundinsmallandmediumplacesofassemblyare:

flammableliquid-basedproducts,suchaspaints,varnishes,thinnersandadhesives•flammable liquids and solvents, such as alcohol (spirits),white spirit,methylated spirit, cookingoils and•disposable cigarette lightersflammablechemicals,suchascertaincleaningproductsandphotocopierchemicals•flammablegasessuchasliquefiedpetroleumgas(LPG)andacetylene•

Sources of ignition

Identify fire

hazards

Sources of oxygen

Sources of fuel

39/JNU OLE

displays and stands•costumes, drapes and hangings, scenery and banners•packaged foodstuffs•packaging materials, stationery, advertising material and decorations•plastics and rubber, such as video tapes, polyurethane foam-filled furniture andpolystyrene-baseddisplay•materials and rubber or foam exercise matsupholstered seating and cushions, textiles and soft furnishings and clothing displays•litterandwasteproducts,particularlyfinelydivideditemssuchasshreddedpaperandwoodshavings,offcuts•and dust accumulation amongst lubricated areasfireworksandpyrotechnics•

Sources of OxygenThemainsourceofoxygenforafireisintheairaroundus.Inanenclosedbuildingthisisprovidedbythe•ventilation system in use.Somechemicals(oxidisingmaterials),whichcanprovideafirewithadditionaloxygenandsohelpitburn.These•chemicalsshouldbeidentifiedontheircontainer(andcontrolofsubstanceshazardoustohealthdatasheet,)bythe manufacturer or supplier who can advise as to their safe use and storage.Oxygen supplies from cylinder storage•Pyrotechnics(fireworks)whichcontainoxidisingmaterialsandneedtobetreatedwithgreatcare.•

4.4.2 Step 2: Identify People at RiskAspartoffireriskassessmentprocess,itisimportanttoidentifythosewhoareatriskifthereisafire.Todothis,oneneedtoidentifywherewehavepeopleworking,eitheratpermanentlocations(suchasworkstations)oratoccasional locations around the premises and to consider who else may be at risk, such as worshippers, customers, other users of the facilities, including visiting performance companies, visiting contractors and so on and where these people are likely to be found. It is necessary to consider all the people who use the premises, but special attention is required particularly to people who may be especially at risk such as:

Yourselfandyourhelpersifyouare‘managing’thepremisesbutareunfamiliarwiththelocation,e.g.,organisers•hiring the venue.Employees who work alone and/or in isolated areas, e.g., cleaners and security staff•Unaccompanied children.•People who are unfamiliar with the premises, e.g., visitors and customers.•Peoplewithdisabilities(includingmobilityimpairment,orhearingorvisionimpairmentandsoon).•People who may have some reason for not being able to leave the premises quickly, e.g., people in a state of •undress(e.g.,swimmersorperformers),elderlycustomers,pregnantwomenorparentswithchildren.Sensory impaired due to alcohol, drugs or medication.•Other people in the immediate vicinity of the premises.•

4.4.3 Step 3: Evaluate, Remove, Reduce and Protect from RiskThe management of the premises and the way people use it will have an effect on the evaluation of risk. Management may have the responsibility alone or there may be others, such as the building owners or managing agents, who also might have responsibilities.

Evaluate the RiskEvaluate the risk of fire:• thechancesofafirestartingwillbelowifyourpremiseshavefewignitionsourcesand combustible materials are kept away from them.

Fire Insurance

40/JNU OLE

Ingeneral,firesstartinoneofthreeways:Accidentally, such as when smoking materials are not properly extinguished or when mobile heaters are �knocked over;By act or omission, such as when electrical equipment is not properly maintained, or when waste is allowed �to accumulate near to a heat source; andDeliberately,suchasanarsonattackinvolvingsettingfiretoexternalrubbishbinsplacedtooclosetothe �building.

Evaluate the risk to people: • to evaluate the risk to people in the premises, it is necessary to understand the wayfirecanspread.Fireisspreadbythreemethods:

Convection: Fire spread by convection is the most dangerous and causes the largest number of injuries �and deaths.Conduction: Some materials, such as metal shutters and ducting, can absorb heat and transmit it to the next �room,whereitcansetfiretocombustibleitemsthatareincontactwiththeheatedmaterial.Radiation: Radiation heats the air in the same way as an electric bar heater heats a room. �

Itisessentialthatthemeansofescapeandotherfireprecautionsareadequatetoensurethateveryonecanmaketheirescapetoaplaceoftotalsafetybeforethefireanditseffectscantraptheminthebuilding.Inevaluatingthisrisk to people one will need to consider situations such as:

Fire starting within an assembly space, such as a church hall, where many people could be affected.•Firestartingonalowerflooraffectingtheonlyescaperouteforpeopleonupperfloorsortheonlyescaperoute•for people with disabilities.Fire developing in an unoccupied space that people has to pass by to escape from the building.•Fire or smoke spreading through a building via routes such as vertical shafts, service ducts, ventilation systems, •poorly installed, poorly maintained or damaged walls, partitions and ceilings affecting people in remote areas.Fire spreading rapidly through the building because of combustible structural elements and/or large quantities •of combustible goods.

Remove or Reduce the HazardsThisisanessentialpartoffireriskassessmentandasaprioritythismusttakeplacebeforeanyotheractions.Ensurethatanyactionstakentoremoveorreducefirehazardsorriskarenotsubstitutedbyotherhazardsorrisks.

Forexample,ifwereplaceaflammablesubstancewithatoxicorcorrosiveone,wemustconsiderwhetherthismight cause harm to people in other ways. There are various ways through which we can reduce the risk caused by potential sources of ignition like:

Wherever possible replace a potential source by a safer alternative.•Replacenakedflameandradiantheaterswithfixedconvectorheatersoracentralheatingsystem.Fireguard•nakedflamesandrestrictthemovementofportableheatingappliances.Restrictandcontroltheuseofnakedflames,e.g.,candles.•Operateasafesmokingpolicyindesignatedsmokingareas,ensuringsufficientashtraysareprovidedandcleaned•appropriately and prohibit smoking elsewhere.Ensurethatsourcesofheatarekeptawayfromflammablematerialssuchascurtains,sceneryanddisplays.•

Remove or Reduce Sources of FuelThere are various ways to reduce the risks caused by materials and substances which burn, for example:

Ensurethatallupholsteredfurniture,curtains,drapesandothersoftfurnishings,arefire-retardant,orhavebeen•treatedwithaproprietaryfire-retardanttreatmentdesignedtoenhancetheirfireperformance.Ensurethatdisplaymaterials(includingartificialanddriedfoliage),sceneryandstands,arefire-retardant,or•

41/JNU OLE

havebeentreatedwithaproprietaryfire-retardanttreatmentdesignedtoenhancetheirfireperformance.Reducestocksofflammablematerials,liquidsandgasesondisplayinpublicareastoaminimum.Keepremaining•stock in dedicated storerooms or storage areas, preferably outside, where the public are not allowed to go and keep the minimum required for the operation of the business.Ensureflammablematerials,liquidsandgases,arekepttoaminimumandarestoredproperlywithadequate•separation distances between them.Donotkeepflammablesolids,liquidsandgasestogether.•

Remove or Reduce Sources of OxygenThepotentialsourceofoxygensuppliedtoafirecanbereducedby:

Closing all doors, windows and other openings not required for ventilation, particularly out of working hours.•Shutting down ventilation systems which are not essential to the function of the premises.•Notstoringoxidisingmaterials(includingpyrotechnicsandfireworks)nearorwithanyheatsourceorflammable•materials.Controllingtheuseandstorageofoxygencylinders,ensuringthattheyarenotleaking,arenotusedto‘sweeten’•the atmosphere and that where they are located is adequately ventilated.Controllingtheuseandstorageofpyrotechnicsandfireworks.•

Remove or Reduce the Risks to PeopleItisnecessarytoreduceanyremainingfirerisktopeopletoaslowasreasonablypracticable,byensuringthatadequatefireprecautionsareinplacetowarnpeopleintheeventoffireandallowthemtoescapesafely.

Theleveloffireprotectionweneedtoprovidewilldependonthelevelofriskthatremainsinthepremisesafterwe have removed or reduced the hazards and risks. Therefore, the objective should be to reduce the remaining risk to a level as low as reasonably practicable. The highertheriskoffireandrisktolife,thehigherthestandardsoffireprotectionwillneedtobe.

Fire Detection and Warning SystemsInmanypremisesafiremaybeobvioustoeveryoneassoonasitstarts(e.g.,inasimpleopenplanvillage•hall).In these cases, where the number and position of exits and the travel distance to them is adequate, a simple shout •of‘fire’orasimplemanuallyoperateddevice,suchasagong,whistleorairhorn,fairlyaudiblewhenoperatedfrom any single point within the building, may be all that is needed. Organisersorstaffwillneedamanagedfireevacuationplantodothis.Whereanalarmgivenfromanysingle•point is unlikely to be heard throughout the building, an electrical system incorporating sounders and manually operatedcallpoints(break-glassboxes)islikelytoberequired.\However, where there are unoccupied areas, or common corridors and circulation spaces in multi occupied •buildings,inwhichafirecoulddeveloptotheextentthatescaperoutescouldbeaffectedbeforethefireisdiscovered,anautomaticfiredetectionsystemwithacontrolpanelwhichisabletoidentifythezoneorspecificlocation where the alarm has been raised may be necessary.Thecontrolpanel(orarepeater)shouldbelocatedneartheentrancetothepremises.Arrangementsshouldbe•madetobriefthefireandrescueservicewhentheyarrive.

Fire Fighting Equipment and FacilitiesFirefightingequipmentcanreducetheriskofasmallfire,e.g.,afireinawaste-paperbin,developingintoa•large one. Thesafeuseofanappropriatefireextinguishertocontrolafireinitsearlystagescanalsosignificantlyreduce•the risk to other people in the premises by allowing people to assist others who are at risk. This equipment will need to comprise enough portable extinguishers that must be suitable for the risk.•

Fire Insurance

42/JNU OLE

Somepremiseswillalsohavepermanentlyinstalledfirefightingequipmentsuchashosereels,forusebytrained•stafforfirefighters.All staff should be familiar with the location and basic operating procedures for the equipment provided, in •case they need to use it. Otherfixedinstallationsandfacilitiestoassistfirefighters,suchasdryrisingmainsandaccessforfireengines,•orautomaticallyoperated,fixedfiresuppressionsystemssuchassprinklersandgasorfoamfloodingsystems,should also be provided.

Escape Routes

Onceafirehasstarted,beendetectedandawarninggiven,everyoneinthepremisesshouldbeabletoescape•toasafeplaceunaidedandwithoutthehelpofthefireandrescueservice.However, people with disabilities or with special needs may need help from staff who will need to be designated •for the purpose. Escaperoutesshouldbedesignedtoensure,asfaraspossible,thatanypersonconfrontedbyfireanywherein•the building should be able to turn away from it and escape to a place of reasonable safety, e.g., a protected stairwayTheleveloffireprotectionthatshouldbegiventoescaperouteswillvarydependingonthelevelofriskoffire•within the premises and other related factors. When determining whether the premises have adequate escape routes, we need to consider a number of factors, •including:

the type and number of people using the premises �escape time �the age and construction of the premises �the number and complexity of escape routes and exits �assembly points �assisted means of escape/personal evacuation plans �whether lifts can or need to be used �theuseofdelayedalarms(staffalarms) �

Emergency escape lighting: • Peopleinthepremisesmustbeabletofindtheirwaytoasafeplaceifthereisafirebyusingescaperoutesthathaveenoughlighting.Whereanyescaperoutesareinternalandwithoutwindowsor the premises are used during periods of darkness, then some form of back-up to the normal escape route lighting(emergencyescapelighting)mayberequired.Signs and Notices •

Signs: � Signsmustbeused,wherenecessary,tohelppeopleidentifyescaperoutes,findfirefightingequipmentandemergencyfiretelephones.Afire riskassessment thatdetermines thatnoescapesignsare required (because, forexample, trained �staffwillalwaysbeavailabletohelppersonstoescaperoutes),isunlikelytobeacceptabletoanenforcingauthority other than in the smallest and simplest of premises where the exits are in regular use and familiar tostaffandguests(e.g.,inasmallvillagehall).Wherethelocationsofescaperoutesandfirefightingequipmentarereadilyapparentandthefirefighting �equipmentisvisibleatalltimes,thensignsarenotnecessary.Inallothersituationsitislikelythatthefirerisk assessment will indicate that signs will be necessary.Notices: � Notices must be used, where necessary, to provide the following:

Instructionsonhowtouseanyfiresafetyequipment.−Theactionstobetakenintheeventoffire.−Helpforthefireandrescueservice(e.g.,locationofsprinklervalvesorelectricalcut-offswitch-−es).

All signs and notices should be positioned so that they can be easily seen and understood. �

43/JNU OLE

Installation, Testing and MaintenanceNewfireprecautionsshouldbeinstalledbyacompetentperson.Managementmustkeepanyexistingequipment,•devicesorfacilitiesthatareprovidedinpremisesforthesafetyofpeople,suchasfirealarms,fireextinguishersandlighting,signs,fireexitsandfiredoors,inworkingorderandmaintainseparatingelementsdesignedtopreventfireandsmokeenteringescaperoutes.The regular checks, periodic servicing and maintenance must be carried out whatever the size of the premises •and any defects are put right as quickly as possible. A person should be nominated, to carry out certain checks and routine maintenance work. Further maintenance •may need to be carried out by a competent service engineer.Wherecontractorsareused,thirdpartycertificationisonemethodwhereareasonableassuranceofqualityof•work and competence can be achieved.

4.4.4 Step 4: Record, Plan, Inform, Instruct and TrainIn this step there are further four elements of the risk assessment that one should focus on to address the management offiresafetyinthepremises.Insomepremiseswithsimplelayoutsthiscouldbedoneaspartoftheday-to-daymanagement; however, as the premises or the organisation get larger it may be necessary for a formal structure and written policy to be developed.

Record the Significant Findings and Action TakenIfanorganisationemploysfiveormorepeople,thepremisesarelicensed,oranalterationsnoticerequiringdoingsoisinforce,wemustrecordthesignificantfindingsofthefireriskassessmentandtheactionswehavetaken.Significantfindingsshouldincludedetailsof:

Thefirehazardswehaveidentified.•Theactionswehavetakenorwilltaketoremoveorreducethechanceofafireoccurring.•Persons who may be at risk, particularly those especially at risk.•Theactionswehavetakenorwilltaketoreducetherisktopeoplefromthespreadoffireandsmoke.•Theactionspeopleneedtotakeincaseoffireincludingdetailsofanypersonsnominatedtocarryoutaparticular•function. Theinformation,instructionandtrainingwehaveidentifiedthatpeopleneedandhowitwillbegiven.•

The record could take the form of a simple list which may be supported by a simple plan of the premises. More complexpremisesmayneedamoredetailedrecord;however,thereisnoone‘correct’formatspecifiedforthis.Keeping records will help to do this and will also form the basis of the subsequent reviews. Thefindingsoffireriskassessmentwillhelptodeveloptheemergencyplan,theinstruction,informationandtrainingneed to provide, the co-operation and co-ordination arrangements which will need to have with other responsible peopleandthearrangementsformaintenanceandtestingofthefireprecautions.

Emergency PlansItisnecessarytohaveanemergencyplanfordealingwithafiresituation.Thepurposeofanemergencyplan•istoensurethatthepeopleinthepremisesknowwhattodoifthereisafireandthatthepremisescanbesafelyevacuated. Theemergencyplanshouldbebasedontheoutcomeofthefireriskassessmentandbeavailablefortheemployees,•theirrepresentatives(whereappointed)andtheenforcingauthority.Inpremiseswithsimplelayoutstheemergencyplanmaybenomorethanafireactionnotice.•In multi-occupied and more complex premises the emergency plan will need to be more detailed and compiled •after consultation with other occupiers and other responsible people, e.g., owners, who have control over the building. In most cases this means that an emergency plan covering the whole building will be necessary. •

Fire Insurance

44/JNU OLE

Inform, Instruct, Co-operate and Co-ordinateThe clear and relevant information and appropriate instructions must be given to the staff and the employers •ofotherpeopleworkinginpremises,suchascontractors,abouthowtopreventfiresandwhattheyshoulddoifthereisafire.Ifthereisachildemployed,thenitismusttoinformtheparentsofthesignificantrisksthatareidentifiedand•the precautions taken for it. There should be co-operation and co-ordination with other responsible people who use any part of the •premises.

Information and InstructionAll staff should be given information and instruction as soon as possible after they are appointed and �regularly after that. This also includes staff who work outside normal working hours, such as contract cleaners or maintenance �staff. Allotherrelevantpersonsaregiveninformationaboutthefiresafetyarrangements.Informationshouldbe �availableforthepublic,e.g.,fireactionnotices.The information and instructions too are mentioned in a form that can be used and understood. It takes into �accountofthosewithdisabilitiessuchashearingorsightimpairment,thosewithlearningdifficultiesandthosewhodonotuseEnglishastheirfirstlanguage.The information and instruction given are based on emergency plan and includes: �

Thesignificantfindingsfromthefireriskassessment.−The measures that we have put in place to reduce the risk.−Whatshouldstaffdoifthereisafire?−Theidentityofpeoplewehavenominatedwithresponsibilitiesforfiresafety.−Anyspecialarrangementsforseriousandimminentdangertopersonsfromfire.−

Informationandinstructionmaysimplyinvolveanexplanationofthefireproceduresandhowtheyareto �beapplied.Thisshouldincludeshowingstaffthefire-protectionarrangements,includingthedesignatedescape routes, the location and operationOfthefire-warningsystemandanyotherfire-safetyequipmentprovided,suchasfireextinguishers.Fireaction �notices can complement this information and, where. Used, should be posted in prominent locations.

Co-operation and Co-ordinationIn premises that are not multi-occupied we are likely to be solely responsible. However, in buildings owned �by someone else, or where there is more than one occupier and others are responsible for different parts of thebuilding,itisimportantthatwecoordinatewiththemandinformthemofanysignificantrisksthatwehaveidentified. By liaising we can co-ordinate the resources to ensure that our actions and working practices do not place �othersatriskifthereisafireandaco-ordinatedemergencyplanoperateseffectively.Where two or more responsible persons share premises in which an explosive atmosphere may occur, the �responsible person with overall responsibility for the premises must co-ordinate any measures necessary to protect everyone from any risk that may arise. Employees also have a responsibility to co-operate with their employer to help the employer comply with �any legal duty.

Fire Safety TrainingTheorganisationmustprovideadequatefiresafetytrainingforthestaff.Thetypeoftrainingshouldbebased•on the particular features of the premises and should:

Takeaccountofthefindingsofthefireriskassessment. �Explain the emergency procedures. �

45/JNU OLE

Take account of the work activity and explain the duties and responsibilities of staff. �Take place during normal working hours and be repeated periodically where appropriate. �Be easily understandable by the staff and other people who may be present. �Betestedbyfiredrills. �

Insimplepremisesthismaybenomorethanshowingnewstaffthefireexitsandgivingbasictrainingonwhat•todoifthereisafire.In most premises, in particular where there is a high staff turnover and many shift patterns, the organisation of •firesafetytrainingwillneedtobemoreformal,e.g.,byaninductioncourse.Someofthestaffmayhavereceivedsomefiresafetytrainingaspartofanationalaccreditationscheme(e.g.,•doorstaffandstewards).The training should include the following:•

Whattodoondiscoveringafire? �How to raise the alarm and what happens then? �Whattodouponhearingthefirealarm? �The procedures for alerting members of the public and visitors including, where appropriate, directing �them to exits.Thearrangementsforcallingthefireandrescueservice. �Theevacuationproceduresforeveryone(includingthepublicandcontractors)inthepremisestoreachan �assembly point at a place of total safety.Thelocationand,whenappropriate,theuseoffirefightingequipment. �The location of escape routes, especially those not in regular use. �How to open all emergency exit doors? �Theimportanceofkeepingfiredoorsclosedtopreventthespreadoffire,heatandsmoke. �Whereappropriate,howtostopmachinesandprocessesandisolatepowersuppliesintheeventofafire? �Thereasonfornotusinglifts(exceptthosespecificallyinstalledornominated,followingasuitablefire �risk assessment.Thesafeuseofandrisksfromstoringorworkingwithhighlyflammableandexplosivesubstances. �Theimportanceofgeneralfiresafety,whichincludesgoodhousekeeping. �

4.4.5 Step 5: Review

Itisnecessarytoconstantlymonitorwhatmeasuresaretakentoimplementthefireriskassessment,toassess•how effectively the risk is being controlled.Iftheirisanyreasontosuspectthefireriskassessmentisnolongervalidortherehasbeenasignificantchange•inthepremisesthathasaffectedfireprecautionsanditisnecessarytoreviewtheassessmentandifnecessary,revise it.Reasons for review could include:•

Changes to work activities or the way that we organise them, including the introduction of new �equipment.Alterations to the building, including the internal layout. �Substantialchangestofurnitureandfixings. �The introduction, change of use or increase in the storage of hazardous substances. �Thefailureoffireprecautions,forexample,fire-detectionsystemsandalarmsystems,lifesafetysprinklers �or ventilation systems.Significantchangestodisplaysorquantitiesofstock. �Asignificantincreaseinthenumberofpeoplepresent. �The presence of people with some form of disability. �

Fire Insurance

46/JNU OLE

Ifafireor‘nearmiss’occurs,thiscouldindicatethattheexistingassessmentmaybeinadequateandweshould•carry out a re-assessment. It is good practice to identify the cause of any incident and then review and, if necessary,reviseourfireriskassessmentinthelightofthis.Thefireriskassessmentisnotaone-offprocedure.Itshouldbecontinuallymonitoredtoensurethattheexisting•firesafetyarrangementsandriskassessmentremainrealistic.Theassessmentshouldbereviewedifthereisasignificantchangeintheoccupancy,workactivity,thematerials•used or stored, when building work is proposed or when it is no longer thought to be valid, we must remember toincludearemindertokeeprecordsanddocumentationrelatingtoallaspectsoffiresafety.

Fire Regulations for Educational InstitutionsAlleducationalinstitutionshavetofollowthefiresafetymeasuresirrespectiveofthebuildingheight.TheexistinginstitutionsshouldalsohaveminimumfiresafetydevicesasspecifiedbytheDelhiFireServicesDepartment.Someof the requirements are as follows:

For Ground Floor: • One overhead water storage tank of 5000 litres shall be provided exclusively for feeding water to the sprinkler system For Ground + Two Floors:•

An overhead water tank having 2500 litres capacity (5000litres capacity in case of sprinkler system and / �ordowncomersystem)shallbeprovidedexclusivelyforfirefightingsystem.If the total covered area is more than 5000 sq. m and up to 10,000 m � 2, an additional underground water storage tank of 25000 litres capacity shall be provided. If the total covered area exceeds 10,000 m2, the capacity shall be 50000 litres.

Fire Precautions in BuildingsThefollowingaresomeoftheprecautionsthathavetobefollowedtopreventfirehazard,inhighrise,industries,temporary structures and in any buildings:

Do not allow encroachments or storages in the courtyards of the building. •Do not allow storages or obstructions in the common corridors, staircases and electric meter rooms. •Donotallowthefiredoorsofthestaircasestobekeptopen.•Incaseoffire,donotuseliftsforescape.•Do not use the basement for any purpose other than permitted purpose. •Sealtheelectricalductsateachfloorslablevel.•TheA.C.ductsshouldnotpassthroughonefloortoanother,sectionalisethem.•Neverpaintorcoatfiredetectorsorsprinklerheads.•Do not decorate walls and ceilings of common corridors with combustible material such as wooden panelling •etc. Donotallowfirefightingtankstobemisusedorremainempty.•Donot‘switchoff’fire/smokedetectionsystem.•Do not carry out additions and alteration in the building. •Acquaintyourselfwiththelayoutoftheescaperoutes,staircases,refugeareasandthelocationoffirealarms.•Alwayskeepthedoorsoffirestaircasesclosed.•Allthefireprotectioninstallationsshouldbekeptinagoodstate•Groundallthelifts,includingfirelift,incaseofafire.•

Fire Precautions in High Rise BuildingsAll receptacles for waste should be emptied at regular intervals. •Faulty electrical appliances should be repaired/ replaced immediately. •Switches and fuses should conform to correct rating of circuit. •

47/JNU OLE

Welding /cutting jobs should be carried out under strict supervision. •Keepsmoke/firecheckdoorsclosed.•Keep means of escape clear of obstructions. •Fire Rescue drills should be carried out at regular intervals. •Impartelementaryfirefightingtrainingtooccupants.•Don’tplugtoomanyelectricalappliancesinonesocket.•Don’tpaintfiredetector/sprinklerheads.•

Fire Precautions for Temporary Structures/PandalsThe height of the ceiling of the pandal should not be less than 3 metres. •The margins of at least 3 metres should be kept on all sides-away from any pre existing walls or buildings. •Structure should be erected reasonably away from railway lines, electric substations, live electric line, furnaces •or other hazardous places and a minimum distance of 15 metres should be maintained. Exitsonallsidesofthepandalshallbekeptsufficientlywide(minimum1.5metres).•Kitchenmustbesegregatedbyprovidingseparationwallsofnoncombustiblematerial(G.I.Sheets)fromthe•remaining area of the temporary structure.

