Principles of Fire Insurance

List of the 8 Major Principles of Fire Insurance

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There are several principles that govern the way fire insurance works. One principle is that the insured pays for the policy. This means that the person or business seeking insurance must pay for the coverage, which allows them to get it at a lower cost than if they didn’t have to pay anything in advance (like with health insurance).

Fire insurance is a form of Property Insurance that protects you from loss due to fire. It can be a stand-alone policy, or it can be part of a package deal with other types of insurance.
It covers the damage caused by fire. Its original purpose was to cover and protect buildings, but it has evolved to cover other items as well.


There are so much in to note in the Principles of Fire Insurance. We are more detailed to this article, introducing you to this just note this few tips.

Fire Insurance is a contract of indemnity, by which the insurer undertakes to pay the insured a fixed sum of money on the happening of an event covered by the agreement.

The premium paid by the insured should be equal to or greater than the actual cost of repairing or rebuilding the property damaged or destroyed by fire.

The amount of insurance cover should be such that it can reasonably be expected to meet all expenses arising from one loss by fire or other insured risk (or combination thereof). It should not include any item which is not insured under this policy nor make provision for any contingency which may arise after its expiry date.

The policy should provide that where part only of a building has been damaged or destroyed by fire or other insured risk (or combination thereof), the entire building must be repaired or rebuilt as soon as practicable after its commencement date, and in no case later than twelve months after its commencement date; otherwise all premiums paid up to that time become forfeited.”

The 8 Major Principles of Fire Insurance

Below are the Principles of Fire Insurance:

  • Principle of Indemnity
  • Principle of Utmost Good Faith
  • Principle of Insurable Interest
  • Principle of Proximate Cause
  • Principle of Contribution and Indemnity
  • Principle of Subrogation
  • Principle of Participation
  • Principle of Reinstatement
  • Principle of Indemnity
  • The insured is entitled to be compensated for the loss.
  • The insurer has to pay the insured the amount of the loss.
  • The insured should not be required to pay anything to the insurer.
  • The insured should not be required to pay any premium.

Principle of Utmost Good faith

The principle of utmost good faith has been recognized as an implied duty in the contract of insurance. Now, See this…
In the case of Banco Filipino vs Insular Insurance Company, the Supreme Court held that “the obligation to act in good faith is not absolute.

It is limited by what may reasonably be expected from a reasonable and honest person acting in his own interest.” In this case, Banco Filipino alleged that its Fire Insurance policy covered certain losses caused by fire but not those resulting from flood or other natural forces.

The lower courts held for Insular because there was no indication that Banco Filipino intended to cover flood damage under its policy; because terms are important to any contract, they should be read strictly against those who employ them; and because it would be unjust to hold Insular liable for damages when it had acted honestly and reasonably during the transaction with Banco Filipino.

The Supreme Court reversed these decisions by holding:
(1) The duty of utmost good faith does not require strict interpretation of contractual language but rather requires parties entering into contracts containing ambiguities or uncertainties relating thereto should disclose such circumstances which would eliminate any doubt as regards their intention so as not mislead each other;

(2) The phrase “due care” appearing on Page 1 of Exhibit A refers only to acts done within reasonable limits chosen by Insurers themselves without prejudice whatsoever towards third persons who may suffer damage due thereto; but if such acts were grossly negligent or reckless beyond all reasonableness then failure thereof would constitute breach of contract

Principle of Insurable Interest

If you have an interest in a property, it means that the property is important to you and without which your life will be affected. Any person who has an insurable interest in a property can insure it against fire damage, theft, or damage caused by natural calamities.

Insurable Interest: To be able to get insured against any loss, there needs to be an insurable interest on your part. This means that if something happens to the property then there would be some form of loss for which compensation will have to be paid. But what exactly constitutes as insurable interest? Let’s look at some examples:

You own a house worth 20,000 dollars but do not have any loan on it so naturally there cannot be any financial loss due to accident or natural calamity happening at this place because there are no financial liabilities associated with this house at all; however still it can happen that someone burns down this place (by starting fire intentionally) and destroys everything inside including furniture etc., thus causing huge monetary loss due to non-insurance coverage under such circumstances… The