Fire Precautions in IndustriesStoreflammableliquidsgases,solvents,chemicalsinstableracks,correctlylabelled.•Keep chemicals in cool and dry place away from heat. •Where hazardous chemicals are used/ stored, ensure adequate ventilation and prohibit smoking. •Use fuses and circuit breakers of correct capacity. •Beforeweldingoperation,alltracesofflammablematerialmustberemovedtoasafedistance.•Welding/hotworkshouldbecarriedoutunderproperfirewatch.•Keep all machinery clean and lubricate it to avoid friction and overheating. •Regularfiredrillsshouldbecarriedout.•Don’tplaceobstructioninmeansofescape.•Don’tusedamagedcordsandavoidtemporaryconnections.•

Fire Rules and RegulationsAllmetrocitiesinIndiahasfireregulationsandnormsanditismandatorytogetNoObjectionCertificate(NOC)•forbuildingsandDelhihasthemostcomprehensivefireregulationsofallcities.The following are some of the regulations under the “Delhi Fire Prevention and Fire Safety Act, 1986” to prevent •andminimizetheeffectoffirehazard.Thetablegivesthedetailsoftheminimumfiresafetyrequirementsforvarioustypesofbuildings.•

Fire Insurance

48/JNU OLE

Type of Building Occupancy Requirements

Apartmentbuildingbelow15mheightirrespectiveoffloorarea Nil

Apartment building exceeding 15 m in height Wetrisersand(or)Downcomer

Non-Apartment building 15 m and above in height irrespective of floorarea

Wetrisersand(or)Downcomers

All basements, sub - basements having special risks like storage of hazardous explosive material in a building 15m and above

High pressure water spray or foam

Table 4.1 Fire safety requirements for various building type and heights

Fire Regulations for RestaurantsAllrestaurantswithseatingcapacityof50personsandmorehavetofollowthefiresafetymeasuresirrespectiveofthebuildingheight.TheexistingrestaurantsshouldalsohaveminimumfiresafetydevicesasspecifiedbytheDelhiFire Services Department. Some of the requirements are as follows:

An underground water tank of 50000 litres capacity. •A terrace water tank of 5000 litres capacity for hose reel & 10000 litres capacity if sprinkler is not provided. •If the covered area is more than 1500 sq.m or seating capacity is more than 1000 persons there should be a •sprinkler system.

49/JNU OLE

SummaryInsurance underwriting is the process of choosing who and what the insurance company decides to insure. This •is based on a risk assessment. Underwriting involves measuring risk exposure and determining the premium that needs to be charged to insure •that risk. Each insurance company has its own set of underwriting guidelines to help the underwriter determine whether •or not the company should accept the risk. Underwritingoffireandexplosionrisksinsurersgenerallyoffertheprotectionagainstfire,explosion,lightening,•actofGodperilslikeearthquake,flood,storm,inundation,riot,strikeandmaliciousdamageandsoon,asasingle package cover. Afireriskassessmentisanorganisedandmethodicallooktowardsthepremises,theactivitiescarriedonthere•andthelikelihoodthatafirecouldstartandcauseharmtothoseinandaroundthepremises.Afireriskassessmentwillhelptodeterminethechancesofafirestartingandthedangersfromfirethatthe•premises present for the people who use them and any person in the immediate vicinity. Theorganisationmustprovideadequatefiresafetytrainingforthestaff.Thetypeoftrainingshouldbebased•on the particular features of the premises AllmetrocitiesinIndiahasfireregulationsandnormsanditismandatorytogetNoObjectionCertificate(NOC)•forbuildingsandDelhihasthemostcomprehensivefireregulationsofallcities.

References

BenmoreNi, 2010. • Fire Risk Assessment [Video online] Available at: <http://www.youtube.com/watch?v=3gKuyyvr1kE> [Accessed 27 June 2011].safetynut1, 2011. • Fire Risk Assessment & the Fire Safety Order Explained [Video online] Available at: <http://www.youtube.com/watch?v=lkXXzwRK3q8>. [Accessed 27 June 2011].Fire Risk Assessment• [Online] Available at: <http://www.bedsfire.com/COMMUNITYSAFETY/BUSINESSFIRESAFETY/Pages/FireRiskAss.aspx> [Accessed 27 June 2011].The Footwear & Leather Health & Safety Committee, 2007. • Fire safety – fire risk assessment [Online] Available at: <http://www.britfoot.com/documents/FIRE%2007.pdf> [Accessed 27 June 2011].Yung, D., 2009. • Principles of Fire Risk Assessment in Buildings. Wiley.Hirschler, M., 1992. • Fire Hazard and Fire Risk Assessment. Astm Intl.

Recommended ReadingReed, P., 1940. • Fire Insurance Underwriting. McGraw-Hill Book Company.Dominge, C., 2010. • Fire Insurance Inspection & Underwriting. Nabu Press.Robert B. Holtom, 2001. • Commercial Fire Underwriting. 3rd. ed., Natl Underwriter Co.

Fire Insurance

50/JNU OLE

Self Assessment

Underwriting in the insurance industry refers to the process used by insurance companies to determine how 1. muchofyour__________toaccept.

claima. sum insuredb. coveragec. liabilityd.

Which of the following statements is false?2. Thefireriskassessmentisaone-offprocedure.a. Alleducationalinstitutionshavetofollowthefiresafetymeasuresirrespectiveofthebuildingheight.b. Theorganisationmustprovideadequatefiresafetytrainingforthestaff.c. All staff should be given information and instruction as soon as possible after they are appointed and d. regularly after that.

To evaluate the risk to people in the premises, it is necessary to understand the way:3. firecanbeextinguisheda. firecanspreadb. safety measures can be usedc. risk assessment processd.

__________heatstheairinthesamewayasanelectricbarheaterheatsaroom.4. Conductiona. Convectionb. Radiationc. Transmissiond.

Thehighertheriskoffireandrisktolife,thehigherthestandardsof_________________willneedtobe.5. risk assessmenta. fireinsuranceb. fireprotectionc. fireunderwritingd.

Which of the following statements is true?6. Itisnotnecessarytohaveanemergencyplanfordealingwithafiresituation.a. Inpremiseswithsimplelayoutstheemergencyplanmaybemorethanafireactionnotice.b. Ifthereisachildemployed,thenitisnotnecessarytoinformtheparentsofthesignificantrisksthatarec. identifiedandtheprecautionstakenforit.The regular checks, periodic servicing and maintenance must be carried out whatever the size of the premises d. and any defects are put right as quickly as possible.

51/JNU OLE

Underwritinginvolvesmeasuringriskexposureanddeterminingthe_________needstobechargedtoinsure7. that risk.

policya. premiumb. coveragec. claimd.

Loadingisdoneonthebasicpremiumiftheclaimexperienceexceedsthelimitsspecifiedinthe_______.8. policya. contractb. claimc. tariffd.

Themanagementofthepremisesandthewaypeopleuseitwillhaveaneffectonthe____________.9. evaluation of riska. protection of peopleb. identificationofhazardsc. reduction of the risksd.

All restaurantswith seating capacity of ______persons andmore have to follow thefire safetymeasures10. irrespective of the building height.

60a. 70b. 50c. 80d.

Fire Insurance

52/JNU OLE

Chapter V

General Fire Hazards

Aim

The aim of this chapter is to:

introducethegeneralfirehazards•

explainthetwocategoriesoffirehazardsnamely:originatingandcontributory•

discussthefireprotectionsystem•

Objectives

The objectives of this chapter are to:

explain the concept of the originating hazards along with their causes•

discusstheusageofcommonfireextinguishingappliances•

evaluatethetypesofgeneralhazards,namely,electrical,metal,exposure,dangerousatmosphere,andfireand•

explosion

Learning outcome

At the end of this chapter, you will be able to:

understand the concept of contributory hazards with the help of examples•

identifythemeanstoextinguishfire•

evaluatetheimportantaspectsoffireextinguishers•

understand the Loss Prevention Association of India•

53/JNU OLE

5.1 Introduction to General Fire HazardsTheterm“FireHazard”includesnotonlythecausesoffireswhicharesometimescalled‘Originating hazards’ butalsothosecircumstanceswhichincreasetheprobabilityofafireoccurring,orwhichenableorpermitfires,oncestarted, to spread and increase the loss, i.e., ‘Contributory hazards’.

The contributory hazards are frequently of greater importance than the originating hazards. In such a case the loss directlyattributabletothe“causeoffire”wouldbenegligible,butthefeatureswhichspreadthefirei.e.,timberpartitions, the combustible stocks and the open stairs would have increased the negligible loss to a very substantial one.Besides originating and contributory causes, there are other hazards which result in further losses. Examples of such losses are:

collapseofabuildinginvolvedinafire•breakage and spoiling of material, plant and machinery•damageduringfirefightingoperation•spoilage through smoke, heat and water•consequential losses•

5.1.1 Originating or Inception HazardsThe causes of originating or inception hazards are:

Electrical: • Thisistheleadingcauseofindustrialfires.Thereisadangerthatsparkswillbeproducedduringthenormal working of the equipment and secondly, a faulty condition may arise which may produce overheating or sparking.Thefirsthazardcanbereducedbythecarefulselectionofequipmentandinstallationstosuitworkingconditions. The second hazard can be minimised by the use of good quality equipment and materials. Further, high standard of workmanship is a must during the installation.Smoking: • Thisisapotentialcauseoffirealmosteverywhere.Asystemofcontrolandeducationwillminimisethis hazard to a considerable extent.Friction: • Friction due to hot bearings, misaligned or broken machine parts, choking or jamming of material, pooradjustmentofpowerdrives,andconveyorsleadstomanyindustrialfires.Overheated materials: • Abnormalprocesstemperaturesinvolvingheatedflammableliquidsandmaterialsindriers cause these hazards. These can be prevented by careful supervision of competent operators, supplemented by well maintained temperature controls.Hot surfaces: • Thehazardfromthissourcearisesduetoheatfromboilers,furnaces,hotductsandflues,electriclamps,ironsandhot-processmetalignitingflammableliquidsandordinarycombustibles.Burner flames: • Improper use of portable torches, boilers, driers, ovens, furnaces, portable heating units and gasoroilburnerflamesisacommonsourceofhazard.SparkArrestorsareusedtoreducethehazard.Combustion sparks: • Sparks and embers released from incinerators, foundry furnaces, various process equipments,passinglocomotives,andindustrialtrucksposeafirehazard.Sparkarrestorsareusedtoreducethis hazard.Spontaneous combustion: • Thishazardexistsinoilywasteandrubbish,depositsindriers,ductsandfluesandindustrial wastes.Cutting and welding: • Manyfiresarecausedduringcuttingandweldingbysparks,moltenmetalorhotelectrodestubs falling on combustible materials or by directly igniting from the blow pipe. Incorrectly connected electric weldingequipmentandconductionofheatthroughmaterialsbeingweldedorcut,canalsoleadtofires.Incendiarism: • Thesearethefiresmaliciouslysetbyintruders,disgruntledemployeesandarsonists.Mechanical sparks: • Manyfiresoriginateduetosparksfromforeignmetalinmachines,particularlyincottonmills, and in grinding and crushing operations. The hazard can be reduced by keeping stock clean and by removing foreign material by magnetic or separators.

Fire Insurance

54/JNU OLE

Molten substances: • Fires are caused by metal escaping from ruptured furnaces or spilled during handling. These firescanbepreventedbypropermaterialhandling.Insteelplants,leakageofmoltenmetalfromfurnacesorleakage during material transportation produces huge loss.Chemical action: • Fires can also originate by chemical processes going out of control. Chemicals reacting with other materials leads to the decomposition of unstable chemicals.Static sparks: • Staticelectricityisrarelyrecordedasasourceofignitioninreportsoffires,probably,becauseitisessentiallyassociatedwiththemovementofmaterialsandmachinesafterthefire,notraceofthecauseisleft.Thehazardcanbepreventedbygrounding,bondingandhumidification.Lightning: • Fires have been known to originate from direct lightning strikes. These may be prevented by lightning rods, arrestors and grounding.

5.1.2 Contributory HazardsThesehazardsincreasetheprobabilityoffiresoccurringorwhichenableorpermitfires,oncethefirehasstartedtospreadandincreasetheloss.Asmallopenfirecanbecomedangerouswhenitstartstogrowbyconsumingfuelsstored in the building premises for later use. This led to destruction of building materials and their contents.

Few examples of contributory hazards are:Combustible materials, if the building is constructed with much wood work having internal wooden partitions, •astoriedbuildingorabuildinghavingmanyflooropeningsMaterialswithhighcalorificvalue,materialsstoredinliquidorgaseousforms,materialsstoredindustorsheet•(e.g.paper)form,etc.arealsocombustible.Otherfactorswhichinfluencefiregrowtharethespacingofthecombustiblematerials,ignitionsource,wind•or draught direction and velocity, shape and dimensions of the enclosure or compartment, exposure to other buildings in hazardous occupation and so on.

5.2 General HazardsThe types of the general hazards are discussed below:

Fig. 5.1 Types of hazards

Exposure Hazards

Metal Hazards

Electrical Hazards

Fire & Explosion Hazards

Dangerous Atmosphere

Hazards

Types of Hazrads

55/JNU OLE

5.2.1 Exposure Hazard

The exposure hazard is a hazard occurred due to the contiguity or closeness of the exposed property (premises •orbuildings)toadjoiningorneighbouringpremisesorbuildingsfromwhichafiremayspreadand/orlossordamagefromfire,smoke,heat,waterorbreakagemaybesustained.The exposure may spread across a yard, a street, a passage, an area, or over the roofs of intervening but lower •buildings. Exposure may even exit across, or over several buildings including open space.Fire from one building can very easily spread to adjoining buildings or nearby buildings by radiated heat, sparks, •brands(whichareverylightburningpieces),flames,andsoon,fromtheburningbuilding.Thisiscalledtheexposure hazard. Theconstructionofthebuildingisveryimportanttostopthespreadoffire.Theheightofthebuilding,window•openings, occupation of the building and distance from the neighbouring buildings are the major factors for firespread.Whenbuildingsaresituatedveryclose,thenthefirefightingoperationmaybecomeverydifficultastheremay•beobstructionstoreachtheseatofthefire.Fireenginesmaynothaveproperaccess.

Danger from exposureTherearesevenwaysinwhichfireexposurecanaffectexposedproperty:

Fig. 5.2 Danger from exposure

Radiation:• Heat can move laterally in the form of radiation.Convection:• Heat from burning building moves outward and upward by convection. On many occasions, storeys wellaboveanexposingfirehavebeenaffectedbyconvictedheat.Conduction:• Heat may spread through conductive material such as unprotected ducts and pipes.Physical transmission:• Flying brands and burning embers transmitted by the wind can ignite combustible surfaces farbeyondtherangeofheattransferbyconvection,conductionorradiation,e.g.abamboostackonfire.Floor leakage:• Waterdischargedduringfirefightingcanleakthroughfloorsthatarenotwatertightandmay,seriously, harm lower occupancies susceptible to water damage.Smoke damage:• Smoketravelsbyconvection.Smokefromanexternalfiremayenteranexposedbuildingthrough any available openings. Once smoke enters a building, it may spread through air handling systems or

Radiation

Convection

Conduction

Physical transmission

Floor Leakage

Smoke damage

Danger from

Exposure

Toxic/Flammable

gases

Fire Insurance

56/JNU OLE

by other means.Toxic/ Flammable gases:• These gases travel the same way as smoke does.

Classification of Exposures

Fig. 5.3 Classification of exposures

External exposuresLocal external exposures:• Localexposureiscreatedbyafireintheimmediatevicinityofabuildingunderconsideration.Ingeneral,localexternalexposurefiresarethosethatoriginateinthepropertywithin80to100metres of the exposed building.Conflagration exposure:• Ithasbeendefinedinmanydifferentways.Inbroadterms,aconflagrationexposureisthatexposurecreatedbyafireinbuildingsorotherpropertysosituatedthatafireoriginatingthereislikelyto involve many buildings and cover a wide area.Fire storm:• Inafirestorm,airmovestowardsthecentreofagroupoffires,andtheairvelocitiesreachathurricane speed. Fire storms generally result from war attack.

Internal exposure

Internal exposure is the exposure created by occupancies in storeys above and below and in areas adjoining the •storey/area under consideration.

Identification of the exposure hazardThemainfactoristomakeananalysisofthepotentialeffectsofanexposurefireoneachsideoftheexposed•building. Forexample,thestorageofhighlyflammableliquidsinthevicinityofaplant;rawmaterialorfinishedgoods•warehouse communicating with the main factory building; open storage of scrap in the vicinity of the main factory building etc. Thustheoccupancy,layoutandvariousexposurehazardsmustbeidentified.•

Severity of exposuresAfter identifying what the exposures are, the next step is to calculate their severity. This requires the consideration of many factors, including certain features of the exposing and exposed buildings.

Factors related to an exposing building:• floorloadsofcombustibles �total mass of combustibles �typeofconstructionofwalls,roofsandfloorsoftheexposingbuilding �potentialdurationoftheexposingfire �

External exposures

Internal exposures

Types of exposures

57/JNU OLE

wind direction �distance between the exposing and the exposed building �

Factors related to exposed building :• typeofconstructionofwalls,roofandfloors �protection of wall openings �extent of installed protection systems �occupancy of the exposed building �

There are three main factors in the consideration of the exposure hazard viz.:• constructional features �distances from other buildings and �conditions existing between buildings �

5.2.2 Electrical Hazards

In the present day world, electricity has become an indispensable part of human life. It is used for lighting, •heating, power and certain types of chemical processes. Indeed the rapid progress of science and technology would have been greatly hampered without electricity. •Thegrowthintheuseofelectricityhasbeenamixedblessing.Thefirestatisticsinmostindustrialisedcountries•intheworldindicatethatthenumberoffirescausedbyelectricitygoesonincreasingfromyeartoyearastheconsumption increases. Indeed,inmostcountries,electricityhasbeenfoundtobethegreatestsinglecauseoffires.•Theblameforthecauseoffireoutbreakshowever,shouldnotbeattachedtoelectricity.Whatleadstoelectrical•firesaretheincorrectlydesignedequipment,poorinstallationmethodsandneglectofmaintenance.Misuse of electricity causesfires becausefires invariably needheat to start and the passage of current is•accompanied with a certain amount of heat. Theprincipleofelectricalfiresafety is tosodesign, installandmaintain thewiringsandappliances,as to•keepthecurrentconfinedtotheconductorsandtokeepdowntheheatdevelopmentatlowlevelexceptinheatproducing equipment.

Basic causes of electrical fireArcing:• When an electrical circuit carrying a current is suddenly intercepted, an arc is produced. Its intensity and duration depends primarily on the circuit voltage and current. The temperature of such an arc is very high and so any combustibles in the vicinity are ignited. Arcs may also be caused by faults associated with failures or the breakdown of insulation.Sparking:• The principal reasons for sparking are - poor maintenance viz. loose contacts, uneven pressures betweencontactsordirtyorcorrodedcontacts.Suchparkingmaycausefiresifcombustibledustorvapoursare present in the vicinity.Overheating:• Normally, the heating on account of passage of electricity through properly designed conductors and appliances is of a quite safe level. However, due to a variety of causes, the limiting current values, for which circuit and appliances are designed, may be greatly exceeded causing not only excessive development of heat but also the deterioration of the insulation material due to this additional heat.

5.2.3 Fire and Explosion HazardsFire hazards of boiler installations are due to:

the use and storage of fuels•the use of high heat producing furnaces•

Fire Insurance

58/JNU OLE

Fuel storageThe principal fuel storages are:

Fig. 5.4 Types fuel storage

Coal storageIt has been observed that large stacks of coal are very much susceptible to spontaneous combustion. Absorption of oxygenoroxidationoffinelydividedparticlesisthemaincause.Toreducethespontaneouscombustionofcoalstacks, the following precautionary measures should be taken:

No coal stack shall contain more than 100 tonnes or exceed 3 metres in height and a clear space of not less than •3 metres must be maintained all around each stack.The site should be thoroughly cleared of leaves, grass, weeds, and pieces of timber, cotton wastes or other •foreign matter.It is recommended that coal should not be stored in places where the ambient temperature may exceed •26.50oC.Coalforstorageshouldbedepositedinlayersratherthaninconicalpilesasstorageinthelattermannerdoesn’t•allow enough ventilation through the piles to keep the temperature down.Alternate wetting and drying of coal stacks should be avoided. It is also dangerous to have a part of the stack •wet and another part dry.Coalsprayedwithahighflashpointmineraloildecreasesthetendencyofspontaneouscombustionbyprotecting•the surfaces from oxidation.

Oil storageTheoilusedforoilfiredboilersisaflammableliquidalthoughitsflashpointisrelativelyhigh,beingoftheorderof450- 650oC. However, as in large power stations, where very large quantities are required to be stored, it represents aconsiderablefirehazard.Thus,theprincipalprecautionarymeasuresaretakenintoconsideration:

The oil should preferably be stored in underground tanks. If this is not possible, it may be stored above ground •in steel tanks located at least 15 m away from all other properties.Above ground storage tanks must be provided either with a catch-pit or surrounded with masonry or concrete •dykewallssothattheentirecontentofthetanksmayremainconfinedwithinit,intheeventofruptureofthetank(s).The tanks should be constructed either with mild steel or reinforced concrete. Metal tanks should preferably •be of welded construction. Aventpipeshouldbefittedtothetopofeachtankandthecrosssectionalareaofthepipeshouldbeatleast•equaltothecross-sectionalareaofthefill-pipe.All tanks and associated piping must be bonded and earthed by two independent paths as precautionary measures •against the accumulation of static electricity.

Coal Storage

Oil Storage

Gas Storage

59/JNU OLE

Gas storageAsmentionedearlier,theprincipalgaswhichisusedasfuelinboilersisnaturalgas.Itisahighlyflammable•gaswhichisassociatedwithseriousfireandexplosionhazards.Generally speaking, this gas is received through pipelines and as such no large scale storage is involved. In •case, however the gas has to be stored in gas-holders/tanks the same should be located at least 15 m away from all other properties. Allelectricalequipmentwithinthisdistanceshouldbeofthe‘approved’flameprooftype.•The gas holders/tanks along with their pipelines should be electrically bonded and earthed by two independent •circuits as precautionary measures against the accumulation of static electricity.

Causes of furnace explosionsBoilerfurnaceexplosionsarecausedbytheignitionofacombustiblemixtureoffuelandairwithintheconfinementsof the boiler furnace. The most common situations which produce explosive conditions are:

An interruption of fuel or air supply or ignition energy to burners, resulting in momentary extinguishment of •theflame,followedbyrestorationandsubsequentignitionofaccumulatedcombustiblegases.Leakageoffuelintoanidlefurnaceandsubsequentignitionofthesamewhenthefurnaceisfired.•In order to reduce the possibilities of explosion, in furnaces of boilers and also in other industrial furnaces, •attention must be paid to design and installation, operation, and safety control systems, interlocks and alarms.

5.2.4 Hazards of Dangerous Atmosphere

Therearemanylocations,wheretheselectionofproperelectricalequipmentisanimportantfactorforfiresafety•purposes.Theseareasarecharacterisedbythepresenceofahazardousconcentrationofflammablevapours,gases or combustible dusts. Thedangeroffiresandexplosionintheseareasmaynodoubtbereducedbyadequateventilation.However,•ventilation alone may not be quite adequate to tackle emergencies arising due to the spillage or leakage of flammablefluids.Themostgenerallyappliedprecautionarymeasuresundertheseconditionsaretouseflame-proofequipment.•Theterm“FlameProof”equipmentsignifiesequipmentwhichwillsatisfythefollowingrequirements:

The casing or enclosure must be strong enough to contain any explosion that may occur inside it; �Thedesignoftheapparatusmustbesuchastocooldownsufficientlyanyhotgasorflameemergingoutof �it(ifaninternalexplosionoccurs)sothattheydonotignitethesurroundingexplosiveatmosphere.

TheIndianStandardclassifiesfourdifferentflammableatmospheresforwhichseparatespecificationsforflame-•proof apparatus are prescribed. These groups of atmospheres are as follows:

Group I: � Atmosphere of methane gas i.e., meant for use in coal mines.Group II: � Fuel gases for example: natural gas, town gas, water gas, producer gas and so on.Group III: � Other industrial gases and vapours excepting those mentioned under Group IV. Group IV: � Hydrogen, acetylene, carbon disulphide, and so on.

Inthehazardousatmosphere,notonlymusttheequipmentbeoftheflame-prooftypebutallswitches,starters,•control gears and accessories such as junction box, cut-outs etc. also be a within such enclosures. Itisalwaysadvisabletohaveflame-proofandnon-flame-proofoperationsintwoindependentblocksatleast•6 ms away from each other.

5.2.5 Hazards of Metals

The hazards of metals vary with the individual metals, the form or state of division, purity and other factors. •Amongst the metals, the alkali metal viz., lithium, sodium and potassium are the most hazardous. •Theyarehighlywaterreactiveandcatchfireexplosivelyincontactwithwater.Fumesevolvedfromtheburning•metals are poisonous.

Fire Insurance

60/JNU OLE

Magnesium powder suspended in air can ignite explosively in the presence of the smallest of ignition �source. Aluminium is ordinarily not as hazardous as magnesium but in powder form it is almost equally explosive. Agreat disadvantage infightingmagnesiumand aluminiumfires is that neitherwater nor anyof the �conventional extinguishing agents can be used as the metallic powder reacts dangerously with all of them. Only dry sand, salt and other dry inert material could be used in these cases. In recent times, however, a �specialpurposedrychemicalforfightingcombustiblemetalfiresisalsobeingused.

5.3 Fire Protection SystemsTheimportanceandsophisticationofthefireprotectionsystemhasgrowngrapidly.Portableextinguishers,•bucketsandhosereelsarefirstaiddeviceswhicharehandyforimmediateuseonfiresintheirincipiency.Goodfireprotectioncallsforamplehandappliancesdistributedthroughouttheplantandmaintainedproperly.•Employeesshouldalsobetrainedintheuseoffireextinguishers.Extinguishersmustbeingoodoperatingconditionwheneverfirestrikes.Mechanicalfailurecanhaveserious•consequences. Maintenance and recharging must be carried out systematically by competent personnel. •Thefollowingaspectsareimportantinthepracticaluseoffireextinguishers:•

Effectiveness of portable extinguishers: � Portableextinguishersareeffectiveonlywhenfiresareintheincipient stages. Extinguishers are only as good as the operators using them, and hence training of the employeesinfirefightingisessential.Location and distribution of extinguishers: � Extinguishers should be distributed as recommended for thespecifictypeoffire.Extinguishersaretobelocatedwheretheyarenotlikelytobeblockedorhiddenby stock or damaged. It is generally best to hang them on building columns or walls with their tops 1 to 2 metresabovethefloor.Extinguishersforfiresotherthaninordinarycombustiblesshouldbelocatednearthe hazard to be protectedSelection of extinguishers: � Selecting the proper extinguisher to protect a particular situation involves many factors. Fires vary in sizes, intensity, speed of travel and approachability. Each type of extinguisher is designedtodoacertainjobandcannotbeexpectedtoperformefficientlyifusedbeyonditslimitations.

5.3.1 How Fires are Extinguished

Extinguishersputoutfiresby:•cooling the burning material to bring it below its ignition point �reducing the quantity of available oxygen so that combustion cannot continue and �inhibiting the combustion chain reaction �

Anothermethodofextinguishingafireistoseparateorremovethefuel.Inagasorflammableliquidfire,this•mightbedonebyclosingavalveinthefuelsupplypipeandinadip-tankfirebydrainingthecontentstoanemergency salvage tank.Fewofthethingsusedforextinguishingfireareasfollows:•

Water � extinguishesfiremainlybyitscoolingaction;thesteamformedwhenwaterisappliedtoburningmaterial helps to exclude oxygen. Water is the most common extinguishing agent for ordinary combustible materials.Foam � extinguishesfirebyexcludingoxygen.Ithaslittlecoolingeffect.Primarilyintendedforflammable-liquidfires,itfloatsonthesurfaceoftheburningliquidtoformaclingingblanketthatsmothersthefire.Carbon dioxide � extinguishesafirebyreducingtheoxygencontentofthesurroundingairuntilcombustioncannolongercontinue.Italsohasaslightcoolingeffect.Itisusedprincipallyonfiresinflammableliquidsand electrical equipment.Dry chemicals � extinguishafirebyacombinationofseveralactions.Aphysicalblanketingeffectbythe

61/JNU OLE

powder, interrupting the vapour-oxygen molecular combustion reaction, dilution of oxygen in the air and thedirectabsorptionofheatbythefinesolidparticles.

5.3.2 Common Fire Extinguishing AppliancesThecompositionanduseofthecommonfireextinguishingapplianceisgivenbelowindetail:

Soda–acid extinguisherThe soda-acid extinguisher contains a charge of sodium bicarbonate dissolved in water. A glass bottle held in •a cage above this liquid contains concentrated sulphuric acid. Thebottlehasalooselyfittingheadofporcelainstop,whichdropsoutwhentheextinguisherisinverted.•Mixing of the acid and the sodium bicarbonate solution generates carbon dioxide gas, the pressure of which •expels the liquid contents through a 1/8 inch nozzle at the end of a short hose. Use: • It is recommendedforfires inordinarycombustiblematerialssuchaswood,paper,orcloth,whereacooling and wetting action is required. Advantages: • The stream has a long range and good pressure, which enable it to get into overhead locations. Theextinguisherscanbeusedeffectivelyonsmallfiresinvolvingoilyfloorsorwoodwork.

Foam extinguishersThe main tank of a foam extinguisher holds a solution of sodium bicarbonate to which a foam stabiliser and •sometimes a preservative is added. The inner container is a long metal tube with a solution of aluminium sulphate. •A foam extinguisher is operated by inverting it. With the 10, 20 and 38- gallon extinguishers, the stopple of •the inner container must be lifted by a hand-wheel above the cap before the extinguisher is inverted. When the smaller extinguishers are inverted, a loose lead stopple drops from the inner chamber, allowing the solutions to mix and produce the foam, which is expelled by carbon dioxide gas. Thefoam,athickandtenaciousblanketfilledwithbubblesofcarbondioxidegas,spreadsoverthesurfaceof•theburningliquidandextinguishesthefirebyexcludingoxygen.Thevolumeoffoamproducedisabout7½to 8 times that of the original solution.Use: • Itisrecommendedforfiresinflammableliquidsoftheoilandgasolinetypes.Advantages: • The foam spreads over the liquid surface and effectively excludes oxygen. The tough blanket persists for quite some time on these liquids and therefore prevents re-ignition by the heated sides of the tank or other hot metal surfaces. Limitations: • Foamisnotsuitableforfiresinelectricalequipment.

Carbon dioxide extinguishersCarbondioxideextinguishesfirebyitssmotheringaction(exclusionofoxygen).Thecoolingeffectislimited•unless the object becomes coated with carbon dioxide. The carbon dioxide extinguisher consists of a high pressure cylinder containing liquid carbon dioxide, a siphon •tube, and a valve and discharge horn. Advantages: • Carbon dioxide is non-corrosive and leaves no residue. It will not conduct electricity, freeze ordeterioratewithage.Itisforthesereasonsthatcarbondioxideextinguishersareusedchieflyforfiresinelectricalequipmentorflammableliquids.Theyareparticularlysuitedforextinguishingfiresinalcoholandotherflammableliquids.Limitations: • Carbondioxideextinguishershavenowettingactionandarenotconsideredsuitableforfiresinordinary combustible material.

Few other types of extinguishers are:dry-chemical extinguishers•

Fire Insurance

62/JNU OLE

vaporising liquid extinguishers•

5.3.3 Smoke Detectors

The primary function of a smoke detector is to detect one or more changes in the environment indicative of the •developmentofafirecondition.Usually mounted on ceilings, air ducts, covered cable trenches, etc., detectors are actuated mainly by smoke, •radiation or heat. Theseconditionscanbeeasilyidentifiedwithimportantstagesinthedevelopmentofafireviz.:•

After ignition has occurred and invisible products of combustion are being released. �When visible smoke is being produced. �Whenthefireisproducingflameandadegreeofillumination. �Whenthetemperatureinthevicinityofthefirerisesrapidlyorreachesapredeterminedvalue. �

The type of detectors designed to operate at each one of these particular stages are:•Ionisation detector �Smoke detector �Radiation detector �Heat detector �

Thefinalchoiceofthetypeofdetectorhastobebasedontherisktobeprotectedandtheindividualcircumstances•of each case.

5.4 Management and HousekeepingThe prosperity of a manufacturing concern depends largely upon the management of the factory. •Ifthemanagementisbad,theprofitsarenotaslargeastheyshouldbeandintheworstexample,thebusiness•would fail. In this respect alone thefire insurance underwriterwould be interested in the efficientmanagement of a•factory.On the other hand, a well managed factory gives evidence of prosperity and the absence of a moral hazard. The •signs of a well-managed factory are:

Good layout, whereby the raw material enters at one end of the factory, travels straight through the factory �duringthecourseofitsconversionbymachiningortradeprocessesintothefinishedproduct,andemergesat the other end ready for packing and conveniently placed for dispatch and conveyance. A good layout savestimeandexpenses.Theworkwillflowsmoothlyandthecostsofcarryingworkinprocesswillbeminimised.Work people do not have to move unnecessarily long distances within the factory. �Convenient position of the stores. �Good factory systems for recording jobs, drawing materials from stores, checking and the temporary storage �ofpartlyfinishedgoods.Discipline and control of work people. �Good lubricating methods and machinery maintenance. �Clearance and disposal of waste and salvage. �Good housekeeping. �

5.4.1 SegregationThe following are examples of hazardous processes or storage of hazardous goods, commonly met in industry and which are usually capable of segregation:

Woodworking by hand or power•

63/JNU OLE

Spray Painting•Grinding and Machinery work•Rubber spreading•Dryingtimberbyartificialheat•Working with celluloid•storing patterns made of wood•storing oils and paints•Storing petrol•Storingupholsterersfillingmaterials•

5.4.2 Arrangement of Premises

The warehouse, or stock room, especially if the goods are combustible, should be separate from the factory •building. Thestorageofanycombustiblematerialinbulkinabuildingconstitutesahazardbecauseafiremay,thereby,•spread rapidly throughout the storage parts of the building and perhaps involve the whole plant including the area where expensive machinery is accommodated. The following features should be observed:•

Stocksshouldbesokept(inabuildingsetapartforthepurpose)thattheyarewhollyaccessible. �Individual stocks and piles should be as small as possible with clear spaces and gangways around them. �There should be no accumulation of packing material such as straw, cardboard, wooden planks etc. �Heavymachinery shouldpreferablybeon the lowestfloor toobviate the riskof it crashing througha �fire-weakenedfloor.Ifitmustbeonupperfloors,theyshouldbestrongenoughtobeartheweightofthemachinery.

5.4.3 Supervision

Today, an important feature of factory management is the comfort and welfare of the employees. Well disciplined •staffshelptopreventfire.Adequate lighting and ventilation make for a good work place and facilitates careful operation by the work •people.When the staff is controlled by good management and the proper enforcement of rules, it is quite certain that •routinedutiessuchastheregularfillingoffirebucketsandtheclosingoffireproofdoors,keepingofpackingmaterialinproperbins,keepingsuppliesofinflammablematerialsintheirproperstoreplacesandputtingoilyrags in metal bins would be done on a regular basis.

5.4.4 Smoking

Smokingisdirectlyorindirectlythecauseofinnumerablefires.Inworkroomsorfactorieswherecombustible•waste is generated, smoking should be strictly prohibited. Itisdesirable,however,thatsmokingshouldbepermittedatcertainspecifiedtimesandinsuitableplaces,such•as mess rooms or canteens. The total prohibition of smoking may lead to greater hazards from illicit smoking.•

5.4.5 Disposal of Trade Waste

In factories where combustible trade waste is likely to be generated and warehouses where such accumulations •arelikelytobefoundonthefloors,thereshouldbearrangementsforallwasteandrefusetobesweptupatfrequent and regular intervals.

Fire Insurance

64/JNU OLE

Further, it should be removed as soon as possible from the building to places where it can be kept without •endangering anything until it can be safely disposed of, either by carting or by burning.

5.5 Loss Prevention Association of IndiaTheLossPreventionAssociationofIndia(LPA)isanon-profitorganisationestablishedin1978bytheGIC•and the four public sector insurance companies, with the main objectives of promoting safety and loss control through education, training and consultancy. TheLPA’sworkinvolvesbotheducationalandengineeringaspectsofsafety.Theprimaryobjectiveistotrain•personnel in industry and commerce on various aspects of safety and loss prevention.Some of the programmes developed are:•

Fire prevention and protection in industries �LPG safety in industries �Electrical safety in industries �Firefightingbasiccourse �

Thecoverageoftheprogrammesisindustryspecificandrelevanttothematerials,processesandequipmentin•the particular industry.The LPA has recently started Comprehensive Risk Management Services for industry. An important area of LPA •activityisintheinvestigationandstudyofmajorfirelosses.TheLPAmaintainsandoperatesaSalvageCorpswhichassiststhefirebrigadeinsalvageoperationsandfortheminimisationofdamage.The Corps is on duty on a 24 hour basis and services are available free of charge. The LPA maintain a close •liaison with organisations such as – The Central Building Research Institute, The National Safety Council, Factory Advice Service Institutes, The Directorate of Fire Services etc. and International bodies such as The British Safety Council.

65/JNU OLE

SummaryTheterm“FireHazard”includesnotonlythecausesoffireswhicharesometimescalled‘Originatinghazards’•butalsothosecircumstanceswhichincreasetheprobabilityofafireoccurring,orwhichenableorpermitfires,oncestarted,tospreadandincreasethelossi.e.,‘Contributoryhazards’.Fewofthecausesoftheoriginatinghazardare:electrical,smoking,friction,hotsurfaces,burnerflamesand•so on.Contributoryhazardsincreasetheprobabilityoffiresoccurringorwhichenableorpermitfires,oncethefire•startedtospreadandincreasetheloss.Fewexamplesare:combustiblematerials,materialwithhighcalorificvalue, and so on.Commontypesofgeneralhazards:electrical,metal,exposure,dangerousatmosphere,andfire&explosion•hazard.Theexposurehazardisahazardduetothecontiguityorclosenessoftheexposedproperty(premisesorbuildings)•toadjoiningorneighbouringpremisesorbuildingsfromwhichafiremayspreadand/orlossordamagefromfire,smoke,heat,waterorbreakagemaybesustained.Electricalhazardsarecausedbythefirecausedbyelectricitywhichmayoccurduetosparking,overheating,•and sparking..Fire and explosion hazards occur due to the use and storage of fuels and the use of high heat producing •furnacesHazards of dangerous atmosphere: There are many locations, where the selection of proper electrical equipment •isanimportantfactorforfiresafetypurposes.Theseareasarecharacterisedbythepresenceofahazardousconcentrationofflammablevapours,gasesorcombustibledusts.The hazards of metals vary with individual metals, the form or state of division, purity and other factors. Amongst •the metals, the alkali metal viz., lithium, sodium and potassium are the most hazardousThe important aspects in thepracticaluse iffireextinguishers are: effectivenessofportableextinguishers,•location and distribution of extinguishers, and selection of extinguishers.Extinguishersputoutfiresby:coolingtheburningmaterialtobringitbelowitsignitionpoint,reducingthe•quantity of available oxygen so that combustion cannot continue and, and inhibiting the combustion chain reactionThecommonfireextinguishingappliancesusedare:soda-acidextinguisher, foamextinguisher,andcarbon•dioxide extinguisherTheLossPreventionAssociationofIndia(LPA)isanon-profitorganisationestablishedin1978bytheGIC•and the four public sector insurance companies, with the main objectives of promoting safety and loss control through education, training and consultancy.

ReferencesNfpadotorg, 2008. Hidden Electrical Hazards [Online video] Available at: <http://www.youtube.com/watch?v•=LJm8w25KgM8&playnext=1&list=PLD3432488038BB5F0> [Accessed 13 June 2011].BVS training, 2010. • Fire Safety 1: Hazards and Prevention Training Teaser from BVS [online video] Available at: < http://www.youtube.com/watch?v=K2Ml2GJJ9Dc> [Accessed 13 June 2011]Price, A., 2011. • 8 Common Fire Hazards in Your Home [Online] Available at: <http://www.streetdirectory.com/travel_guide/61015/home_security/8_common_fire_hazards_in_your_home.html>[Accessed13June2011].Fire Hazards• (FirePreventionTips)[Online]Availableat:<http://www.fire-extinguisher101.com/hazards.html>[Accessed 13 June 2011].

Fire Insurance

66/JNU OLE

Recommended ReadingGagnon, R., 1997. • Design of Special Hazard & Fire Alarm Systems. Delmar Cengage Learning.Cheremisinoff, N., 1999. • Fire and Explosion Hazards Handbook of Industrial Chemicals. William Andrew.Thomson, N., 2001. • Fire Hazards in Industry. Butterworth-Heinemann.

67/JNU OLE

Self Assessment

Whichofthefollowingistheleadingcauseoftheindustrialfire?1. Smokea. Electricityb. Molten substancesc. Combustion sparksd.

Theconstructionofthebuildingisveryimportanttostopthe________offire.2. starta. coverageb. spreadc. caused.

Which of the following statements is false?3. Smokingisdirectlyorindirectlythecauseofinnumerablefires.a. An important feature of factory management today is the comfort and welfare of the employees. b. Carbon dioxide is corrosive and leaves no residue. c. The soda-acid extinguisher contains a charge of sodium bicarbonate dissolved in water.d.

Whenanelectricalcircuitcarryingacurrentissuddenlyintercepted,an/a_____isproduced.4. arca. fireb. sparkc. smoked.

Which of the following statements is true?5. The contributory hazards are frequently of lesser importance than the originating hazards.a. Fires are caused by metal escaping from ruptured furnaces or spilled during handling. b. Fires have been known to originate from indirect lightning strikes. c. Heat may spread through conductive material such as protected ducts and pipes.d.

Heatcanmove__________intheformofradiation.6. horizontallya. verticallyb. easilyc. laterallyd.

Smoketravelsby____________.7. convectiona. conductionb. radiationc. combustiond.

Fire Insurance

68/JNU OLE

Carbondioxideextinguishesafirebyreducingthe_______contentofthesurroundingairuntilcombustioncan8. no longer continue.

carbona. oxygenb. sodiumc. nitrogend.

Fumesevolvedfromtheburningmetalsare_____________.9. dangerousa. poisonousb. unhealthyc. usefuld.

TheLPA’sworkinvolvesboth,educationaland____________aspectsofsafety.10. engineeringa. practicalb. importantc. managementd.

69/JNU OLE

Chapter VI

Fire Hazards of Specific Industries

Aim

The aim of this chapter is to:

explain the work process of textile industry along with the types of hazards faced by the industry•

discussfireaswellastheprocesshazardsofthejute•

evaluate the process of rubber formation and the hazards in the process•

Objectives

The objectives of this chapter are to:

enlist the hazards that come in the process of paper making•

statethecharacteristicsofhydrocarbonsleadingtofireandexplosion•

explainthefirehazardsofthechemicals•

Learning outcome

At the end of this chapter, you will be able to:

understandfirehazardsandthepreventionmeasuresofvariousindustries•

knowthefirehazardsandlosspreventionmeasures• in the textile industry

identify the sources of ignition in chemical industry•

Fire Insurance

70/JNU OLE

6.1 IntroductionAnindustrialfireisatypeofindustrialdisasterinvolvingaconflagrationwhichoccursinanindustrialsetting.Theyaremostlikelytooccurinfacilitieswherethereisalotofflammablematerialpresent.Suchmaterialcanincludepetroleum,petroleumproducts suchaspetrochemicals,ornaturalgas.Processingflammablematerials suchashydrocarbons in units at high temperature and/or high pressure makes the hazards more severe. Facilities with such combustiblematerialincludeoilrefineries,tankfarms(oildepots),naturalgasprocessingplants,andchemicalplants,particularlypetrochemicalplants.Suchfacilitiesoftenhavetheirownfiredepartmentsforfirefighting.Sometimeslarge amounts of dust or powder are vulnerable to combustion and their ignition can cause dust explosions. Severe industrialfireshaveinvolvedmultipleinjuries,lossoflife,costlyfinancialloss,and/ordamagetothesurroundingcommunity or environment.

Herewewillstudysomespecificindustryrelatedfirehazards.

6.2 The Textile IndustryEversincethefirsttextilefactorywasestablishedinIndiain1854,thetextileindustryhasmaderapidprogressandtoday it is one of the largest industries in our country. The textile industry is essentially a conversion industry i.e., unlike other industries; raw material exists in the same form but undergoes only a structural change. Thus, cotton orsyntheticstaplefibreisstretchedintoyarnandwovenintocloth.Theformerprocessiscalled‘spinning’andthelatteriscalled‘weaving’.

6.2.1 Spinning Preparatory and Spinning ProcessThe spinningprocess converts cotton/staplefibre intoyarn.The conversionhas to pass through the followingsequences:

Blowing and mixing •Carding and combing •Drawing, slubbing and interframes •Ring spinning•

6.2.2 The Weaving Preparatory and the Weaving ProcessIn the above processes, textile fabrics are produced from the spun yarn. They are mostly composed of a number of yarns crossing at right angles. The yarn travelling lengthwise through the entire fabric is called the warp, while the other yarn running across the fabric is called the weft. The version has to pass through the following sequence-

Winding and Doubling•Warping or Beaming•Sizing•Drawing-in and•Weaving•

6.2.3 Chemical Processing of Cloth

The chemical processing of woven cloth covers the gradual transition of fabric delivered by the weaving section •intothefinalshapeofafinishedfabric.Thisisachievedbychemicallytreatingtheclothondifferentmachinesto produce an acceptable and marketable product. The chemical processes can be described in brief under the following headings:

bleaching �finishing �dyeing �printing �

Polymerisation:• Afterprinting,thefabricisdried,heatcuredtopolymerisetheresins(print)inordertofixthe

71/JNU OLE

colour. The volatile material must be driven off the cloth before passing it through a curing machine. After the curingprocess,thefinishedfabricisfolded,bundledandbaledformarketing.

6.2.4 Auxiliary DepartmentsThe auxiliary departments are categorised into two, namely:

Humidification plantsTheprocessingofcottonandstaplefibresrequiresthecontroloftemperatureandrelativehumidityintextilemills.Humidificationplantsareneededtogiveartificialhumiditywhichisverynecessaryforman-madeandcottonfibres.There are three different methods of providing humidity mostly followed by textile mills, namely:

central station plant or carrier plant•unit type and•plants with all air system•

Thermic fluid boilersIn chemical processing of cloth through stenters and so on, very high temperatures in the range of 250 to 300 degrees centigradearerequired.Thesetemperaturesareattainedbythecirculationofheatedthermicfluid.Inathermicfluidboiler,thefluidisheatedandcirculatedthroughvariousmachines.Aftercirculation,thefluidcomesbacktotheheater where it is heated again and recirculated.

6.2.5 Fire Hazards and Loss Prevention MeasuresThefollowingarethecauseswhichmainlycontributetofirehazardsinvariousdepartmentsorwarehousesofatextile mill:

Mechanical friction•Fluff•Electrical short circuit•Electrostatic charge•Bad housekeeping•Human negligence•Improper stacking and storage•Faulty construction•Useofflammablematerialslikepetrol,gas,keroseneandsoon•

Cotton warehousesFires in cotton warehouses may be caused due to the following reasons:

Sparks caused at the time of stacking bales, if the iron hoops collide with each other.•Due to inadequate ventilation and improper stacking of bales in the vicinity of electrical wiring.•Human negligence – such as throwing cigarette butts.•PrismaticeffectofNorth-lightroofing.•Fires in cotton warehouses are almost spontaneous and take everybody unawares.•

The following loss prevention measures are suggested:The warehouse must be a single storey building built of non-combustible material•Limit the number of bales to a single pile•Separate piles by 8 ft. wide main aisles and 6 ft. cross aisles and 4 ft. from walls•Provide automatic sprinkler protection in the warehouse or smoke detectors•Electrical installation, if any, should be carried out by using armoured cable or conduit wiring•

Fire Insurance

72/JNU OLE

The warehouse should be located at least 6 metres away from the other buildings•Main control switches for electrical installations should be kept outside the building•

6.2.6 Other HazardsHumidification plants

Humidificationplantsandsystemsarebasicallynon-hazardousastheentireprocessofhumidificationisawet•process. However,aconspicuoushazardarisesinthereturnairsystemwhereallthedirtandfluffwillbesuckedinfrom•the departments and the entire return air path will be full of such refuse. It is necessary to clean the return air path once a week. The return air path should be sprinkle red. It is necessary •toinstallfireproofshuttersinducts,whenthesepassfromonedepartmenttotheother.

Thermic fluid and thermic fluid heatersThermicfluid, ifheated inexcessof themaximumrecommended temperature for some time,may lead to•decomposition and form hard deposits on metal heat transfer surfaces. This results in local overheating and a possible failure. Acontinuouslyincreasingleakageofthefluidintothehotfireboxislikelytoresult inbigexplosionsand•fires.

FluffFluffistheworstenemyofthetextileindustry.Intextilemills,fluffexistsalmostinalldepartmentsandespecially•more in mills with coarse and medium counts. The most preventive measure to avoid the risk of fire due to fluff is to maintain a high order of •housekeeping inside the departments. Fluff from the departments should be removed once a week.

6.3 The Jute IndustryThe Indian Jute Industry is one of the major industries in our country employing millions of people and earning croresofrupeesbywayofforeignexchange.TheprincipalconstituentsofJutefibreareAlphaCellulose(60%),Semi-Cellulose(approx.25%),Lignine(approx.11%).Inadditionitcontains1%orlessfat,waxandalsoequalamountsofnitrogenousmatterandmineralmatters.Itsignitiontemperatureis193degreesCandspecificheatis0.324.

Jute increases in volume rapidly with the absorption of water and decomposes when in contact with water for long periods, releasing methane. As the reaction is exothermic, considerable heat is generated. If the moisture content ofjuteismorethan17%,thefibreissusceptibletobacterialdamage.Juteriskscanbedistinctlydividedintotwoclasses, the assorting, pressing premises, commonly known as Jute Press and Jute Mills.

6.3.1 Jute PressProcess

Jute assorting and pressing premises can be subdivided into two classes; that in which pressing is done by means •of a hand press and that in which pressing is done by a power operated machine. Hand pressed bales are known as kutcha bales and power pressed bales as pucca bales. The processes carried out in the jute press are simple, consisting of weighing, hackling, assorting and of course •baling. The hackles use of hackling or combing consists of a series of metal spikes about 9 inches in height, set in a •heavy wooden base. The barky or hard portions at either end of the jute are cut off before the hackling process is carried out. These •cut off portions are called cuttings. Assortingmeansselectingorsortingaccordingtothequalityofthefibre.Next,juteispressedeitherbyhand•

73/JNU OLE

press or by the power driven hydraulic press.

HazardsJuteishighlycombustible,especiallyinthelooseform;itgivesoffaconsiderableamountofflyanddustduring•handling. These materials, being very light, are carried by air and deposited on structural framework. They also settleonthefloor.Evenaverysmallsourceofignitioncancreateafirebecauseofthehazardousnatureofthefibres.Firesinjute•press premises usually take place in the assorting sections of the warehouses and sometimes in the pucca bale warehouses.Butincidencesoffiresaremuchlessinthepresshouseitself,ascomparedtowarehouses.Poorhousekeepinginjutepresspremisesisalsooneofthemainfactorsforfirelosses.Sometimes,juteasalso•othermaterialsisstoredoutsidethewarehouseintheopen.Becauseofthefluffynatureofthejutefibre,firespreads very quickly along the surface of the jute bales.

6.3.2 Jute Mills

Themanufactureofjuteproductsconsistsofspinningandweavingbuttherawfibrehastopassthroughvarious•operationspreparatorytospinningandweavingwhichcommencewiththeopeningofthefibreofthebales,thesubsequentprocessesbeingbatching,hackling,cardingetc.torenderthefibrethoroughlysplitupandcombedfor spinning. Afterweaving,theoperationwhichiscarriedoutisknownasfinishing.•

Fire Insurance

74/JNU OLE

Processes

Fig. 6.1 Processes in jute mill

Bale Opening

Batching and Softening

Carding

Drawing

Roving/Spinning

Watse recovery (dust shaker)

Winding

Beaming and dressing

Weaving

Finishing

75/JNU OLE

Fire Hazards and Loss Prevention Measures

Manufacturing departmentsJuteisthemainrawmaterialprocessedinjutemillswhichinanyform,beingofacombustiblefibrousnature,•isaswiftfirecarrierandfirethereforeisaneverpresenthazard.Thus,becauseoftheverynatureofjutefibreboththe“initiating”and“contributory”firehazardsintheindustry•arehigh.Wasteisthemostimportantfactorwhichisresponsibleformanylargefirelossesinjutemills.Thelighterwastewhichisknownas“Fluff”isthemostdangerousinthisregard.Injutemills,fluffexists•almost in all the sections. Evenasmallsparkduetofrictionoranelectricalfaultissufficientforthefiretospreadacrossthefluffcovered•surface.Asthefluffburns,itdropsandignitesthestocksonthefloor.Waste is produced in the mills continuously and such waste is normally reprocessed by treating it mainly in •dust shaker machines. The so called waste is created by various means. Removalandcollectionofthiswasteefficientlyisrelatedtothestandardofhousekeeping.Wheresweepingisnot•practicable, the most satisfactory method of removing overhead waste is to blow it down by jets of compressed air.Sincethefibresareclingingvirtuallyinfeltformtooneanother,thefeltfallsreadilytothefloor.Theincidenceoffirearisingoutoftheuseofjutecardsisreported.Thebasicreasonforthisisthatthejute•at the beginning of the carding process was dirty and a small stone or iron particle going through the machine couldstrikeafire.Fire hazards in the carding department are also caused due to the friction between metallic belts and the pulley. •Alsoelectricsparksduetoabrokenorfaultystarterorswitchmaygiverisetoafire.The normal dressing process is not a hazardous one because only moderate heat is required. Weaving is not that •hazardousandfirearisesonlybecauseofmechanicaldefectsinthemachinery.Theprocessessubsequenttospinningarenotsohazardousasafinersubstanceishandledintheseoperations•andalsobecausetheyarndoesnothavethelightopenfluffystateofjutewhichinstantlyignitesincontactwiththe smallest spark or a small source of ignition. Trampmetalsinthemachinesoroverheatingofbearingsarecommoncausesofoutbreakoffiresinspinningand•weaving.Thereareanumberofstepswhichmaybetakentominimisetheincidenceoffiresinmanufacturingdepartments in a jute mill. The following guidelines should be implemented in respect to the process equipments inordertopreventfires:

All softeners, cards, drawing frames and dust shakers should be cleaned at least twice a week and all other �equipment at least once a week.Waste emulsion drains of softeners should be regularly cleaned to prevent choking. �The required clearance is to be maintained so that rollers or cylinders on cards do not jam. �Lubrication of each machine should be done according to a planned schedule. �The bearing temperature must be periodically checked. Every machine should be stopped and attended to �if the bearing shows signs of overheating.

The following procedure should be adopted in respect of electrical installations and equipment:•Report all damaged cables and electrical equipment and ensure their early repair. �Insist on periodic checking of all motors for signs of overheating. �Ensure that all electrical equipment are of metal clad construction, dust tight and of adequate capacity. �Arrange for periodical cleaning of switchboards, panels, switches, controllers and starters. �Cleantheunderfloorcabletrenchesatleastonceamonthormorefrequentlyifnecessary. �Ensure that lighting wiring is of iron conduits or cables. �

Fire Insurance

76/JNU OLE

6.3.3 Jute Warehouses

In case of warehouses containing baled raw jute, an aggravating factor is the burning characteristic of the •material.Thelossesarisingoutoffiresinjutewarehousesareenormousandmuchmorethanthefirelossesinthe manufacturing departments. Jutefibrehasalsoatendencytoshedwaterandrapidlydryupduringafire.Itis,therefore,notunusualtofind•watersoakedfibresre-ignitingafterafewminutes.Becauseofthesefeatures,itusuallytakeshourstoextinguishajutewarehousefireandintheprocess,thousands•of gallons of water are required. The fact that jute emits a dense and acrid smoke while burning constitutes a majorhazardandisagreathandicapinfightingafire.Research conducted in India and abroad has proved that jute is not susceptible to spontaneous combustion unless •it is contaminated with oil, grease and similar substances. Sincemostofthewarehousesdonotuseartificiallighting,thelargestcauseoffireinwarehousesisbelievedto•be due to the careless disposal of smoking material, if not arising out of malicious causes. The prohibition of smoking has long been the rule within the jute mill premises, but inevitably some surreptitious •smoking always takes place.

The following loss prevention measures should be implemented for loss control:

Designing of sprinkler systems capable of dealing with high piled storages. �The water damages due to the indiscriminate use of water jets, however, are more important. Such damages �maybeappreciablyreducedifitismadeeasierforthefireservicespersonneltolocatethesiteoffireandenter the warehouse.

6.4 The Rubber IndustryRubberisclassifiedintonaturalrubberandsyntheticrubber.SinceIndiawasaproducingcountryfornaturalrubber,synthetic rubber was not in much use. However, due to the increasing demand for rubber, many new factories manufacturing synthetic rubber have been set up in India.

Synthetic rubber is hydrocarbon based and is manufactured in hydrocarbon processing plants. Styrene Butadiene Rubber(SBR),PolyButadieneRubber(PBR),Neoprene,Butylandsoon,isthedifferenttypesofsyntheticrubber.The industry is dominated by tyre manufacture with some 65% of natural rubber produced going into tyre and associated products. The rest of the rubber product is absorbed over a wide range of industrial products.

77/JNU OLE

6.4.1 Manufacturing Process of Rubber

Fig. 6.2 Manufacturing process of rubber

Preparation of rubber •CompositionForming the articles •Vulcanising them•

Processing of Latex into Rubber

Processes in Rubber Works

Cracking

Compounding

Masticating

Calendaring

Extruding

Moulding

Cementing

Dripping

Spreading

Vulcanisation

Fire Insurance

78/JNU OLE

6.4.2 Fire Hazards

Fire hazards in the rubber industry are sharply differentiated between storage and process. •Rubberstorageischaracterisedbyahighfireloadandingeneralalowinceptionhazard.•Inprocessing,thefireloadsarelowbutsmallquantitiesofflammablematerialmayburnfiercelyforsometime.•Inception hazards operate from low to very high.

6.5 Paper IndustryThe pulp and paper industry requires cellulose based raw materials. Unlike the largest paper producing countries which use predominantly wood, India has critical material procurement problems which spread over a number of sources such as bamboo, bagasse, grass, rags and waste paper and so on. The non-availability of traditional raw materialhasforcedustoimportwastepaperandpulp.Paperproductionrequiresadisintegrationofthebulkyfibrousmaterialtosmallagglomeratefibres.Thisiscalledpulping.Theidealfibreforhighgradepapershouldbelong,high in cellulose content and low in lignin content.

6.5.1 Raw Material ProcessThe logs of wood from the storage area are conveyed to the barking drums. The bark is removed by revolving the logs in drums, causing the logs to repeatedly strike one another.

Chipping process: • This process is used in the case of wood and bamboos. The debarked wooden logs or bamboosarefedintoachipperhopper.Thechipperconsistsofalargerotatingdiscfittedwithseriesofsharpknife blades rotating at a speed. This reduces the wood or bamboos to small chips of a required size. The chips are transferred by continuous belt conveyors either to chip storage bins, silos or directly to the digesters.Bale opener:• The process is used for all raw materials which are in the baled form except wood and bamboos.

6.5.2 Pulp ProductionPulp is commercial cellulose derived from wood, bamboo, bagasse and so on, by mechanical and chemical methods.

Mechanical process:• Wood or bamboo chips are mechanically shredded or ground between metal shearing discsofamachinecalledtheRefiner.Thediscsarerotatedataveryhighspeed.Theprocessyieldsahigherquality of pulp and is suitable for the production of newsprint, cheap paper back books where strength and ease of bleaching are not the limiting factors.Chemical process:• The cellulose from the raw material is freed from lignins and other non-cellulose ingredients by reactions with chemical reagents. The pulp obtained by this process can be bleached. The yield is less but the pulp is of good quality. The two important processes are:

Sulphate(Kraft)process �Sulphite Process �

6.5.3 Paper MakingThecommercialmethodforpapermakingistoprepareasuitablefibresuspensioninwaterwhichisfedtoapapermachinewherefibresaremattedanddried.

ProcessPreparation of fibre suspension:• pulps are water slurried to mechanical disintegrators of various designs. These usually consist of rotating drums with knife attachments or rotating stationary disks to produce viscose shear.Suchoperationsarecalledbeatingandrefining.Fillersareaddedtotheslurrytoincreasebrightness,flexibility,softnessandsoon.Formation of paper:• Paper machines are complex and expensive, usually specially designed for each installation. The two types commonly used are the foundrinier machine and the cylinder machine.Foundrinier machine: • Themachineexceeds300inches(25ft)inwidthandisuptohundredsoffeetinlength.

79/JNU OLE

ConversionofthefibresuspensionintopaperincorporatesthefollowingthreeprincipalstepsForming the wet web �Pressing the wet sheet �Drying the sheet �

Cylinder machine:• In the cylinder machine, screened pulp is formed into a uniform layer on the wire-cloth surface of a cylinder mould that revolves, partially submerged in a vat of thin paper stock. Suction within the cylindermouldattractsthefibrestothewire.Asthecylinderrevolves,waterdrainstothemouldinterior.Thepulp sheet is removed from the cylinder by an endless felt and is carried by the felt through a series of squeeze and drier rolls in the same manner as in the Foundrinier machine.

6.5.4 Fire and Explosion Hazards and Loss Prevention Measures

In the general sense, the principal hazard in the industry is of the presence of combustible material at various •stages,i.e.,rawmaterial,manufactureandthefinishedproductstage.Inotherindustries,theaveragefireloadis20kgpersquaremetre,whereasinpapermillstheaveragefireload•is4000kgpersquaremetre,i.e.,200timesgreaterthanthegeneralindustryfigure.The areas of hazard in the paper mill fall into three categories; viz., storage of raw materials, process and the •finishedproductstorage.

Process hazards and prevention measuresThe debarking and chipping processes produce large quantities of combustible residues in the form of bark and •wooddust,whichmaycatchfireduetosparksofweldingorfriction.In case of conveyors connecting the above blocks to the digester house, material on the conveyors may catch •firebythegenerationofstaticelectricityduetothefrictionofconveyorsonjammedidlerrollersorduetosparks of electrical equipment. In case of bale openers, any metallic parts such as rivets, rails, etc. might pass along with bales and when they •strikethespikedlattices,sparksmaybeproducedandthefibreinlooseformmightcatchfire.

The fire/loss prevention measuresDebarking/Chipping/Bale opener sheds must be preferably located 6 metres away from all other blocks and •constructed from non-combustible material.Sprinklers must be provided inside the bale opener machine.•The entire electrical installation must have double earthing.•Rollers of conveyors must be properly lubricated and kept moving freely.•Emergency stopping devices must be provided along the entire length of the conveyors.•

6.6 The Chemical IndustryThe chemical industry includes probably a far larger number of products and processes than any other sector. There aregiantfactorieslikefertilisers,petroleumrefineriesandpetrochemicalswhicharebasicallyhydrocarbonprocessingindustries,processingthousandsoftonsofhydrocarbonsperday.Thehazardpotentialoffireandexplosioninthechemicalindustryisprobablymuchgreaterthaninanyotherindustry,sinceflammable/combustiblematerialsareinherentinsomanyphasesofmanufactureanduse.Lossesfromfireandexplosioninthechemicalindustryperplantaremorethaninanyotherindustry,asalsotheaveragelossperfireisthelargestinanyindustry.

Over one million different organic compounds and about 30,000 inorganic products are produced in chemical plants today. About another three million chemicals are listed. The available information on chemicals states that roughly 2500 chemicals are hazardous and 1700 are extra hazardous.

Fire Insurance

80/JNU OLE

6.6.1 Sources of IgnitionAmongst the various sources of ignition, viz., electrical, smoking, spontaneous combustion and so on, electrical appliancesandinstallationswerefoundtobethelargestsinglecauseoffiresandspontaneouscombustionfeaturesprominently in industries employing highly reactive materials in the process.

Material first ignited: • Ananalysisofdifferenttypesofmaterialastheoriginatingcauseoffirerevealedthataquarterofthefiresinvolvedtheignitionofvarioustypesofflammableliquids.Thenextlargestgroupwasinsulationandlagging,whilepackagingmaterialanddusts/powdersalsofiguredprominently.Location of fire origin: • Astudyofthecommencementoffiresrevealedthataboutthreequartersofallfiresstartedintheproduction/processandmaintenanceareas.Thisfigureisfivetimesthatoffireswhichoriginatein storage and loading areas.

Fire hazards of chemicals:Whenassessingthepossiblefirehazardofachemicalprocess,itisnecessarytocarefullyevaluate the hazards associated with different types of chemicals used. The hazards associated with different types of chemicals are as under:

Explosives:• These chemicals under certain conditions of chemical action, temperature, shock, can decompose rapidlywithexplosiveviolencecausingfiresandexplosion.Examples: TNT, Nitro-glycerine, Nitrates and so on.Flammable chemicals:• Practicallyallorganicchemicalsareflammable.Withflammableliquids,therelativehazard increasesas theflashpointdecreases.Chemicalshavingaflashpointbelow32degreeCaremosthazardous.Thepropagationoffiresinflammablesolidsiscomparativelyslowerthaninliquids.Gasvapourordustfirespropagatesorapidlythattheyareoftenaccompaniedbyexplosion.Examples: Methanol, Ethylene oxide, Benzene and so on.Oxidising agents:• These chemicals are a source of supply of oxygen and can supply oxygen even in the absence ofair.Therefore,thesematerialsareapotentialfirerisk.Examples:Concentratedacids,Peroxides,Nitrates,Per-chlorates and so on.

6.6.2 Chemical ProcessesChemicals processes are divided into two, as described below:

Unit operationsUnit operations are those where only physical changes are taking place. Operations such as distillation, heat transfer, sizereduction(grindingorpulverisation),mixingandblending,masstransfer,dryingandevaporation,momentumtransfer(pumps,compressorsandsoon)andphaseseparationareafewexamplesofunitoperations.

Fire hazards of unit operationsUnit operations are comparatively less hazardous than unit processes. However, in case of unit operations like distillation,extraction,etc.,alargequantityofmaterialishandledandifthematerialhandledisoftheflammable/combustiblenature,thenitpossessesaseverefirehazard.Operationslikepulverising,spraydryingetc.posehazardsof dust explosions. The hazards of a few common unit operations are detailed below:

Heat transfer:• This is the most widely used single operation in the processing of chemicals. Liquid metals like mercury, molten salt mixtures, cooling water and ethylene glycol are different media for heat transfer.Size reduction:• Inthisprocess,fireorexplosionisthemainhazard.Thepossibilityofasparkcanbepreventedby removing any stray iron pieces by a magnetic separator or a screen. The grinding system must be suitably earthed to prevent the accumulation of a static charge. Dust particles mixed with air can also explode.Mixing – Blending:• When a gas is mixed with a liquid, attention should be paid to the possibility of combustible foams being formed. Such foams can also go out of hand.Mass transfer:• Columns operating at high temperatures, particularly those which use some steam in processing, should be designed to prevent any accidental injection of liquid water into the tower. This has caused several accidentsinpetroleumrefineries.Drying evaporation:• Drying equipment can be of various types. Care has to be taken to prevent overheating of

81/JNU OLE

thedryer,whichmayresultinfireorexplosion.Spraydryersaresubjecttothepossibilityofadustexplosionif the material being dried is combustible.Evaporation and crystallisation:• Evaporators can be fouled, like heat exchange by scale formation, which must be removed at regular intervals. Crystallisers are normally like agitated vessels, cooled by chilled water orbrine.Agglomeratesofcrystalscanalsodepositonthevalves,reducingthecoolingefficiency.Momentum transfer:• In the chemical industry, pumps are used very frequently. Problems with pumps arise fromcorrosion,cavitation,waterhammeretc.TheWaterhammeriscausedifwaterisflowinginapipeanditissuddenlystopped,releasingalotofkineticenergy.Cavitationiscaused,ifthepressureofthefluidaroundthe impeller of the pump falls below its vapour pressure.Phase separation:• Thisincludesfiltration,centrifugation,screeningorsedimentation.Careshouldbetakentoavoidfiresorexcessiveexposureofpersonneltotoxicmaterials.Acentrifugerotatesataveryhighspeedanda mechanical fault leading to a spark can cause ignition. If there is an explosion hazard, the centrifuge should be blanketed with an inert gas, such as nitrogen.

Unit processesUnit processes are those where chemical changes take place due to chemical reactions. Many chemical reactions are exothermic i.e., accompanied by the liberation of heat.Endothermic reactions such as cracking etc. are less hazardous. The hazard posed by exothermic reactions depends on the amount of heat liberated per unit of material during the reaction.The hazards of a few unit processes are enumerated below:

Sulphonation: • Sulphonation is done with concentrated sulphuric acid, oleum, stabilised sulphur trioxide or chlorosulphonic acid. These agents are very corrosive by themselves to human exposure. If they come in contact with water, there is a violent reaction producing a lot of heat and fumes. It is therefore necessary that reactors (generallyofcastiron)areofsoundconstructionandaretestedforpuncturesinwalls.Nitration:• Nitration is done with dilute or concentrated nitric acid or mixed acid or acetyl nitrate. Nitric acid is very corrosive and causes serious burns of skin. Nitration of some compounds is accompanied by intense heat evolution and if proper temperature is not maintained and if the rate of additions are not controlled, the temperature may shoot up which may lead to explosions in heat sensitive materials.Amination:• Amination with ammonia is done under very high pressure and for safety, the autoclave must be checked at intervals and safety valves and rupture discs more often to avoid failures due to pressure build up.Hydrogenation: • Hydrogenation is an exothermic process and there is a possibility of hydrogen build up and consequent explosion in the reactor.

6.7 The Hydrocarbon Processing IndustryPetroleum was formed from the organic matter of fossil deposits millions of years ago. This organic matter was being continuously subjected to conditions of extreme pressure and temperature, which caused its gradual decomposition into petroleum. The resulting petroleum or crude oil or rock oil accumulated in places favoured by geological conditions and was pressurised through ages. Petroleum consists of a multitude of substances, exclusively of carbon andhydrogenpopularlyknownas‘Hydrocarbons’orfossilfuels.

Composition of petroleumPetroleum usually consists of a mixture of several hydrocarbons with a different number of carbon atoms. •ThemixtureofhydrocarbonscanbeclassifiedasParaffins(i.e.,straightchaincompounds),Cycliccompounds•like Cyclohexane, Cyclopentane and so on and Aromatics (i.e., ring compounds like Benzene, Toluene, Xylene andsoon).

Processing of crude oilCrudeoilisprocessedinrefineriesbyfractionaldistillation,whichseparatesthedifferenthydrocarbonsbya•method based on their boiling points. By variation of the distillation pressures, the boiling point of the products can be altered. •

Fire Insurance

82/JNU OLE

Usually, several distillation columns are arranged in series, operating at different pressures. In these columns, •severalmilliontonnesofcrudeoilareseparatedinto‘fractions’or‘cuts’i.e.,theproductswhichhavesimilarboiling points.

6.7.1 Characteristics of Hydrocarbons Leading to Fire and Explosion

Flash point• :Itisthelowesttemperatureatwhichaflammableliquidwouldgiveoffenoughvapourstoformaflammablemixturewithairwhenanignitionsourceisbroughtneartheliquidsurface.Obviously,lowertheflashpoint,higheristhehazardpossessedbyaparticularliquid.Manyhydrocarbonliquidssuchascrudeoil,naphtha,etc.haveflashpointsatorbelowtheordinaryroomtemperatureandnormallyarecoveredbyalayerofflammablevapoursthatwilligniteimmediatelyifasourceofignitionisbroughtnearby.Flammable liquid:• Itisanyliquidwithaflashpointupto930C.TheIndianPetroleumRulesdivideflammableliquids into three classes as follows:

ClassA:Havingaflashpointbeloworupto32 � oC ClassB:Havingaflashpointabove32 � oC and up to 65oCClassC:Havingaflashpointabove65 � oC and up to 93oC

Flammable vapours:• Vapoursfromflammableliquidsareheavierthanairandexpressedintermsofvapourdensity.Vapour density:• Itisameasureofrelativedensityorweight(comparedwithairexpressedasunity)ofavapouror gas with no air present. Obviously, gas or vapour with a density less than one is lighter than air and will rise when released.

Example: Ammonia (0.59), Hydrogen (0.069), Methane (0.06)

Vapours or gases with densities greater than one, will settle down when released. •Example:Propane(1.56),Butane(2.05),Benzene(2.8)

6.7.2 Hazards in the Hydrocarbon Processing IndustryThe hydrocarbon processing industry is generally of a gigantic size as compared to the normal chemical industry. Theindustryissusceptibletotheriskofcatastrophicfinanciallossesbecauseofthe:

Enormous concentration of capital investment.•Magnitude of earnings.•Inherentfireandexplosionhazardsofhydrocarbonprocessesandproducts.•

Fromthefireandexplosionhazardpointofview,ahydrocarbonprocessingplant/complexcanbedividedbroadlyintofiveidentifiableareasasunder:

Hazards in process units and production plantsThe process unit, as the name indicates, processes various combinations of hydrocarbons. The inputs are also called rawmaterialorfeedstock(forexample,crudeoilinarefinery).Thethreesalientfeaturesofaprocessunitare:

High quantities of hydrocarbons.•Very critical conditions of temperature and pressure.•The rapid movement of these hydrocarbons in various phases like gases, liquids, solids.•

Hazards in unit processesSince, the unit processes essentially involve chemical changes, the nature of their reactivities vary considerably. This isquantifiedbywhat isknownas the“ReactivityFactor”.The reactivity factoramongst thevariousunitprocesseswillbethelowestfortheendothermic(heatabsorbing)reactionssuchascracking,reformingandsoon.Thereactivityfactoryforexothermic(Heatreleasing)reactionswillbeobviouslyhigher.Thiscanbefurthersub-divided as per the complexity of the reaction and the severity of the exotherm. The reactions can be grouped in the increasing order of reactivity as under:

83/JNU OLE

Reactionssuchashydrogenation,sulphonation,esterification,isomerisationandsoon•Alkylation, condensation, oxidation by air or oxygen, polymerisation and so on•Halogenation•Oxidation using chlorates, permanganates, inorganic peroxides and so on•Nitration•

The hazard posed by reactivity is further aggravated by severe pressure and temperature conditions as well as material factors of various materials handled.

Hazards in unit operationsUnit operations essentially involve physical changes. Since no chemical reaction takes place, the Reactivity factor is zero. So they pose fewer hazards as compared to unit processes. However, a unit operation carried out under severe conditions of temperature and pressure, handling of materials with higher material factors may pose a higher hazard as compared to the unit process.

Hazards of flare and flare stacksThevapoursofflammableliquidsaregenerallyheavierthanair.Hence,ifwasteandsurplushydrocarbongasesreleased by safety valves and pressure relief valves of various equipments cannot be released to the atmosphere, theywillsettledownandmaystrikeanyhotsurfaceintheplantleadingtofireandexplosion.Thesegasesare,therefore, collected by a network of pipelines and joined to a header which leads to a knock-out drum for separating anyliquidfromtheflaregas.Awatersealedvesselisprovidedtopreventtheflamefrombackingupfromtheflarestack where the gas is safely disposed off by burning. In the fertilizer industry, only gases like hydrogen and methane whicharelighterthanairarereleased.Thesecanbesafelyventedoffwithoutburning.Thehazardsinvolvedinflareandflarestacksarethefollowing:

Hazardsofinternalexplosioninsidetheflaresystemduetotheignitionofthecombustiblemixture•Liquidcarry-overfromflarestacks•System obstructions•Entry of low boiling hydrocarbons•

6.7.3 Other Hazards Related to Process Units/Production PlantsFired HeatersThefiredheaterisequipmentwheretheliquidtobeheatedispassedintubesandheatissuppliedbyburningfuelexternallyontheshellside.Duetothepresenceoftheliveandnakedflameobtainedbythecontrolledcombustionofavarietyoffuels,firedheatersarethemosthazardouspiecesofequipmentinaplant.Theoperationalhazardsoffiredheaterscanbelistedasunder:

Explosionduetosimplefaultslikeleakagesinfuelflowcontrollingvalves.•Mechanical rupture of tubes carrying the material to be heated.•Improper temperature control•

Compressors: Compressors are used to compress huge quantities of hydrocarbon gases. The compressors should belocateddownwardandsufficientlyfarawayfromheaters.Theoperationalhazardsofcompressorscanbelistedas under:

Aninternalexplosionispossibleifairisdrawnintothesystemthroughleakagesinpackingglands,fittings•etc.Gas may also escape because of human failure or equipment rupture by over pressure.•Inadequate lubrication leading to operational failure.•

Pumps: pumps are required to render the service of transporting hydrocarbons round the clock and for years together. This necessitates preventive measures and adequate maintenance of pumps which otherwise pose the following hazards:

Fire Insurance

84/JNU OLE

Leakageofflammablehydrocarbonsthroughglands,packingandsoon•Improper location of pump compounds•The high pressure charge pump must be isolated from major process equipment or other pumps.•

Piping: Piping for a hydrocarbon processing industry is what blood vessels are for a human body. All the equipment isinterconnectedbypipinginanintegratedprocessunit.Criticalpipingcircuitssuchastransferlinesfromfiredheaters,condensingvapour linesetc.need tobe identifiedandhaveadequatespaceprovided.Thehold-upsofhydrocarbons in piping therefore cannot be neglected and nor can the hazards associated with piping be ignored. Some of the hazards are as follows:

Choking of pipelines leading to heat and material build-up in a particular section of the process units which in •turnwillleadtofireandexplosion.Leakages in the piping system at hazardous locations, untraceable leakages and leakages at inaccessible locations •inthecomplexpipingnetworkmayleadtovapourcloudformationandaccumulationofflammableliquidsandvapoursintheformofpocketsatparticularlocationsintheplants.Ignitionofthisunconfinedvapourcloudwouldposetheseverestfireandexplosionhazard.Amajorityofthehydrocarbonfluidswhenflowingthroughpipescanbuilduplargestaticelectricitypotentials.•If not adequately earthed, the accumulations of static electricity charges round the clock in the piping systems mayleadtodisastrousfiresandexplosions.

85/JNU OLE

SummaryThecauseswhichmainlycontribute tofirehazards invariousdepartmentsorwarehousesofa textilemill:•mechanicalfriction,fluff,electricalshortcircuit,electrostaticcharge,badhousekeeping,humannegligence,improperstackingandstorage,faultyconstructionanduseofflammablematerialslikepetrol,gas,keroseneand so onFew other hazards faced by textile industry are: the conspicuous hazard arises in the return air system where all •thedirtandfluffwillbesuckedinahumidificationplant,thethermicfluidandheatersmayleadtooverheatingandleakagewhichmayresultintobigexplosionsandfiresThe Indian Jute Industry is one of the major industries in our country employing millions of people and earning •coresofrupeesbywayofforeignexchange.TheprincipalconstituentsofJutefibreareAlphaCellulose(60%),Semi-Cellulose(approx.25%),Lignine(approx.11%).Jute increases in volume rapidly with the absorption of water and decomposes when in contact with water for •long periods, releasing methane. Jute risks can be distinctly divided into two classes, the assorting, pressing premises, commonly known as jute press and jute millsFires in jute press premises usually take place in the assorting sections of the warehouses and sometimes in •thepuccabalewarehouses.But incidencesoffiresaremuch less in thepresshouse itself,ascompared towarehouses.Juteisthemainrawmaterialprocessedinjutemillswhichinanyform,beingofacombustiblefibrousnature,•isaswiftfirecarrierandfirethereforeisaneverpresenthazard.The rubber industry is dominated by tyre manufacture with some 65% of natural rubber produced going into •tyre and associated products. The rest of the rubber product is absorbed over a wide range of industrial products. Rubberisclassifiedintonaturalrubberandsyntheticrubber.The principal hazard in the paper industry is from the presence of combustible material at various stages i.e., •rawmaterial,manufactureandthefinishedproductstage.The hydrocarbon processing industry is generally of a gigantic size as compared to the normal chemical industry. •Theindustryissusceptibletotheriskofcatastrophicfinanciallossesbecauseofthe:enormousconcentrationofcapitalinvestment,magnitudeofearningsandinherentfireandexplosionhazardsofhydrocarbonprocessesand products.

ReferencesIndustrialfirefight,2011.• Industrial Fire Brigades: Tank Hazard Control from Action Training Systems [Video Online]Availableat:<http://www.youtube.com/watch?v=4RR6dw_hO2M>[Accessed14June2011].Industrialfirefight,2011.• Industrial Fire Brigades: Ventilation Procedures from Action Training Systems [Video Online]Availableat:<http://www.youtube.com/watch?v=3rz_gKTVoe8>[Accessed14June2011].Kumar, A. & Rohit, 2011. • Industrial hazards due to fire accidents, mechanical and electrical equipments, chemicals and pharmaceuticals [Online] Available at: <http://www.scribd.com/doc/47446597/INDUSTRIAL-HAZARDS-DUE-TO-FIRE-ACCIDENTS-MECHANICAL> [Accessed 14 June 2011].Types of major chemical/industrial hazards – Fire• [Online] Available at: <http://www.ekdrm.net/e5783/e17327/e27015/e27713/> [Accessed 14 June 2011].

Recommended ReadingNational Fire Protection Association, 1990. • Industrial Fire Hazards Handbook, 3rd ed., NFPA.Cheremisinoff, N., 1999. • Fire and Explosion Hazards Handbook of Industrial Chemicals, William Andrew.Thomson, N., 2007. • Controlling Fire Hazards, NGT Publishing Limited.

Fire Insurance

86/JNU OLE

Self Assessment

Theprocessofstretchingacottonorsyntheticstaplefibreintoayarnisknownas__________.1. weavinga. spinningb. processingc. polymerisationd.

________istheworstenemyofthetextileindustry.2. Thermicfluida. Humidificationb. Prismatic effectc. Fluffd.

Which of the following statements is false?3. Trampmetalsinthemachinesoroverheatingofbearingsarecommoncausesofoutbreakoffiresinspinninga. and weaving. Weavingishazardousandfirearisesonlybecauseofmechanicaldefectsinthemachinery.b. Evenasmallsparkduetofrictionoranelectricalfaultissufficientforthefiretospreadacrossthefluffc. covered surfaceJutefibrehasatendencytoshedwaterandrapidlydryupduringafired.

Hydrogenation isa/an__________processand there isapossibilityofhydrogenbuildupandconsequent4. explosion in the reactor.

exothermica. electricalb. chemicalc. mechanicald.

Which of the following statements is true?5. The pulp and paper industry requires glucose based raw materials. a. Fire hazards in the rubber industry are sharply differentiated between storage and operations. b. Paperproductionrequiresadisintegrationofthebulkyfibrousmaterialtosmallagglomeratefibres.c. Rubberstorageischaracterisedbyalowfireloadandingeneralalowinceptionhazard.d.

Which of these chemicals are a source of supply of oxygen and can supply oxygen even in the absence of 6. air?

oxidising agentsa. flammablechemicalsb. explosivesc. nitrationd.

Rubberisclassifiedinto__________rubberandsyntheticrubber.7. man-madea. chemicalb. naturalc. processedd.

87/JNU OLE

Jute increases in volume rapidly with the absorption of water and decomposes when in contact with water for 8. longperiods,releasing______________.

oxygena. nitrogenb. methanec. ethaned.

What does SBR stands for in rubber industry?9. Styrene Butadiene Rubber a. Styrene Butyl Rubber b. Silicon Butadiene Rubber c. Sulphur Butadiene Rubberd.

Paperproductionrequiresadisintegrationofthebulkyfibrousmaterialtosmallagglomeratefibresandthis10. processisknownas_________.

polymerisationa. spinningb. pulpingc. oxidisingd.

Fire Insurance

88/JNU OLE

Chapter VII

Fire Insurance Claim and Settlement

Aim

The aim of this chapter is to:

discussthelegalaspectsoffireinsuranceclaim•

explaintheproceduralaspectsinfireclaims•

clarify the rights of the insures•

Objectives

The objectives of this chapter are to:

enlist the important aspects of survey•

discuss the issues involved in the survey job•

highlightthetermsrelatedtofireinsuranceclaim•

Learning outcome

At the end of this chapter, you will be able to:

identify the types of properties that are covered under the claim•

know the crucial aspects of survey•

understand the doctrine of proximate cause•

comprehend the process of survey• and loss assessment

89/JNU OLE

7.1 Legal Aspects of Fire insurance ClaimThe processing and settlement of claims requires a sound knowledge of:

the general and special law of contract•the terms , exceptions and conditions of•

thefireandspecialperilspolicy �the extensions of the policy �the special policies and clauses �

Duties of the insuredIt is the duty of the insured to observe good faith not only at the pre-insurance stage but also during the currency •of the policy and especially after the occurrence of a loss. The insured has to act as if uninsured.Apartfromnotifyingthefirebrigade,theinsuredmusttakeimmediatestepstoextinguishthefire,toprevent•it from spreading and wherever practicable to remove the property insured to a place of safety, to protect the salvage and so on. The other important duties of the insured are to:•

Give notice of loss to insurer. �Submit proofs and particulars of loss, both as regards cause of loss and extent of loss, on there own expenses. �The onus of proof of the cause of loss lies on him; so also the burden of proving the amount of loss.

Onus of proofWherethelossiscausedbyaninsuredperile.g.,fire,theonusofprovingthatthelosswassocausedisupon•the insured. According to generally recognised rule, the onus of proof is on the insurers that the loss was caused by an •excepted peril. However, this onus of proof may be shifted back to the insured by policy conditions. Where a breach of condition •is alleged, the onus of proving it is on the insurers.

7.1.1 The Doctrine of Proximate Cause

When the loss arises, the insured has to prove that the loss he has suffered is the loss provided for in the •policy. But there may be complicated situations in which the insured peril is only one of several events all of which •have simultaneously or successively produced the loss. The liability in such circumstances has to be determined in the light of the legal maxim – cause proxima non •remotaspectatur(theimmediateandnotremotecauseshouldberegarded).Theclassicdefinitionofproximatecauseis:•

theactiveefficientcause �that sets in motion a train of events �which brings about a result �without the intervention of any force started and working actively from new and independent sources. �

It concerns with the most powerful, dominant, effective and active cause to the exclusion of all other causes •which are considered remote. The insurance policy will pay the claim only if the loss is proximately caused by an insured peril.A peril insured against would produce prima facie damage when the actual instrument of destruction is the natural •and necessary consequence of the peril; in other words, apart from the peril the loss could not have happened. Thus,thelossmaybeattributabletosmokearisingfromthefireortothefallingofwallsinconsequenceof•structuralweaknessresultingfromafire.Thesearepayableunderthepolicyastheyaredeemedtotheproximatelycausedbythefire.

Fire Insurance

90/JNU OLE

In the English case Johnstone v. West of Scotland, the court held that the wall which created the damage fell •inconsequenceoftheinjuryithadsustainedbythefireandtherefore,althoughthewallwastheinstrumentofdamage,thefirewastheproximatecause.IntheEnglishcaseGaskarthv.LawUnion,thewallwhichwasdamagedbyfire,remainedstandingforseveral•days and thereafter was blown down during a violent storm, causing damage to the adjoining property. The Court heldthattheproximatecauseofthedamagedonetotheadjoiningpropertywasnotthefirebutthestorm.Thus,lossesincurredbytheinsuredtochecktheprogressofafireortosavepropertyareattributabletothe•fire,providedthestepstakenarereasonableandbonafide.Propertymaybedamagedbywaterusedforthepurposeofextinguishingtheflames;orhousesmaybeblown•upbythefirebrigadetopreventthefirefromspreading.Inbothcases,firemustberegardedastheproximatecause of the loss. Similarly,wheretheinsuredremovesthepropertyfromthebuildinginwhichthefireisragingforthepurpose•of placing the property in safety so as to minimise the loss, any loss caused to such property by reason of such removalisconsideredtobealossbyfire.

Excepted perilsIf the loss is proximately caused by an excepted peril, there is no liability under the policy.•

Rights of insurersInsurersmakeacompleteinvestigationbothintothedetailsoftheclaimandintothecircumstancesofthefire•and this require taking over and keeping possession of the salvage as also the premises until investigation is complete. These rights are all the more necessary as not all claimants are honest. Hence wider powers are reserved for •insurers under the policy conditions. Under the condition, the insurers on the happening of loss have certain rights. The condition also provides that •no claim under the policy shall be payable if the provisions of this condition have not been complied with. If some property is saved from loss i.e., salvage, the value of such salvage is deducted from the amount of the •claim.

WarrantiesA warranty is an undertaking by the insured that:•

Some particular thing shall or shall not be done or �Thatsomeconditionshallbefulfilledor �Wherebyheaffirmsornegatestheexistenceofaparticularstateoffacts. �

In non-insurance commercial law, a warranty is only a stipulation, breach of which does not go to the root of •the contract but merely gives rise to damages. In insurance law, a warranty is a condition precedent and must be complied with literally if the insured wishes •to recover his claim.Warranties have to be distinguished from representation. A representation must be substantially true and should •be made in good faith. A misrepresentation will avoid the contract only if it is material.Although, insurers are entitled to avoid a claim if there is breach of warranty. Insurers will usually waive a •breach of warranty if it is merely of a technical nature and does not contribute to or aggravate the loss. In such circumstances, claims are treated as non-standard claims and settled for a lesser amount say up to 75% •of the loss.

Ex-gratia paymentsThese are claims which are paid as a matter of grace where the loss is outside the scope of the policy or the •liability under the policy.

91/JNU OLE

In strict legal terms, is doubtful. Whenever ex-gratia payments are effected, it is the practice not to pay the full •amountofthelossandsuchclaimsarepaid‘withoutprecedent’.Threeotherfeaturesofex-gratiapaymentsmust be noted:

Subrogation rights do not arise �The Reinsurer will automatically follow the action of the ceding Company �The right to make ex-gratia payments is vested in the Board of Directors of the Companies. �

Without prejudiceThe words have the effect of leaving open the question of ultimate liability under the policy. For example, the •following actions taken by the insurer are without prejudice to their right to deny liability if they are legally entitled to do so:

Issuance of a claim form �Receipt of documents relative to the cause of loss or amount of loss �Conduct of survey and investigation to determine the cause and amount of loss and so on. �

7.1.2 Rules of Interpretation of Policies

When there is any dispute as to the meaning of words used in the policy, the courts adopt the following rules •which are known in legal language, as rules of construction. The most important rule is: “The intention of the parties to the contract must prevail and the intention is to be looked for in the policy itself, read as a whole”.

The other rules are:If clauses and endorsements are attached to the policy, they will override the printed matter in the body of �the policy; typewritten matter will override printed matter and hand-written will override all other matter. The words used in the policy are to be given their plain, ordinary and popular meaning. However, technical �termshavetobeconstruedaccordingtotheirtechnicaldefinitions.The ordinary rules of grammar and punctuation will apply. �Whenever there is any ambiguity in the policy or any doubts as to the meaning and effect of the words �used,thecourtsgivethebenefitofthedoubttotheinsured.TheInsurermustsuffer,ifthereisdoubtorambiguity in the policy.

7.1.3 The Amount of Claim PayableAcontractoffireinsuranceisacontractofindemnity.Theinsurersundertake,bythepaymentofasumofmoney,asnearlyaspossible,toplacetheinsuredinthesamepositionashewasimmediatelybeforethefire.Theextentofindemnity is therefore subject to two main limitations:

Market Value of the property affected. The value is calculated taking into account the following factors:•The value at the time of loss. �The value at the place of loss. �The real or intrinsic value excluding any sentimental value. �Depreciation or betterment. �Prospectiveprofitsorotherconsequentialandindirectlossesareexcluded. �

The sum insured under the policy for the affected item.•

The policy will pay the sum insured or market value whichever is less, in case of total loss; the condition of average willapplyforpartialloss/damage.Valuemaybedefinedastheworthofanythingintermsofsomethingelseforwhich it can be exchanged either in other goods or in money.

Insuranceisconcernedwiththeactual,realorintrinsicvalueoftheproperty.Theterm‘MarketValue’ininsurancepractice has different meanings in different situations but the objective in all cases is to give effect to the principle of indemnity in a practical manner. The basis adopted must enable the insured to recover the real value of the property

Fire Insurance

92/JNU OLE

involved in the loss. Within the frame- work of the policy terms and conditions, the insurer attempts to provide a fair indemnity to the insured.

7.1.4 Types of Properties AffectedThetypesofpropertieswhicharecoveredunderthefireinsuranceclaimare:

Fig. 7.1 Types of properties covered under fir insurance

BuildingsIn respect of buildings, indemnity is provided on the basis of cost of reinstatement or reconstruction of the •building. This cost is determined with reference to the cost of labour and materials at the time and place of the loss plus •other professional and incidental charges. However, the new structure will be better than the old one. Therefore, deduction for depreciation on the cost •of material is made. The factor of depreciation is important in the assessment of building losses, especially if old structures are •involved. The causes of deterioration in building materials are decay, corrosion, metal fatigue, wear and tear and so on.•

Machinery

Ifthemachinerydamagedisrelativelynew,thecostofreplacementlessdepreciationisnotdifficulttodecide.•Complications could arise where:

The machinery, although old, still performs well for the purpose for which it was designed, ori. The machinery destroyed is old and out of date in industries where the rates of obsolescence and ii. technological improvement are high.

Inthecaseof(i)above,indemnityistheprovisionofnewmachinerywhichwillperformsimilarfunctions,•subjecttodeductionsfordepreciationandtheinsured’scontributiontowardsbetterments.Situationsunder(ii)abovearemoredifficult.Hence,thepracticeforsuchobsoletemachineryisagreedvalue•

Buildings

Machinery

Furniture, Fixtures &

Fittings

Stock in Trade

Contract Price

Household goods and personal effects

Types of

properties

Manufacturer’ s Stocks: raw

material, stock in process, finished

goods

93/JNU OLE

insurance based on average usage, future life span and utility and so on. In either case, a fair basis of settlement would be the cost of replacement less depreciation and allowance for any betterment if any. Where machinery is to be replaced, the insurers are liable for the cost of transporting the new machinery to the •site and the costs of erection or installation, if applicable.Wear and tear, rust, corrosion and metal fatigue are the common causes of deterioration in machinery. Some •machineshaveanextremelylimitedlifebecausenewandmoreefficientmachinesarecontinuouslyavailable.Theusetowhichthemachineryisputinfluencesitsdepreciation.Machinery which is operated for three shifts will have greater wear and tear than the machinery operated only •for one shift. Electrical installation is subjected to a greater wear and tear than other plant and equipment.Boilers, pipes, pumps and similar items of a plant suffer from rusting or corrosion. Machine parts which are •subject to constant stress may develop metal fatigue.

Furniture, fixtures and fittingsThese may include any of the following:

furniture, tables chairs, desks, cabinets, safes and so on•counters, showcases and so on•mechanicalfixtures,scales,lightingfixtures,fans,airconditioningsystems•furnishing, draperies, venetian blinds, carpets and so on•typewriters, adding, calculating and other business machines, computers and so on•

The indemnity provided for these classes of property is replacement cost less depreciation.

Stock in trade

The market value at the time and place of the loss will be provided as indemnity. The basis for settlement would •be the cost of replacement and not the price at which they would be sold. To the invoice price is added the cost of transporting the goods to the place of loss but credit must be given for •any trade or cash discount or other concession enjoyed by the insured in the normal course of his business.

Manufacturer’ s stocksThestocksatthemanufacturer’spremisesmayconsistof:

Raw material:• Indemnity is represented by the landed cost at which such material is available at the place of fire.Stock in process:• The basis for settlement would be the cost of raw materials consumed up to the time of the fireandalldirectlabourcostsandoverheadsforprocessinguptothatstage.Thus,thecostsofprocessesyettobe incurred are excluded.Finished goods:• The traditional view holds that indemnity is represented by the net manufacturing cost at the timeoffire,thatistosay,themanufacturer’sex-factorypricelesshisnetprofits.Simply,itmeansthattheindemnityshouldbeconfinedtothecostofrawmaterialsanddirectandindirectcostsofproduction,i.e.,thecost price to the manufacturer.

Thus,itwillbeobviousthatunearnedoranticipatedorprospectiveprofitsarenotincludedinwhateverbasisofvaluation that is taken in respect of stocks, whether belonging to the retailer, wholesaler or manufacturer.

Contract priceInsurance of imported goods which are sold under a contract which is cancelled either wholly or to the extent •of loss or damage is subject to the contract price clause and the indemnity is based on contract price.

Household goods and personal effectsThe terms include furniture, cooking utensils, domestic appliances, television and so on. The term personal •effects would include wearing apparel, books and so on.

Fire Insurance

94/JNU OLE

Where the goods are a total loss, the cost of replacement less deduction for depreciation is an adequate basis •for indemnity. If such property is damaged, the cost of repairs less deduction for depreciation on the value of parts replaced •will be the basis for indemnity.

7.1.5 Important Terms Relating to the Claim Given below are few important term and concepts of claim:

Fig. 7.2 Important terms in fire insurance

Salvage: • Theterm‘salvage’ismeans:All property covered by insurance which escapes destruction or damage from the operation of an insured �peril.The residual value of property which is partially damaged. �

Assessmentoflossmaybeona‘net’basisorona‘gross’basis.Iftheinsuredretainsthesalvage,thelossisindemnified‘net’thatis,thegrossagreedamountoflossordamage,lessthevalueofthesalvage.Wheretheinsurerstakeoverthe salvage the loss is paid gross, receipts from the sale of the salvage remaining with the insurers. The principle of indemnity has two corollary principles of contribution and subrogation.

Contribution: • The condition provides that in case of more than one policy on the same subject matter each insurer will pay his rateable proportion of the loss.Subrogation: • Subrogationisimpliedinallcontractsofindemnity.Thefirepolicyconditionofsubrogationmodifiesthecommonlawpositioninonerespect.Thisconditionprovidesthatsubrogationtakesplaceevenbeforeindemnificationbytheinsurer.Thisisconsiderednecessarytoenabletheinsurertoactquicklyindisposingthesalvage and where applicable, proceeding against the third party responsible for the loss.Pro-rata average: • If there is under-insurance, the amount of claim is proportionately reduced.Escalation clause: • The tariff permits the incorporation of the escalation clause which provides for automatic regular increase in the sum insured throughout the period of the policy.Excess: • Thereisacompulsoryexcessunderthefirepolicy.Voluntaryexcess,ifoptedforbytheinsuredwillalso apply.

Salvage

Excess

Escalation clause

Contribution

Subrogation

Pro-rata average

Important terms

95/JNU OLE

7.2 Procedural Aspects in Fire ClaimsOnreceiptofclaimintimationthefirststepistoverifythat:•

The policy is in force. �The peril which has operated is covered under the policy. �The items of properties affected and the location involved are the same as covered in the policy. �The interest involved is the same as referred to in the policy. �

Thereafter the claim is registered and a claim number allotted. After registration of the claim, a claim form is •issued to the insured for completion and return. If the loss is more than Rupees 20000/-, a licensed surveyor is assigned the survey job for assessing the loss. •The surveyor is furnished with a copy of the claim form, copy of the policy and other relevant information. The basic duty of the surveyor is to investigate and report the cause of loss, extent of loss and compliance with •the terms and conditions of the policy.Inverylargelosses,theinsureddesiresandthesurveyorsrecommendpaymentof‘onaccountsettlements’.•Thiscourseofactionistakenwheretheliabilityunderthepolicyisnotindoubtandthepreparationofthefinalsurvey report will take time for various reasons.After completing the initial investigation, the surveyor will submit a preliminary report which would indicate •briefly:

the date of loss �the cause of the loss �a preliminary estimate of the loss or damage �

Thereafter,afinalreportissubmittedgivingfulldetailsoftheadjustmentofthelossandthesurveyor’sopinion•on the question of liability under the policy. Thisfinalreportisscrutinisedalongwithotherdocumentsandifeverythingisinorder,adischargevoucheris•sent to the insured for his signature and return, on receipt of which a cheque in settlement is sent. For small losses, the preliminary or interim report is not required and the claim will be settled on the basis of •thefinalsurveyreport.Aspercondition15ofthefirepolicy,theinsurancecoverismaintainedtothefullextentofthesuminsured.•However, in case the insured immediately on occurrence of the loss exercises his option not to reinstate the sum •insured, the sum insured shall stand reduced by the amount of loss. When the insurance is on a co-insurance basis, the surveyor is appointed by the leading insurer. •The leading insurer settles the entire claim and recovers the expenses and proportionate shares of the loss from •the co-insurers. Theclaimswhicharepaidwillbereflectedintheaccountswhicharepreparedatthetimeofclosing.Inaddition•to known outstanding claims, there may be losses which have occurred but not intimated to the insurers. A certain ad-hoc percentage of the known outstanding claims are provided for what are called I.B.N.R. claims •(incurredbutnotreportedclaims).

7.3 Important Aspects of SurveyThesurveyor’sprimarydutiesareto:

investigate into the cause of loss•ascertain the extent of loss•advise the insured on loss minimisation measures and the protection of salvage•advise the insurers on the disposal of salvage•submit a detailed report on the above and other aspects relating to the loss•

Fire Insurance

96/JNU OLE

7.3.1 Process of Surveying and Loss AssessmentAn adequate investigation of the loss is facilitated, if the surveyor follows a logical and orderly process which may consist of the following steps:

A thorough examination of the policy to ascertain the scope of coverage.a. Inspection of the scene of loss and examination of the property destroyed or damaged and of undamaged b. property to determine the cause and extent of loss, to render advice to the insured for loss minimisation and measures to protect the salvage. Examination of books of accounts and other records in the possession of the insured to arrive at the values c. of the property insured and the property destroyed or damaged.Examinationofotherrecordsorreportscoveringtheoccurrenceoftheloss(e.g.,firebrigadereport,Salvaged. CorpsReportandsoon).Thesereportsmaythrowlightonthetime,placeorcauseofloss.Preparationandsubmissionofpreliminary/interimandfinalreports.e.

7.3.2 The Important Issues Involved in any Survey JobCause of loss

Animportantpurposeofsurveyistodeterminethecause(s)ofloss.Athoroughexaminationatanearlystage•oftheundisturbedsalvagemayrevealthemostprobablecauseoffire.Insomecases,thecauseoffiremaybedefectiveheatingdevices,carelesshandlingofhotorburningmaterialor•electricalshort-circuit.Inmanycases,thecauseoflossmaybevisibleandinvestigationmaynotbedifficult.However,itmaybedifficulttodeterminespontaneouscombustionwhichoccursincertaincommoditiessuch•as cotton seeds, oil-cakes etc. Bad storage conditions, existence of humidity and lack of ventilation result in fermentation and heat which may lead to combustion. Visual inspection itself may identify the cause. Chemical analysis also may be conducted to establish that it was •a slow process of oxidation. Explosion damage is evidenced by shattered glass, broken or displaced machinery, splintered timbers and widely scattered debris.

Assessment of lossThe other important function of a survey job is to determine the value of the property covered by insurance and •the amount of loss that it has suffered. The condition of the property provides some evidence of value and the amount of loss. •Another reliable evidence of value is provided by records which may show quantities, costs, age, history or •condition.

Building – loss assessmentThe cost of reconstruction is worked out on the basis of the prevailing material and labour costs at the place •andonthedateoffire.This approach holds good for simple structures. For complex modern buildings, estimates will have to be •prepared by architects and contractors. But the surveyor still carries the responsibility to examine such estimates both as regards description of the •damage as well as the cost of reinstatement. If a building has been damaged, the surveyor should determine the extent of necessary repairs and their cost. Whether the loss is total or partial, depreciation or betterment has to be determined.

Machinery – loss assessmentThe loss on damaged machines or equipment is assessed on the basis of the cost of repair with deduction for •depreciation. Total losses are agreed according to the replacement cost less depreciation. This method is based on estimates of the cost of repairs or replacement prepared either by the surveyor or by •outside repairers, manufacturers and so on.

97/JNU OLE

Where the machinery is of a complicated type or the damage is extensive, the loss assessment procedure becomes •more elaborate. In complicated machinery, components may have to be sent for repairs to manufacturers.

Stock and merchandise – loss assessmentFrom the examination of the salvage, the entire premises and the places of storage or the display of stock, the •surveyor may be able to determine the probable quantities of stock that existed prior to the loss. If the stock is totally destroyed, then reliance will have to be placed on books of account. If the stock which is •totally damaged has a ready market and is replaceable, the loss is assessed on the basis of the cost of replacement from the supplier or the wholesaler. If the stock is damaged but can be reconditioned for sale, then the basis of settlement will be the cost of •reconditioning plus any reduction in its sale price because of the reconditioned nature of the goods. When reconditioning is not possible, the loss is assessed on the basis of the sound value and the amount of •damage suffered by the goods.

Stock in process – loss assessmentThequantitieswillhavetobedeterminedbyacarefulstudyoftheproductionflowcharts,processaccounts•and so on, spread over a fairly long period. After determining the quantity affected, it is possible to assess the loss based on the cost of raw materials •consumed up to the point of loss and the proportional labour and overhead charges.

7.4 Final Survey ReportThefinalsurveyreportgenerallyconsistsofthefollowingitemsofinformation:

The name of the insured, address1. Construction2. Occupancy3. Type of property4. Protection5. Exposure6. Characteroftheneighbourhood,previousfirerecordinthearea,generallaboursituation7. Previous losses suffered by the insured.8. Assessment of the circumstances and the causes of loss: If the cause is unknown, then the surveyor will have to 9. givehisopinionwhetherthefirewasaccidentalinorigin.Thesurveyorisalsoexpectedtogivehiscommentsonthespreadoffireandaggravationoflossduetothepresenceofcombustiblematerials,openingsinthewallsorfloorsandsoon.Description of damage: the condition of the property separately for each item such as building, machinery, etc. 10. immediately after the loss is described. Similarly, in case of the contents, the condition of the property affected by the loss is described as damaged by smoke, scorching, water etc. or contaminated or melted or strained. Photographs of the damage are provided.Loss minimisation measures11. Condition of average12. Breach of warranty if any,13. Recovery from third party, if any14. Final assessment of loss: Where extensive damage is involved to building, machinery and so on, this section would 15. providedetailedinformation,costofreplacement/repair,expensesincurredbytheinsuredinfireextinguishment,the value of salvage, under insurance if any, excess applicable and the net loss suffered by the insured.

Fire Insurance

98/JNU OLE

SummaryThe processing and settlement of claims requires a sound knowledge of: the general and special law of contract •and the terms, exceptions and conditions ofIt is the duty of the insured to observe good faith not only at the pre-insurance stage but also during the currency •of the policy and especially after the occurrence of a loss. The insured has to act as if uninsured.Onusofproof:Wherethelossiscausedbyaninsuredperile.g.,fire;theonusofprovingthatthelosswasso•caused is upon the insured. Theclassicdefinitionofproximatecauseis: theactiveefficientcausethatsets inmotiona trainofevents,•which brings about a result and without the intervention of any force started and working actively from new and independent sources.Insurersmakeacompleteinvestigationboth,intothedetailsoftheclaimandintothecircumstancesofthefire•and this require taking over and keeping possession of the salvage as also the premises until investigation is complete. In non-insurance commercial law, a warranty is only a stipulation, breach of which does not go to the root of •the contract but merely gives rise to damages. In insurance law, a warranty is a condition precedent and must be complied with literally if the insured wishes to recover his claim.Ex-gratia payments: these are claims which are paid as a matter of grace where the loss is outside the scope of •the policy or the liability under the policy.Rules of interpretation of policies: “The intention of the parties to the contract must prevail and the intention is •to be looked for in the policy itself, read as a whole”.Acontractoffireinsuranceisacontractofindemnity.Theinsurersundertake,bythepaymentofasumofmoney,•asnearlyaspossible,toplacetheinsuredinthesamepositionashewasimmediatelybeforethefire.Thetypesofpropertieswhicharecoveredunderthefireinsuranceclaimare:buildings,machinery,stockin•trade,contractprice,householdgoodsandpersonaleffects,manufacturer’sstocksandfurniture,fixturesandfittings.Thesurveyor’sprimarydutiesare:toinvestigateintothecauseofloss,toascertaintheextentofloss,toadvise•the insured on loss minimisation measures and the protection of salvage, to advise the insurers on the disposal of salvage, to submit a detailed report on the above and other aspects relating to the loss.

ReferencesRogers, D., 2011. • Tips on Fire Insurance Claims [Online] Available at: <http://ezinearticles.com/?Tips-on-Fire-Insurance-Claims&id=1175332> [Accessed 15 June 2011].Wilson, S., 2011. • Fire insurance claims guide [Online]Availableat:<http://www.pushormitchell.com/files/articles/Fire-Insurance-Claims-Guide.pdf> [Accessed 15 June 2011].Talandassociates, 2010. • Fire damage - insurance claim help [Video online]. Available at: <http://www.youtube.com/watch?v=ZMoYhvX8Q5w> [Accessed 15 June 2011].jbrennan1069, 2010. • Tips to filing fire insurance claims [Video online] Available at: <http://www.youtube.com/watch?v=lbaZk5JlvuM> [Accessed 15 June 2011].

Recommended ReadingPeverett, E., 1997. • Fire insurance law and claims, 2nd ed., Witherby & Co Ltd.Smith, G., 1998. • The adjuster! Making insurance claims pay, 2nd ed., Cargo Publishing Company.Longcore, R., 2007. • Insurance Claim Secrets REVEALED! Trafford Publishing.

99/JNU OLE

Self Assessment

The loss on damaged machines or equipment is assessed on the basis of the cost of repair with deduction for 1. _________.

depreciationa. appreciationb. lossc. claimd.

Themarketvalueatthetimeandplaceofthelosswillbeprovidedasindemnityfor_________.2. furniturea. stocksb. buildingsc. raw materiald.

Subrogationisimpliedinallcontractsof_________.3. insurancea. claimb. indemnityc. riskd.

Which of the following statements is false?4.

Whether the loss is total or partial, depreciation or betterment has to be determineda. The condition of the property provides some evidence of value and the amount of loss. b. An important purpose of survey is to determine the cause of loss. c. Thefirepolicyconditionofsubrogationmodifiesthecommonlawpositioninmultiplerespects.d.

The leading insurer settles the entire claim and recovers the expenses and proportionate shares of the loss from 5. the___________.

insurance companya. co-insurersb. marketc. third partyd.

According to generally a recognised rule, the onus of proof is on the insurers that the loss was caused by an 6. excepted_______.

damagea. lossb. perilc. hazardd.

________maybedefinedastheworthofanythingintermsofsomethingelseforwhichitcanbeexchanged7. either in other goods or in money.

Valuea. Lossb. Damagec. Hazardd.

Fire Insurance

100/JNU OLE

Warrantieshavetobedistinguishedfrom___________.8. insurancea. policyb. claimc. representationd.

The condition provides that in case of more than one policy on the same subject matter each insurer will pay 9. his________proportionoftheloss.

rateablea. averageb. percentagec. actuald.

The factor of _________is important in the assessment of building losses, especially if old structures are10. involved.

claima. depreciationb. insurancec. policyd.

101/JNU OLE

Chapter VIII

Fire Consequential Loss Insurance

Aim

The aim of this chapter is to:

explaintheconceptoffireconsequentiallossinsurance•

discussthebasisofprofitinsurance•

describe the indemnity period•

Objectives

The objectives of this chapter are to:

explain how the indemnity is measured•

highlight the operative clause of the insurance policy•

explain the new business clause and the claim procedure•

Learning outcome

At the end of this chapter, you will be able to:

know consequential loss insurance premium rate•

understandthespecificationofturnoverbasis•

discuss some important terms like insu• redstandingcharges,netprofit,grossprofitandsoon

Fire Insurance

102/JNU OLE

8.1 Fire - Consequential Loss InsuranceThe subject matter of consequential loss insurance is the business of the insured i.e. the earning capacity of the property.Fireinsuranceaffordscoverfor‘materialdamage.’However,anindemnityforthematerialdamagedoesnot provide complete protection to the insured who will also suffer trading losses due to the total or partial stoppage ofhisbusiness.Theobjectoflossofprofitsinsuranceistomakegoodoftheselosses.Hence,thisisalsoknownasconsequential loss or business interruption insurance. The trading losses which result from the stoppage of business may be considered under three headings given below:

Fig. 8.1 trading losses from stopping business

Net profit:1. which is the margin of income over expensesStanding charges:2. which are overhead expenses which continue to be incurred inspite of the stoppage of the businessIncreased cost of working:3. which is the abnormal expenditure incurred by the insured to maintain the business asfaraspossible,atitsnormallevel,sothatthelossundernetprofitandstandingchargesisavoidedoratleast minimised. Examples of such expenditure are rent for temporary premises, payment of overtime, hire of machinery, sub-contracting and so on.

8.2 Basis of Profits InsuranceIfturnoverisstoppedorreduced,profitsareaffected.Therefore,lossofprofitsisdeterminedandmeasuredwithreferencetothereductioninturnoverandthisisthebasisadoptedinprofitsinsurance.Turnoverinsimpletermsmeans‘Sales’turnoverwhichconsistsofthefollowingthreeelements:

Variable charges:• these are expenses incurred in producing goods. They vary in direct proportion to the volume of business transacted.Standing charges:• Theseexpensesarefixedinamountirrespectiveofthevolumeofbusiness.Net profit:• This is turnover minus variable and standing charges.

Afterafirewhentheturnoverisreduced,thevariableexpenseswillalsobereducedinthesameproportioninwhichcase the insured suffers no loss on this account. But the standing charges do not reduce in the same proportion and netprofittoowillbeaffected.Forexample:

Before Fire (Rs.) After Fire (Rs.)Turnover 50,00,000 25,00,000Production Cost 35,00,000(70%) 17,50,000(70%)Standing Charges 10,00,000(20%) 10,00,000(40%)NetProfit 5,00,000(10%) ----Net Loss --- 2,50,000

8.2.1 The Measure of Indemnity

Theproportionwhichthegrossprofitbearstotheturnoverduringagivenperiodiscalledthe• rate of gross profit. Inotherwords,therateofgrossprofitisthenormalearningpowerofthebusinessexpressedasapercentage.•Accordingly,themeasureofindemnityisthesumproducedbyapplyingtherateofgrossprofittothereduction•inturnoverduringanagreedperiodfollowingdamage.Whentherateofgrossprofitisappliedtotheshortagein the turnover, the amount of trading loss is ascertained.

Net profit Standing charges

Increased cost of

working

103/JNU OLE

Intheaboveexample,therateofgrossprofitof30%isappliedtothereductioninturnoverofRs.25,00,000/-•whichproducesRs.7,50,000/-(lossingrossprofit)whichwillbethemeasureofindemnityforaoneyearindemnity period.

8.2.2 Indemnity Period

Theprofitspolicyprovidesindemnityinrespectofthelossofgrossprofitsduringtheindemnityperiodwhich•is selected by the insured. The indemnity period chosen by the insured may vary from 3 months to 3 years. It is in the interest of the insured •to select an indemnity period which is of such duration that will represent the longest period during which his businesscouldbeaffectedfollowingaseriousfire.Thefiremustoccurduringtheperiodofinsuranceandtheindemnityperiodwhichcommencesfromthedate•offiremaywellextendbeyondtheexpirydateofinsurance.

8.2.3 The Sum InsuredThesuminsuredisfixedbytheinsured.Wheretheindemnityperiodis12monthsorless,thesuminsuredshouldbetheannualamountofthegrossprofiti.e.theannualamountofthenetprofitandtheinsuredstandingcharges.Examples of standing charges are:

Interest on loans, bank overdrafts, debentures•Rent, rates and taxes•Duties, licences and patent fees,•Director’sfeesandremuneration•Pensions•Insurance premiums•Motor car expenses•Officeandgeneralestablishmentexpenses•Repairs and renewals chargeable to the revenue account•Salaries to the permanent staff including the employees state insurance contribution•Providentfund,superannuation,familypension,gratuity,perquisitesbenefits,welfareandsoon•Wages•Advertising and publicity•

8.3 The Operative Clause of the PolicyThe operative clause of the policy reads as follows:“That if any building or other property or any part thereof used by the insured at the premises for the purpose of the business be damaged by the perils covered under the STANDARD FIRE AND SPECIAL PERILS POLICY and the business carried on by the insured at the premises be in consequence thereof interrupted or interfered with THEN THE COMPANY WILL PAY TO THE INSURED”.The provisions for this clause are:

Fireorotherperilmustoccurattheinsured’spremises;•Property used for the business of the insured at the insured premises must be destroyed or damaged.•The business must be interrupted or interfered with as a consequence.•Theresultinglossispaidinaccordancewiththeprovisionsofthespecificationsincorporatedinthepolicy.•Thelossofprofitsclaimwillbepaidonlyifthematerialdamageclaimispaidoradmittedundertherespective•policy.(Thisiscalledthe‘MaterialDamage’proviso).

Fire Insurance

104/JNU OLE

8.4 Important Terms for Various CalculationsSome of the important terms which are used for calculation purposes are:

Net profitThenettradingprofitresultingfromthebusinessoftheinsuredatthepremisesafterdueprovisionhasbeenmade•for all standing and other charges including depreciation but before the deduction of any taxation chargeable onprofits.Thenetprofitisthatwhichremainsafterallcostsofproductionandchargesincurredinrunningthebusiness•have been met.

Insured standing chargesThe standing charges covered by the insurance policy. These are the charges which the insured considers would •continue to be incurred if his business is affected and hence are selected by him for Insurance purposes.

Gross profitThisisthenetprofitaddedtotheamountoftheinsuredstandingcharges.•Ifthereisnonetprofit,theamountoftheinsuredstandingchargesless.Suchaproportionofthenettrading•loss as the amount of the insured standing charges bears to all the standing charges of the business will be the basis of indemnity.

For example:

Turnover Rs. 10, 00,000

Productioncost(60%) Rs. 6,00,000

Standing charges Rs. 5,00,000

Net Trading Loss Rs. 1,00,000

Insured Standing Charges Rs. 4,00,000

Standing Charges not insured Rs. 1,00,000

GrossProfit,intermsofthepolicydefinitionisRs.4,00,000

A proportion of the net trading loss as the amount of the insured standing charges bears to all the standing charges of the business =

= Rs. 80,000

TotalGrossProfitforthepurposeofthepolicyisRs.3,20,000(Rs.4,00,000–80,000=Rs.3,20,000)

Rate of gross profitRateofgrossprofitisdefinedasthatearnedduringthefinancialyearimmediatelybeforethedateofthedamage.•However, with most businesses, either they are making progress or they are losing ground. Provisionmustthereforebemadetoallowadjustmentstotheresultsofthepreviouscompletedfinancialyear.•Suchadjustmentprovisoisbracketedagainsttherateofgrossprofit,annualturnoverandstandardturnover,•whichthreedefinitionscoveralltheessentialfactorsincalculatingtheloss.

105/JNU OLE

TurnoverIt is the money paid or payable to the insured for goods sold and delivered and for services rendered in course •of the business at the premises. Inotherwords,itistheinsured’sincomefromtradingincludingservicesrendered.•

Indemnity periodThe period beginning with the occurrence of the damage and ending not later than number of months thereafter •during which the results of the business shall be affected in consequence of the damage. Themaximumperiodstatedinthespecificationisnotnecessarilytheindemnityperiod.Assoonasthebusiness•has ceased to be affected by the damage, which may be after a very much shorter period than the maximum, theeffectsontheturnovershouldbeascertainedandtheclaimfinalised.

Annual turnoverThis is the turnover during the twelve months immediately before the date of the damage.

Standard turnoverThis is the turnover during those months/days of the preceding accounting year which corresponds with the •actual indemnity period during which the business was interrupted due to the operation of the insured peril. Hence,ifafireoccurson1stJanuaryandthebusinessisaffectedduringthefollowingthreemonths,January•toMarch,theninascertainingtheshortageinturnover,thefiguresforthosemonthsarecomparedwithJanuaryto March in the preceding year. It is considered that this gives a fair basis of comparison. The standard turnover must be calculated subject to •the provisions of the “Adjustment Clause.”

Adjustment clauseTheadjustmentclauseasnotedalreadyisbracketedagainsttherateofgrossprofit,annualturnoverandstandard•turnover, all of which are the essential factors in calculating the loss. Bymeansofthisclause,adjustmentsmaybemadetothepre-firefiguresusedtocalculatetheloss,ifbymeans•of those adjustments it is evident that something approaching true indemnity will be attained. The main criterion here is the trend of the business. The trend, either upward or downward must be taken into •accountwhilearrivingattherateofgrossprofit.

8.5 Specification – Turnover BasisInsuranceislimitedtothelossofgrossprofitdueto:

Fig. 8.2 Reasons for the loss of gross profit

Reduction in turnover

Increase in cost of

working

Loss of gross profit

Fire Insurance

106/JNU OLE

Reduction in turnover• and the amount payable as indemnity there under shall be the sum produced by applying therateofgrossprofittotheamountbywhichtheturnoverduringtheindemnityperiodshall,inconsequenceof the damage, fall short of the standard turnover.Increase in cost of working• and the amount payable as indemnity there under shall be the additional expenditure (SubjecttotheprovisionsofMemo2)necessarilyandreasonablyincurredforthesolepurposeofavoidingor diminishing the reduction in turnover which, but for that expenditure would have taken place during the Indemnity period in consequence of the damage, but not exceeding the sum produced by applying the rate of grossprofittotheamountofthereductiontherebyavoided.Less any sum saved during the indemnity period in respect of such of the insured standing charges as may cease or be reduced in consequence of the damage.

Memo 1: � If during the indemnity period goods shall be sold or services shall be rendered elsewhere than atthepremisesforthebenefitofthebusinesseitherbytheinsuredorbyothersonhisbehalf,themoneypaid or payable in respect of such sales or services shall be brought into account in arriving at the turnover during the indemnity period.Memo 2: � If any standing charges of the business be not insured by this policy then in computing the amount recoverable hereunder as increase in cost of working only that proportion of the additional expenditure shallbebroughtintoaccountwhichthesumofthenetprofitandtheinsuredstandingchargesbearstothesumofthenetprofitandallthestandingcharges.Howtheclaimamountiscomputedwillbeclearfromthe following illustration.

Illustration: Grossprofitinsuredfor Rs.3,00,000 Period of Indemnity 12 months Standard Turnover Rs. 10, 00,000 Turnover during the period of interruption Rs. 4, 00,000 Increased cost of working Rs. 70,000 Reduction in turnover saved by above cost Rs. 3,00,000 Grossprofitduringthepreviousfinancialyear Rs.3,00,000 Turnoverduringthepreviousfinancialyear Rs.12,00,000 Annual Turnover Rs. 16,00,000

Reduction in turnoverStep 1:• Therateofgrossprofitisascertainedasfollows:

Step 2:• The shortfall in turnover is ascertained as follows: Less 10,00,000 - 4,00,000 = 6,00,000Step 3:• TherateofgrossprofitisappliedtotheshortfallinturnoverarrivedattheIndemnity(25%of6,00,000=1,50,000).

Increase in cost in workingStep4:Therateofgrossprofitisappliedtotheamountofreductionofbusinessavoidedduetoadditional•expenditure(25%of3,00,000=75,000).Theexpenditureof70,000whichislessthanRs.75,0000is,therefore,payable.Step 5: The total amount payable in respect of reduction in turnover and increase in cost of working is 1, 50,000 •plus 70,000 i.e. 2, 20,000.Step6:The adequacyof the sum insured is determinedby applying the rate of gross profit to the annual•turnover.

107/JNU OLE

25% of 16, 00,000 = 4, 00,000

The sum insured is 3, 00,000 as against the insurable amount of 4, 00,000

The amount payable therefore is

Note: It is assumed that all standing charges were insured. Hence, under insurance and “average”, which is applicable to such charges separately, have not been included. Similarly it is assumed that no standing charges were saved as a result of the damage.

Memo 3 (Returns of Premium)Ifthegrossprofitearned(oraproportionatelyincreasedmultiplethereof,iftheindemnityperiodexceeds12months)during the accounting period of 12 months most nearly concurrent with the period of insurance is less than the sum insured, a pro-rata return of premium is made in respect of the difference. The refund is subject to a maximum of 50%ofthepremiumpaidandtothedeclarationoffigures,ascertifiedbytheInsured’sauditorswithin12monthsafter the expiry of the policy.If any damage has occurred giving rise to a claim, such returns are made only in respect only of the said damage in case the insured has opted not to reinstate the sum insured.

8.5.1 Consequential Loss Insurance Premium RateThe rate of premium for the LOP policy consists of two components:

basis rate •percentage for the indemnity period•

Inthesystemofrating,thebasisadoptedisthefullaveragefirerateonthecontentsoftheprocessblocksofthepremises,whichreflectthematerialhazardsconsideredfromtheviewpointofthefireinsurersandvariationismadeforthedegreeoftheinterruptionhazardwhichisreflectedinthelengthofthemaximumindemnityperiodselected by the insured.

Basic rateThebasicratewillnotbelessthanthefull‘AverageFireRate’oftheitemscoveringthecontentsoftheprocess•blocks of the premises occupied by the insured for the purpose of the business to which the insurance applies. For other business premises, where no manufacturing process is carried on, the basic rate shall be the average •firerateofthecontentsoftheentirepremises.The rate for annual insurance shall not be less than the following percentages of the basis rate:•

Fire Insurance

108/JNU OLE

Period of indemnity Sum to be insured Percentage of Basis Rates

Continuous process plant (excluding petrochemical risks)

Other than continuous process plant

6 months or less

Equivalent of annual grossprofit 93.75 75

9 months 112.5 90

12 months 125 100

15 months One and quarter times theAnnualGrossprofit 121.875 97.5

18 months One and a half times theAnnualGrossProfit 118.75 95

24 months Twice the annual gross profit 112.5 90

30 months Two and half times the AnnualGrossprofit 106.25 85

36 months Thrice the Annual GrossProfit 100 80

Table 8.1 Percentages of basic rates

Following are the examples of plants carrying out continuous, automatic or semi automatic processes:Bakeries and Biscuit Factories

Battery Service Stations•Breweries•Cement Factories•Chemical Manufacturers•Detergent Factories•Distilleries•Electric Power works•Ice Factories•Sugar Factories•Vegetable Oil Solvent Extraction Plants•Vegetable Ghee Factories•

The percentages for the shorter indemnity periodsThe percentages for the shorter indemnity periods are proportionately much higher than for the longer •periods. Theextentofinterruptionduringtheearlymonthsfollowingfireislikelytobefargreaterthanduringthelater•months, when the efforts been made to minimise the interruption are having their effect. If there is extensive interruption, there may be saving in standing charges which may not be possible for shorter •interruption. Itisthegeneralexpectationthatlossofgrossprofitwillprogressivelydiminishasthedateofthefirerecedes•and the scale of percentage is graded accordingly.

109/JNU OLE

8.6 New Business ClauseProfitsinsuranceissometimeseffectedonnewbusinessesforwhichpastannualresultswouldnotbeavailableforcomparisonincaseoflossinthefirsttwelvemonths.Thissituationismetbytheadditionofthenew business clausewhichspecifiesasfollows:

“Forthepurposeofanyclaimarisingfromdamageoccurringbeforethecompletionofthefirstyear’stradingofthebusinessatthepremises,theterms‘RateofGrossProfit’‘AnnualOutput/Turnover’and‘StandardOutput/Turnover’shall bear the following meaning and not as stated in the policy”

Rate of gross profit

Rateofgrossprofitearnedontheoutput/turnoverDuring the period between the date of commencement of the business and the date of the damage

Annual output/turnover: The proportional equivalent for a period of twelve months of the output/ turnover realised

During the period between the date of commencement of the business and the date of the damage

Standard Output/ Turnover : The proportional equivalent for a period equal to the indemnity period of the output/turnover realised

During the period between the date of commencement of the business and the date of the damage

Table 8.2 Rate of gross profit earned on the annual and standard turnover

Thesedefinitionsaresubjecttothe‘trends,variationsandspecialcircumstances’clauses.After12monthsoftradinghavebeencompleted,thenormalspecificationwordingoperates.

Extensions (at additional premium)The LOP policy may be extended parallel to the material damage policy covering the add-on perils included •in that policy.Accidental failure of public electricity/gas/water supply.•Spoilage loss extension.•Insured’spropertyatotherlocations.•Damageatsupplier’spremises.•Insuranceofwages,lay-offcompensationandauditor’sfees.•

8.6.1 Claims ProcedureThe duties of the insured upon the happening of the “Damage” are set out in condition 3 of the policies.

Notice must be given to the Company forthwith. The insurer may wish to appoint surveyors forthwith to examine •thestepsbeingtakentominimiselossandspeedinthisrespectisessential.Evenifitatfirstappearsthatdamageis not serious, it is still important to advise the insurers. Allpossiblestepsmustbetakentominimisetheinterruption.Thesurveyor’sadvicewillbeavailableforthis•purpose.Particulars of the claim, supported by the necessary evidence, must be furnished within 30 days after the expiry •of the indemnity period. The expense of preparing the claim, extracting particulars from his books and producing evidence in support of the claim falls upon the insured. As mentioned earlier, the Insured can however insure theAuditor’sfeesforproducingandcertifyinganyparticularsordetailscontainedintheInsured’sbooksandrecords as may be required by the Insurers.

Fire Insurance

110/JNU OLE

Payments on account already made must be repaid in the event of non-compliance with any of the requirements •of the conditions.On being advised of the damage, the insurers examine the contract to ensure that the claim falls within the terms •of the cover granted e.g. that the cause of the damage is an insured peril, that the premises where the damage hasoccurredandthebusinesscarriedoninthosepremises,areasspecifiedinthepolicy.The insurers take steps to furnish the surveyor with all the necessary particulars of the insurance, including a •copy of the policy, to enable him to act on their behalf with the full knowledge of the extent of liability.Once it is clear that the liability for the loss attaches to the material damage policy, the surveyor makes certain •that the peril causing the loss is also covered by the LOP policy.The surveyor recommends measures for the speedy resumption of the business, making it clear that the increased •cost of working will be payable subject to the policy terms e.g. earning of the turnover by the increased cost and penalty if all standing charges are not insured.The surveyor prepares a preliminary report indicating the extent of the interruption expected, the steps being •taken to minimise the interruption and the amount which in his opinion should be provided in the insurers books as a reserve against the estimated loss.As soon as practicable, the necessary preliminary examination of the accounts of the business is made in order •toascertainwhetherallstandingchargeshavebeeninsuredandwhethertheamountinsuredonthenetprofitand insured standing charges basis is adequate for the expectations of the business.The surveyor pays periodical visits to the scene of the damage to ensure that all possible steps are being taken •towards the resumption of normal work.When it is clear that the business has resumed to its full working capacity, the surveyor takes up detailed •examinationoftheaccountstopreparethefinalassessment.

Finallythesurveyorhastoconsidertheapplicationofthe‘Trends,VariationsandSpecialCircumstances’clausetoadjusttherateofgrossprofit,annualturnoverandthestandardturnover.The other procedural aspects such as the payment of claim, reduction of the sum insured and its reinstatement etc. are the same as under material damage claims.

111/JNU OLE

SummaryThe subject matter of consequential loss insurance is the business of the insured, i.e., the earning capacity of •theproperty.Fireinsuranceaffordscoverfor‘materialdamage.’The trading losses which result from the stoppage of business may be considered under three headings namely: •netprofit,standingchargesandincreasedcostofworkingIfturnoverisstoppedorreduced,profitsareaffected.Therefore,lossofprofitsisdeterminedandmeasuredwith•referencetothereductioninturnoverandthisisthebasisadoptedinprofitsinsurance.Turnover in simple termsmeans ‘Sales’ turnoverwhich consists of the following three elements: variable•charges,standingchargesandnetprofitTheproportionwhichthegrossprofitbearstotheturnoverduringagivenperiodiscalledtherateofgross•profitThenetprofitisthatwhichremainsafterallcostsofproductionandchargesincurredinrunningthebusiness•have been met.Insured standing charges: these are the charges which the insured considers would continue to be incurred if •his business is affected and hence are selected by him for Insurance purposes.Grossprofitisthenetprofitaddedtotheamountoftheinsuredstandingcharges•Rate of gross profit is defined as that earnedduring thefinancial year immediately before the date of the•damageTurnoveristheinsured’sincomefromtradingincludingservicesrendered.•Standard turnover: this is the turnover during those months/days of the preceding accounting year which •corresponds with the actual indemnity period during which the business was interrupted due to the operation of the insured peril.Bymeansofadjustmentclause,adjustmentsmaybemadetothepre-firefiguresusedtocalculatetheloss,ifby•means of those adjustments it is evident that something approaching true indemnity will be attainedInsuranceislimitedtothelossofGrossProfitdueto:reductioninturnoverandincreaseincostofworking•The rate of premium for the LOP policy consists of two components: basis rate and percentage for the indemnity •period

Referencesiiivideo, 2008. • Six Steps to Follow When Filing a Claim: Podcast [Video online] Available at: <http://www.youtube.com/watch?v=WdXRe1lGQMk&feature=related> [Accessed 20 June 2011].QualityClaims, 2009. • What Should You Do If Your House Burns - True Story [Video online] Available at: <http://www.youtube.com/watch?v=YWvKu04NQBE&feature=related> [Accessed 20 June 2011].Consequential Loss (Fire)• [Online] Available at: <http://www.rahejaqbe.com/Corporate/Commercial-Property/ConsequentialLoss/Insurance.html> [Accessed 20 June 2011].Fire Consequential Loss• [Online] Available at: <https://www.maa.com.my/maaas/pages/ProductInfo.aspx?ProdID=102> [Accessed 20 June 2011].

Recommended ReadingOviatt, F. 1904. • Fire Insurance, Expenses, Profits, Problems. American Academy of Political and Social Science.McCune, W., 1922. • A Fire Insurance Agency for Profit. Revised ed., the rough notes co.Ramachandran, G., 1998. • The Economics of Fire Protection. Spon Press.

Fire Insurance

112/JNU OLE

Self Assessment

Thestandardturnovermustbecalculatedsubjecttotheprovisionsofthe____________.1. operative clausea. adjustment clauseb. reduction clausec. turnover claused.

Which of the following are the expenses incurred in producing goods?2. Variable chargesa. Fixed chargesb. Standing chargesc. Operative chargesd.

Which of the following statements is false?3. Theprofitspolicyprovidesindemnityinrespectofthelossofgrossprofitsduringtheindemnityperioda. which is selected by the insured. The indemnity period chosen by the insured may vary from 3 months to 10 years.b. Theproportionwhichthegrossprofitbearstotheturnoverduringagivenperiodiscalledtherateofgrossc. profit.Ifturnoverisstoppedorreduced,profitsareaffected.d.

Rateof gross profit is defined as that earnedduring thefinancial year immediately before the date of the4. ________.

profita. businessb. turnoverc. damaged.

Themeasureof__________isthesumproducedbyapplyingtherateofgrossprofittothereductioninturnover5. during an agreed period following damage.

profita. claimb. indemnityc. damaged.

TherateofpremiumfortheLOPpolicyconsistsoftwocomponentsnamely_________andpercentagefor6. the indemnity period.

basis ratea. interest rateb. insurance ratec. damage rated.

113/JNU OLE

Thepercentagesfortheshorterindemnityperiodsareproportionatelymuchhigherthanforthe_________.7. higher percentagesa. longer periodsb. higher ratesc. higher turnover d.

The_____profitisthatwhichremainsafterallcostsofproductionandchargesincurredinrunningthebusiness8. have been met.

neta. salesb. grossc. insuranced.

Which of the following statement is true?9. Turnoveristheinsured’sincomefromtradingexcludingservicesrendered.a. Rateofgrossprofit isdefinedasthatearnedduringthefinancialyearimmediatelyafter thedateof theb. damage.Theproportionwhichthegrossprofitbearstotheturnoverduringagivenperiodiscalledtherateofnetc. profit.Insurance is limited to the loss ofGross Profit due to reduction in turnover and increase in cost ofd. working.

Theindemnityperiodchosenbytheinsuredmayvaryfrom3monthsto____years.10. 2a. 3b. 6c. 10d.

Fire Insurance

114/JNU OLE

Case Study I

Skyview Casino, Williamstown, VT OnApril21,1993,anarsonfiredestroyedtheSkyviewCasino,aprivately-owneddancehallinWilliamstown,Vermont.ApreliminaryinvestigationbytheVermontStatePoliceidentifiedtheownersofrecordforthebuilding,RonaldA.McCoyandReneL.Crete,aspossiblesuspectsinthearson.JamesM.Stacywasalsoidentifiedasthe“torch”hiredbytheownerstostartthefire.Totallosstotheinsurancecompanywas$135,000.ATF originally became involved in the investigation in May 1993 for the sole purpose of assisting the Vermont State Police with processing and identifying evidence pursuant to an agreement between the ATF National Laboratory and the Vermont State Police Crime Laboratory.

In October 1995, AUSA Paul Van de Graaf requested that ATF provide additional investigative assistance to the Vermont State Police in this investigation. In the new investigation, numerous witnesses were interviewed and re-interviewed, and an additional suspect was developed.

Additional information about the Casino

RonaldMcCoyandReneCretehadownedtheSkyviewCasinoforseveralyearspriortothefire.TheCasinooperatedas a local nightclub, to which customers had to bring their own alcohol. It was open only one or two nights a week andforspecialfunctions.Justpriortothefire,theCasinostartedfeaturingbardancers,apracticewhichmetwithsubstantial opposition from the Williamstown community.

Thebardancershadperformedthenightofthefire.Becauseoftheoppositionintownandthefactthattheinsurancecoveragewasonlyabout$20,000morethanthemortgageowed,theownerswerenotinitiallyconsideredtobestrongsuspects.However,thecasinowasbecomingincreasinglydifficulttomanage.AsaresultoftownmeetingsinApril1993,theownersweregoingtobeforcedtocloseunlesstheycouldfindalawenforcementofficerwillingto work there when the Casino was open.

The charges issued by the United States Code were:Title18,Section844(i),Arson•Title 18, Section 1623, False Declaration to a Grand Jury •Title21,Section841(a)(1),PossessionwithIntenttoDistributeaControlledSubstance•Title21,Section844(e),WireFraud•

EvidencesThe Skyview Casino burned to the ground on April 21, 1993. Although evidence samples submitted to the ATF Laboratorydidnottestpositiveforanaccelerant,anATFcertifiedfireinvestigator,aVermontStatePolicefireinvestigator, and an independent origin and cause expert hired by the insurance company each concluded that the firehadbeenintentionallysetwiththeaidofanaccelerant.

Afterthefire,McCoyandCretemadenoseriousattempttorebuildbutinsteadsoldthelandforabout$35,000.Thus,althoughtheinsuranceclaimdidnotyieldahighprofit,thefireallowedtheownerstogetridofthebuildingandthensellthelandforaprofit.

The break in the case came in July 1993, when Mark Parker was arrested for outstanding motor vehicle violations. In exchange for having his tickets taken care of, Parker told police he would provide information on the Skyview Casino arson.

Parker told police that on April 20, 1993, he received a telephone call from his friend, James Stacy. Stacy, who was workingasabouncerattheCasino,askedParkertomeethimthere.Whenhearrived,StacygaveParker$400andasked him to burn down the Casino that night. Parker said that Stacy told him the owners wanted the job done on a

115/JNU OLE

night that the topless dancers would have performed. When Parker questioned Stacy as to why the owners wanted theCasinoburned,Stacysaidthattheyweren’tmakingalotofmoneyandtheplacewasbecomingahassle.Parkeraccepted and went home.

When he got home, Parker told his girlfriend of the plan. She told Parker that she would leave him if he carried it out, and that he would have to return the money. Parker then drove back to the Casino and returned the money, eventhoughStacyofferedhimanother$100.StacytoldParkerthatMcCoyandCretewantedthefiretolooklikearson and that they wanted the whole building gone. He asked for advice on how to start it, and Parker suggested using5gallonsoffuelonthefloor.

Parker agreed to meet with Stacy and wear a recording device. In recorded conversations on July 12 and 13, Parker toldStacythathehadbeenquestionedaboutthefire,andheaskedforadviceonwhetherheshouldtakeapolygraph.Stacy urged Parker to lie to police, reassuring him that he could honestly answer several questions about it and implyingpersonalknowledgethatParkerwasnotresponsibleforsettingthefire.

AfterbeingconfrontedwiththeParkertapes,StacyagreedtocooperatewiththeState’sinvestigationinexchangefor immunity. However, the State gave Stacy an immunity deal without Stacy having seen a lawyer. Stacy made a statement and agreed to an undercover meeting with McCoy, who at the time was allegedly supplying Stacy with marijuana. During an undercover meeting with McCoy that same night, McCoy because suspicious, and Stacy subsequently stopped checking in with police every day. Without telling Stacy, police arrested McCoy and Crete onJuly26,andStacyfledtoFlorida.

The State had no case without Stacy. Stacy was arrested on arson charges but refused to continue to cooperate. The State dropped the charges against McCoy and Crete, and pressed its case against Stacy, arguing that Stacy no longer hadimmunitybecausehehadviolatedtheagreementbyrefusingtocheckinandbyfleeing.Stacychallengedtheadmission of his statements and argued that the immunity deal still applied. He claimed that the State police had promised to tell him when they planned to arrest McCoy and Crete because he was afraid of repercussions when theylearnedofhiscooperation.TheStatecourtacceptedStacy’sargumentandsuppressedallofhisstatementsbecausehehadnotbeengivenMirandawarnings.Atthatpoint,theStaterequestedATF’sassistance.

TheU.S.Attorney’sofficeagreedtoprosecutethearson,buthadtograntStacyimmunitybecauseoftheMirandaissue.

Along-timefriendofStacy’stestifiedthatonthenightofthefire,Stacyaskedherforaride.ShedroveStacytoaCumberlandFarms(store)inBarre,whereStacyboughtagallonofwater,emptiedit,andfilledthecontainerwithgasoline. Stacy then told the driver to return to the road to the Casino. While she waited in the car with the lights out, Stacy got out with the gasoline and headed up the road. When he returned, the gas container was empty. Stacy later bragged to her that he had burned the Casino in exchange for money paid by the owners, and that he and the owners had beat the polygraph.

FollowingStacy’ssworntestimony,RonaldMcCoyandReneCretepledguiltyascharged.JamesBernasconi,whowasdevelopedasakeywitnessinthisinvestigation,falselytestifiedtotheFederalGrandJury. He was indicted and subsequently pled guilty to a false declaration charge.

Verdict Ronald McCoy pled guilty to federal charges of arson and possession with intent to distribute a controlled substance. Hewassentencedtoaconcurrentsentenceof27months’imprisonmentfollowedby3yearsofsupervisedreleaseandorderedtopay$5,000totheinsurancecompany.

ReneCretepledguiltytoaFederalchargeofWireFraud.Hewassentencedto9months’incarcerationand3years’supervisedrelease,andorderedtopay$10,000totheinsurancecompany.

JamesBernasconi pledguilty tomaking aFalseDeclaration to aGrand Jury.Hewas sentenced to 6months’

Fire Insurance

116/JNU OLE

incarcerationand2years’supervisedrelease.

Source: Graaf, P., 2011. Skyview Casino, Williamtown, VT[Online]Availableat:<http://www.interfire.org/res_file/acb_sky.asp>[Accessed1July2011].

Questions:

Howthecasinocaughtfireandwastheinsuredeligibleforinsurance?1. AnswerAs per the evidences above, it is clear that the casino was torched intentionally by the casino owners Ronald McCoyandReneCrete.Sincethefirewasnotanaccidentsotheinsurancecompanyisnotliableforthepaymentof the insured amount.

WhoaccordingtotheU.SAttorneyofficewasheldguiltyfortheaccident?2. AnswerAccording to the U.S attorney three people were held guilty:Ronald McCoy pled guilty to federal charges of arson and possession with intent to distribute a controlled •substance.Rene Crete pled guilty to a Federal charge of Wire Fraud.•James Bernasconi pled guilty to making a False Declaration to a Grand Jury•

Whatwastheverdictofthejuryandwasitjustified?3. AnswerTheverdictofthejurywaswelljustifiedasperthelawsofthecity.RonaldMcCoywassentencedtoaconcurrentsentenceof27months’imprisonmentfollowedby3yearsof•supervisedreleaseandorderedtopay$5,000totheinsurancecompany.ReneCretewassentencedto9months’incarcerationand3years’supervisedrelease,andorderedtopay$10,000•to the insurance company.JamesBernasconiwassentencedto6months’incarcerationand2years’supervisedrelease.•

117/JNU OLE

Case Study II

Southern California Homeowner Fire Loss Background factsTheinsured’shomecaughtonfireintheearlyhoursofNovember10,2005.Theinsured,includinghisextendedfamily, his son, daughter-in-law and two grandchildren, were able to get out of the house in time to avoid injury. However,thefamilyhomesustainedextensivefiredamagetothesecondfloorinterior,thestructureandthefireburnedthroughtheroof.Thelowerfloorsustainedextensivewaterdamagefromfirefighters’effortstoextinguishthefire.Therewasalsosmokedamagethroughoutthehome.

Theinsurednotifiedhisinsurancecompanyofhislossthemorningofthefire.Theinsurancecompany’sinitialadjuster sent out an “emergency preferred vendor” to board up and tarp the roof. It was apparent to the emergency preferredvendorthatimmediatedryoutofthehousewasnecessary.Itwasalsoapparentfromtheclaimfilethattheinsurancecompany’sfirstadjusterknewthattherewaswaterinthehomefromthefireextinguishingefforts.However,theadjusterdidnotauthorizetheinsurancecompany’semergencypreferredvendortodryoutthehouse

Mold formationOnNovember12,2005,theinsurancecompany’slargelossfieldadjuster(thesecondadjusterassignedtotheclaim)inspectedtheinsured’shome.Thisadjusterobservedthatthehousewaswetandneededimmediatedryout.Hetookno steps to get the home dried out, did not include dry out in his scope of repairs and did not inform the homeowner/insured that immediate water extraction was necessary to prevent the formation of toxic mold.

A home with a water soaked interior cannot be immediately restored unless it is promptly and thoroughly dried out. If the home is not properly dried out and mold forms, then a complete and proper mold remediation must commence before major restoration begins.

Yet, nothing was done for the insured and his family regarding drying out of the insured home. As a result, toxic mold developedinthehome.Thisoccurredbecauseitwastheinsurancecompany’sapparentinternalpolicytonotdryoutinsuredhomessubsequenttofiresuppressionactivities-includingahomedelugedbywaterbyfirefighters. The dispute between the insurance company and the insured regarding the cost to restore the family home:Afterthefirewasextinguishedattheinsuredfamilyhome,oneofthefirefighterstoldthehomeowner/insuredthathe should hire a public adjuster to help him with his claim. Upon this advice, the insured hired a public adjuster. He also hired a contractor of his choice to make the home restoration repairs.

TheinsurancecompanylargelossfieldadjusterinitiallydeterminedthattheReplacementCostValue(RCV)ofthelosswas$64,772.03torestorethehomeandthenafterarbitrarilydeductingdepreciationdeterminedthattheActualCashValue(ACV)was$51,834.44.Theinsurancecompanythensentacheckfor$51,834.44andinformedtheinsuredthatitwasgoingtocloseitsfile.

Theinsured’scontractorofchoicedeterminedthatinfact,itwouldcostabout$172,000(ReplacementCostValue)todothejobproperlyandtofullyrestorethehometoitspre-losscondition.Thedifferencebetweentheinsured’scontractor’sestimateandtheamountthattheinsurancecompanypaidwasover2.5times,or,morethana150%difference.Theinsurancecompany’sestimatewasridiculouslyandunreasonablylow.

Usingtheestimateoftheinsured’scontractor,theinsured’publicadjusterpointedouttotheinsurancecompanythattheinsurancecompany’sscopeleftoutover200repairitemsandthatitwasimpossibletorepairthehomefortheamountoftheinsurancecompany’sestimate.Oneofthemajoritemsignoredbytheinsurancecompanywastheextensivestructuralrepairsthatwerenecessarytoreplacetheroofraftersandburnedfloorjoists.Afterthepublicadjusterpointedoutinwritingthisgrossdeficiency,aswellastheothermissingitemsintheinsurancecompanyestimate,theinsuranceadjusteronlyincreasedhisRCVupto$74,288.17andACVto$58,594.72andpaidtheinsuredanadditionalapproximate$6,700.Thiswasstillgrosslybelowtheinsured’scontractors’restorationscope

Fire Insurance

118/JNU OLE

and estimate. Inanattempttogetanagreedtoscopefortheinsuredthatwasreasonable,theinsured’spublicadjusterscheduledameetingwiththeinsurancecompanylargelossadjuster,theinsurancecompany’scontractor,thepublicadjusterandtheinsured’scontractor.Thepurposeofthemeetingwastohavetheindividualswalkthedamagedhomeandcompare their lists of home repairs so that they could reach an agreement as to what had to be done – the scope of work.

Theinsuredhadjusthadmajorsurgeryonhislegbeforethefire.Theinsuredhadbeeninawheelchairforsometime. The insured had to arrange transportation to the meeting, to let the adjuster and other individuals into the house for the inspection. About 15 minutes before the insured arrived, the insurance company adjuster and the others agreedtoreschedulethemeeting.Duringthenextthreeweekstheinsured’spublicadjusterrepeatedlyattemptedto reschedule the “walk through” meeting with the insurance company adjuster. However, the insurance company adjusterrefusedtoagreetoatimetomeetwiththeinsured’spublicadjusterandcontractorattheinsured’shome.Thefollow-upmeetingdidnottakeplacebecauseoftheinsurancecompanyadjuster’sunreasonablerefusaltoattend.In an attempt to justify his unreasonably low restoration scope and repair estimate, the insurance company adjuster sent his scope to a purportedly “independent contractor.” The adjuster e-mailed his scope to this “independent” contractor. This contractor selected by the insurance company that had worked on prior losses with this insurance company adjuster, essentially “rubber stamped” the unreasonably low insurance company scope and later admitted underoaththatitwasnotanindependentscope.Thiswasafraudulentattempttojustifytheinsurancecompany’slowball estimate.

Theinsurancecompanyadjusterthensentamisleadinglettertotheinsuredstatingthattheinsurancecompany’scontractor was “independent,” and that it could conduct the repairs to the insured home in the amount of the insurance company’sestimate.Theadjusterconcealedthefactthathiscontractordidnotpreparehisownindependentscope,butinsteadjustadoptedtheinsurancecompany’sdeficientscope.Thisisacommoninsurancecompanytrick.Theyhavecontractor’sthatwillagreetotheirunreasonablylowestimatestotrytogetthejobwiththeexpectationthat they can make it up with supplements. This is essentially fraud and is improper.

Theinsurancecompany’scontractorfurtherinformedtheinsuredthatheknewhecouldnotrepairtheinsured’shomefortheamountoftheinsurancecompany’sestimate.However,thiscontractortoldtheinsuredto“trust”himbecause he had a special relationship with the insurance company - he stated that he could get more money out of the insurance company. The insured did not trust this contractor and believed that the contractor was acting in concert with the carrier. It was later determined that the insurance company contractor had been the subject of complaints byvariousinsured’sfordoingverypoorqualitywork.

The insurance company knew that it was unlawful to try to force its contractor upon the insured, without at least advising the insured in writing that the insured had the right to select his own contractor. It is improper for an insurancecompanytoevensuggestanothercontractortotheinsured-unlesstheinsuredspecificallyrequestssuchareferral. The insured never requested any such referral, because the insured had already hired his own contractor and the insurance company never informed the insured in writing that he had the right to select his own contractor. Theinsured’scontractorofchoicedidnotbeginrepairsbecauseitcouldnotgetanagreedscopefromtheinsurancecompany. The insurance company simply refused to change its position regarding what the public adjuster and theinsuredperceivedastheinsurancecompany’slowballrestorationscopeandestimate.Afterfightingwiththeinsurancecompanyforoverninemonthstogetanagreedtoscopesotheinsured’scontractorcouldbeginrepairs,theinsurancecompanystoppedpayingfortheinsured’sAlternativeLivingExpenses(ALE).Theinsured’scontractorofchoicerefusedtostartthejobwithoutanagreedtoscopewiththeinsurancecompany.Theinsured’spublicadjusteradvisedtheinsuredthatheshouldretaintheservicesofcityfireinsuranceattorneysandpursuelitigation.The insurance company forced the insured into litigation.

Mitigation of damagesAftertheinsurancecompanycutofftheinsured’sALE,hehadtocontinuetomakehousepaymentsandneededaplacetolive.Theinsuredtriedtofindareputablecontractortostartfixinguphishomewiththelittlemoneyhe

119/JNU OLE

hadbeenpaidbytheinsurancecompany,sohecouldatleastmoveintothefirstfloorbedroomtoreducehislivingexpenses. His extended family had at that time found other places to live. No licensed contractor would agree to start the repairs with the money that the insured had been paid. However, the insured found a company that repaired the lower bedroom so he could live there until the claim was resolved by litigation. At that time, the insured was not aware of the mold. His exposure to the mold, when he attempted to live in the lower bedroom, caused him harm and injury.

Viau&KwasniewskitookonthecasetofightthebadfaithinsurancecompanyandfileditinLosAngelesSuperiorCourtCentralDistrict.Afterinitialinvestigation,thefireinsurancelawyersatViau&Kwasniewskiwereconcernedthat mold had developed in the insured home, given that the insurance company did not dry out the home at the commencementoftheclaim.Viau&Kwasniewskifireinsurancelawyershiredacompanyfrequentlyusedbyinsurance companies to test for the presence of mold in the home. The test results indicated high levels of Penicillium/Aspergillusintheinsured’shome.SomeformsofAspergillusareknowntobetoxicandcancausebodilyharm.Thisofcoursecausedsignificantconcerntotheinsuredbecausehehadbeenlivinginthelowerbedroominthehouse to mitigate his damages.

The insured attempted to secure alternative living arrangements. The insurance company refused to pay for such arrangements after the summer of 2006. Because the insured still had to pay the mortgage on the home in which he could not live, he could not afford to pay additional rent for alternative living arrangements. The insured made arrangementstolivewithhisparents;however,thisproveddifficultbecauseoflogisticsrelatingtohiswork.Allofthisharm,distressandexpenseconstitutepartofaninsured’sdamageinaninsurancebadfaithcase.

Acaseofbadfaithwasfiledagainsttheinsurancecompany.Asoftenoccursinlitigationagainstinsurancecarriers,thecasewasactivelylitigatedbyViau&Kwasniewskifireinsuranceattorneys.Over20depositionsweretaken,including the depositions of 5 retained experts and 6 non- retained experts.

Viau&Kwasniewskifireinsurancelawyerstookvideotapeddepositionswithinstantvisualdisplayandconductedextensivewrittendiscovery,aswell.Alloftheseeffortsweredonetomaximizetheinsured’srecovery.

Viau&KwasniewskifireinsurancelawyersadditionallypursuedColonialLifediscovery.ItisthelawoftheStateof California that an insurance company may not engage in a pattern of practice of wrongful claims handling. How aCaliforniainsurancecompanyhandlessimilarfireclaimsisoftheutmostimportance:Byengaginginaconsciousand wilful pattern and practice of wrongful denial, wrongful delay, purposeful refusal to objectively investigate and discrimination,theinsurerunlawfullyreapsasignificantprofitatitsinsured’s’expense.

The California Legislature and the California courts implemented laws expressly designed to preclude such wrongful practicesbyCaliforniafireinsurancecompanies.Theselawssupportaninsured’seffortstoobtainrelevantandpertinentinformationregardinghowaCaliforniafireinsurancecompanyhandlescertain“otherclaims.”

ParticularlyinCaliforniainsurancebadfaithcases,theinsurancecompany’s“mindset,”andanypurportedpatternand practice of wrongfully handling and delaying particular kinds of insurance claims is of the utmost importance. Typically and logically, this information is in the possession of the California insurance company itself. The manner inwhichinsured’smayobtainthisdiscoverywasfirstdiscussedinthecaseofColonialLife&Acc.Ins.Co.v.SuperiorCourt(1982)31Cal.3d785.ThisdiscoveryrelatestotheCaliforniainsurancecompany’shandlingofothersimilarfireinsuranceclaimsmadebyotherinsured’s.

TheCaliforniaSupremeCourtandthecourtsinuniformdecisionssince1982,specificallyholdthatsuchdiscoveryis relevant, is not privileged or protected so long as it proceeds as outlined in Colonial Life and properly protects theotherinsured’s’privacyinterests.

Viau&KwasniewskifireinsurancelawyersbelievedthatthisColonialLifediscoveryisimportantandrelevant.This discovery is not an attempt to merely “annoy” the California insurance company, as many carriers improperly believe. The information is relevant, important and pertinent to insurance bad faith issues. Viau & Kwasniewski

Fire Insurance

120/JNU OLE

fireinsuranceattorneyshavepursuedthisinformationininsurancebadfaithcases,includinginproceedingsbeforethe Court of Appeal.

Additionalevidencewasobtainedduringthedepositionsofanotherpublicadjusterandtheinsured’scontractor,thatthisparticularfireinsurancecompanyadjusterwaslowballingotherinsured’s.Thiswasadditionalevidenceofapatternandpracticeofinsurancebadfaithclaimshandling.FurthertheCaliforniainsurancecompanyadjusters’managersadmittedintheirdepositionsthattheyratifiedandapprovedtheinsurancecompanyadjusters’conduct.This was very important because it potentially exposed the California insurance company to punitive damages. TheCaliforniainsurancecompanylawyersfiledwhatiscalledaMotionforSummaryJudgment/Adjudication,takingthepositionthattheinsured’scasehadnolegalmeritandthattheinsuredcouldnotpursuepunitivedamages.Viau&KwasniewskifireinsuranceattorneysvigorouslyopposedtheMotion.TheCourtdeniedtheCaliforniainsurancecompany’sMotioninitsentirety.

Viau&Kwasniewski’seffortsresultedinasettlementontheeve of trial:The Final Status Conference was set for October 11, 2007. Trial was set for October 23, 2007. The parties prepared andfiledalloftheirPre-Trialdocuments,including:MotionsinLimine;OppositionsandRepliestoMotionsinLimine; Joint Statement of the Case; Joint Exhibit List; Joint Witness List; Jury instructions; and Trial Briefs.

Thecasewashardfought.ItwasclearthattheinsuredandtheViau&Kwasniewskifireinsurancelawyerswerefullypreparedandlookingforwardtotryingthecaseandfightthebadfaithinsurancecompany.Attheendandontheeveoftrial,thecarrierpaidthefullamountoftheinsured’sdemand.Viau&Kwasniewskifireinsuranceattorneys were able to achieve this result by their hard work, thorough knowledge of California insurance issues, ability to validly gain the trust of the insured and total preparedness.

Homeownerinsuranceclaimscanbedifficultandtherearenumerouspotentialpitfalls.Forexample,theCaliforniainsurancecompanyherearguedthattheinitialdryoutwasnotcoveredunderthehomeowner’spolicy.However,where there is coverage under the insurance policy, in order to conduct a proper home repair to a home that has been deluged by water, the carrier should make sure that the home is dried out. An analysis of the California insurance policyprovisionsandcoverageissuesmustbemade.Viau&Kwasniewskifireinsuranceattorneyshavein-depthexpertiseinconductingsuchanalysesandvigorouslyopposedtheinsurancecompany’srepeatedattemptstoconvincethe court that there was no coverage to dry out the home.

AtonepointtheCaliforniainsurancecompany’slawyerswentsofarastoquotelanguageoutofadifferentpolicytotry to support their position that there was no coverage for the dry out. This misconduct by the insurance company lawyerswasdiscoveredbyacarefulcoverageanalysisbytheViau&Kwasniewskifireinsurancelawyersandwaspresented to the judge in a multi-page trial brief. In the end, the California insurance company and its lawyers gave up their nonsense and realised that if the case went to trial it was going to result in a very bad result for the insurance company. The carrier and their lawyers came to this conclusion only after the case was fully prepared for trialandtheirinsupportableargumentsandrepeatedrequestsfordelaywerevigorouslyopposedbytheinsured’sfireinsurancelawyers.

Source: Viau & Kwasniewski, 2010. Southern California Homeowner Fire Loss Case Study [Online] Available at: <http://www.vklawyers.com/fireclaim-casestudy.html>[Accessed30June2011]

Questions:What steps were taken by the insured in order to get the correct amount for house renovation? 1. What case was put up against the insurance company?2. List out the issues with the insurance company regarding its practices.3. Writebrieflyabouttheoutcomeofthecase.4.

121/JNU OLE

Case Study III Pacaccio’s Hair Salon, Arlington, Texas

Atapproximately1:00a.m.onFebruary5,1996,anarsonfireoccurredatPacaccio’sHairSaloninArlington,Texas.Thissalonwascentrallylocatedinastripshoppingcentrethathoused,amongotherthings,anexoticgentlemen’stanningsalonandabar.Thefirecausedapproximately$50,000indamagestothesalonandover$200,000indamagesto the building and other adjoining businesses. Investigation revealed that the owner of the salon, Charles Nathaniel Thomas,hadpaidaco-conspirator,HardyGeneParker,$1,000tosetthesalononfireforinsuranceprofitsof$70,000forcontentscoverage.Parker,inturn,paidco-conspiratorJohnIrvinJenkins$500toactuallysetthefire.Afterthefire,ThomasfiledproofoflossstatementstoOhioInsuranceCompanytoclaimtheinsuranceprofits.

The charges issued by the United States Code:Title 18, Section 844(i),MaliciouslyDamaging byMeans of a Fire aBuilding Involved in Interstate•Commerce.Title18,Section844(h),UseofFiretoCommitaFelony•Title 18, Section 371, Conspiracy•Title18,Section1341,MailFraud(twocounts)•

Findings and evidences

The owner, Charles Nathanial Thomas, let insurance on all personal and other business assets lapse with the •exceptionofthehairsalon.Hepaidthepremiuminfull3weekspriortothefire.Thomasandhiswifearrivedatthefirescenewithin15minutesofnotificationofthefireandappearedtobe•wideawakeandclearheadedat3:00a.m.Theylivedapproximately18milesfromthefiresite.Thewifewasinfullmakeup,althoughtheylatertoldfireinvestigatorsthattheywereasleepwhennotifiedaboutthefire.Thefiresceneinvestigationrevealedthatthefirehadbeenintentionallyset.Therewerefiveseparatepointsof•origin,allsetwithgasoline.Theinsurancepolicyforthesalonwaslyingaloneontheofficedesktop,asthoughsomeone had been reviewing it.Interviewswithemployeesandassociatesoftheownerrevealedthatthesalonhadbeenexperiencingfinancial•difficulties.Thomaswas1monthbehindonhismortgageatthetimeandhadreceivedanevictionnotice.Thomas owed vast sums of money to sports bookies in the Dallas area. He had offered the salon to one bookie •justpriortothefireaspaymentforhisdebts.ThatbookierefusedtheofferandrequestedthatThomasfindsomewaytopayhisgamblingdebts.Hehadinvestedapproximately$90,000tobuildthesalonbutindesperationwaswillingtosellitfor$16,000.ThomasalsoowedHarrah’scasino$10,000andabusinessassociate$11,000.HewasonbondatthetimeofthefireforviolatingTexasorganizedcrimestatutesforkeepingagamblingestablishment.Thomas was living well above his means. In 1995, he purchased a new home, a new pickup truck, a new Corvette, •twofour-wheelers,andatrailer.Thomasshowedthathemadeonly$17,000inpersonalincomethatyear.Interviewsrevealedthatpriortothefire,Thomashadmademanycommentsinreferencetoburningdownthe•salon.Thomas’right-handmancameforwardafterseveralintensiveinterviewsandstatedthatafterthefirehehad•paid Hardy Parker for burning the business for Charles Thomas. That right-hand man was given full immunity in return for his cooperation.Hardy Parker admitted to his involvement in the conspiracy and gave information leading to John Jenkins. Parker •laterworeawirewhilepayingJenkinsadditionalmoneyaspaymentforthefire.ThispaymentwasvideotapedbyATF and used as evidence during trial. Upon arrest, Jenkins gave a full statement detailing his involvement.

Issues and problemsThomaswasinvolvedinsomanyillegalactivitiesthatmuchofitwaskeptoutoftrialduetothejudge’sopinionthat it was too prejudicial. Thomas had made an extensive number of insurance claims that were found to be suspect.

Fire Insurance

122/JNU OLE

Only one of these claims was allowed in court, under evidence rule 404b.

VerdictAfter a 6-day jury trial,CharlesNathanialThomaswas foundguilty on all five counts.OnApril 3, 1997, hewassentenced to105months inprison,36months’supervisedrelease,andwasordered tomakerestitutionof$178,000.

Hardy Parker pled guilty to one conspiracy count and was sentenced February 4, 1997, to 18 months imprisonment followedby36months’supervisedrelease.Hewasalsoorderedtopay$178,000restitution.

JohnIrvinJenkinspledguiltytoarsonandconspiracyandwassentencedMarch27,1997,to30months’imprisonmentand36months’supervisedrelease.Duetoillhealth,Jenkinswasnotrequiredtopayrestitution.

Source: Murphy, C., 1996. Pacaccio’s Hair Salon,Arlington,Texas[Online]Availableat:<http://www.interfire.org/res_file/acb_phs.asp>[Accessed1July2011].

QuestionsWhatwasthecauseofthefireandtheextentofdamage?1. Whatwastheverdictofthecaseandwasitjustified?2. Enlist the evidences which led to the verdict.3.

123/JNU OLE

Bibliography References

Authorstream.com, 2011. • Fire insurance [Online] Available at: < http://www.authorstream.com/Presentation/niru.007-752229-fire-insurance/>[Accessed9June2011].Balaji, T., 2010. • Fire insurance of the Indian Act insurance [Online] Available at: <http://policybazaarinsurance.blogspot.com/2010/12/fire-insurance-of-indian-act-insurance.html>[Accessed9June2011].BenmoreNi, 2010. • Fire Risk Assessment [Video online] Available at: <http://www.youtube.com/watch?v=3gKuyyvr1kE> [Accessed 27 June 2011].BVS training, 2010. • Fire Safety 1: Hazards and Prevention Training Teaser from BVS [online video] Available at: < http://www.youtube.com/watch?v=K2Ml2GJJ9Dc> [Accessed 13 June 2011]Consequential Loss (Fire)• [Online] Available at: <http://www.rahejaqbe.com/Corporate/Commercial-Property/ConsequentialLoss/Insurance.html> [Accessed 20 June 2011].Consequential-Loss • [Online] Available at: <http://www.icicilombard.com/app/ilomen/Businessproducts/Consequential-Loss.aspx> [Accessed 13 June 2011].Fire Consequential Loss• [Online] Available at: <https://www.maa.com.my/maaas/pages/ProductInfo.aspx?ProdID=102> [Accessed 20 June 2011].Fire Hazards• (FirePreventionTips)[Online]Availableat:<http://www.fire-extinguisher101.com/hazards.html>[Accessed 13 June 2011].Fire insurance• [Online]Availableat:<http://business.gov.in/manage_business/fire_insurance.php>[Accessed13 June 2011].Fire Risk Assessment• [Online] Available at: <http://www.bedsfire.com/COMMUNITYSAFETY/BUSINESSFIRESAFETY/Pages/FireRiskAss.aspx> [Accessed 27 June 2011].Goel, K., 2011. • Non-life insurance [Online] Available at: <http://www.scribd.com/doc/50915844/2/OBJECTIVES> [Accessed 9 June 2011].Goel, K., 2011. • Non-life insurance [Online] Available at: <http://www.scribd.com/doc/50915844/5/TYPES-OF-FIRE-POLICIES> [Accessed 13 June 2011].Hirschler, M., 1992. • Fire Hazard and Fire Risk Assessment. Astm Intl.iiivideo, 2008. • Six Steps to Follow When Filing a Claim: Podcast [Video online] Available at: <http://www.youtube.com/watch?v=WdXRe1lGQMk&feature=related> [Accessed 20 June 2011].Industrialfirefight,2011.• Industrial Fire Brigades: Tank Hazard Control from Action Training Systems [Video online]Availableat:<http://www.youtube.com/watch?v=4RR6dw_hO2M>[Accessed14June2011].Industrialfirefight,2011.• Industrial Fire Brigades: Ventilation Procedures from Action Training Systems [Video online]Availableat:<http://www.youtube.com/watch?v=3rz_gKTVoe8>[Accessed14June2011].jbrennan1069, 2010. • Tips to filing fire insurance claims [Video online] Available at: <http://www.youtube.com/watch?v=lbaZk5JlvuM> [Accessed 15 June 2011].Jpht197, 2009. The great fire of London [video online] Available at:<http://www.youtube.com/•watch?v=b7vXcYmKFDQ> [Accessed 9 June 2011].Kumar, A. & Rohit, 2011. • Industrial hazards due to fire accidents, mechanical and electrical equipments, chemicals and pharmaceuticals [Online] Available at: <http://www.scribd.com/doc/47446597/INDUSTRIAL-HAZARDS-DUE-TO-FIRE-ACCIDENTS-MECHANICAL> [Accessed 14 June 2011].Nfpadotorg, 2008. • Hidden Electrical Hazards [Online video] Available at: <http://www.youtube.com/watch?v=LJm8w25KgM8&playnext=1&list=PLD3432488038BB5F0> [Accessed 13 June 2011].NPCCAR, 2008. • 20-C, Fire Insurance, Cancellation [Video online] Available at: < http://www.youtube.com/watch?v=ZG8iwifGsbE> [Accessed 9 June 2011].Price, A., 2011. • 8 Common Fire Hazards in Your Home [Online] Available at: <http://www.streetdirectory.com/travel_guide/61015/home_security/8_common_fire_hazards_in_your_home.html>[Accessed13June2011].

Fire Insurance

124/JNU OLE

QualityClaims, 2009. • What Should You Do If Your House Burns - True Story [Video online] Available at: <http://www.youtube.com/watch?v=YWvKu04NQBE&feature=related> [Accessed 20 June 2011].Rogers, D., 2011. • Tips on Fire Insurance Claims [Online] Available at: <http://ezinearticles.com/?Tips-on-Fire-Insurance-Claims&id=1175332> [Accessed 15 June 2011].Rutter & Russin, 2000. • Fire Insurance Law[Online]Availableat:<http://library.findlaw.com/2000/Oct/1/127239.html> [Accessed 9 June 2011].safetynut1, 2011. • Fire Risk Assessment & the Fire Safety Order Explained [Video online] Available at: <http://www.youtube.com/watch?v=lkXXzwRK3q8> [Accessed 27 June 2011].Talandassociates, 2010. • Fire damage - insurance claim help [Video online]. Available at: <http://www.youtube.com/watch?v=ZMoYhvX8Q5w> [Accessed 15 June 2011].Taylor, H., 1949. • Fire insurance law [Online] Available at: <http://www.archive.org/download/fireinsurancelaw032035mbp/fireinsurancelaw032035mbp.pdf>[Accessed15June2011].Ten, 2009. • Fire insurance [Video online] Available at: <http://www.youtube.com/watch?v=J8oPCmebnmc&feature=related> [Accessed 9 June 2011].The Footwear & Leather Health & Safety Committee, 2007. • Fire safety – fire risk assessment [Online] Available at: <http://www.britfoot.com/documents/FIRE%2007.pdf> [Accessed 27 June 2011].Types of major chemical/industrial hazards – Fire• [Online] Available at: <http://www.ekdrm.net/e5783/e17327/e27015/e27713/> [Accessed 14 June 2011].Wilson, S., 2011. • Fire insurance claims guide [Online]Availableat:<http://www.pushormitchell.com/files/articles/Fire-Insurance-Claims-Guide.pdf> [Accessed 15 June 2011].Yung, D., 2009. • Principles of Fire Risk Assessment in Buildings. Wiley.Zandramari, 2010. Essentials of Fire Insurance Contract [Video online] Available at: <http://www.youtube.com/•watch?v=Plqsw1u85U4> [Accessed 9 June 2011].

Recommended ReadingCheremisinoff, N., 1999. • Fire and Explosion Hazards Handbook of Industrial Chemicals. William Andrew.Darrach, H., 2008. • The Standard Fire Insurance Policy, Pranava Books.Dominge, C., 2010. • Fire Insurance Inspection & Underwriting. Nabu Press.Gagnon, R., 1997. • Design of Special Hazard & Fire Alarm Systems. Delmar Cengage Learning.Insurance Society of New York, 2010. • The fire insurance contract: its history and interpretation. Nabu Press.Ketcham, E., 2010. • Fire Insurance; The Essentials of the Fire Insurance Business. General Books LLC.Kitchin, F., 1904. • The principles and finance of fire insurance. E. Wilson.Longcore, R., 2007. • Insurance Claim Secrets REVEALED! Trafford Publishing.McCune, W., 1922. • A Fire Insurance Agency for Profit. Revised ed., the rough notes co.National Fire Protection Association, 1990. • Industrial Fire Hazards Handbook, 3rd ed., NFPA.Oviatt, F. 1904. • Fire Insurance, Expenses, Profits, Problems. American Academy of Political and Social Science.Peverett, E., 1997. • Fire insurance law and claims, 2nd ed., Witherby & Co Ltd.Ramachandran, G., 1998. • The Economics of Fire Protection. Spon Press.Reed, P., 1940. • Fire Insurance Underwriting. McGraw-Hill Book Company.Riegel, R., 1947. • Fire insurance; from insurance principles and practices. 3rd ed., Prentice-Hall.Robert B. Holtom, 2001. • Commercial Fire Underwriting. 3rd. ed., Natl Underwriter Co.Rochie H., 2010. • Fire Insurance Law: An Authoritative Analysis of the Standard Fire Insurance Policy, of Its Legal Aspects, and of the Standard Forms. Nabu press.

125/JNU OLE

Shepard, S., 2009. B• e fire safe: how to avoid fire, reduce loss, and recover from insurance if you have a fire. Ronin PublishingSmith, G., 1998. • The adjuster! Making insurance claims pay, 2nd ed., Cargo Publishing Company.Thomson, N., 2001. • Fire Hazards in Industry. Butterworth-Heinemann.Thomson, N., 2007. • Controlling Fire Hazards, NGT Publishing Limited.

Fire Insurance

126/JNU OLE

Self Assessment Answers Chapter I

c1. a2. a3. d4. b5. b6. a7. a8. d9. b10.

Chapter IIa1. c2. a3. d4. b5. b6. c7. a8. b9. c10.

Chapter III

a1. b2. a3. b4. a5. a6. d7. c8. b9. c10.

Chapter IV

d1. a2. b3. c4. c5. d6. b7. d8. a9. c10.

127/JNU OLE

Chapter Vb1. c2. c3. a4. b5. d6. a7. b8. b9. a10.

Chapter VI

b1. d2. b3. a4. c5. a6. c7. c8. a9. c10.

Chapter VII

a1. b2. c3. d4. b5. c6. a7. d8. a9. b10.

Chapter VIIIb1. a2. b3. d4. c5. a6. b7. a8. d9. b10.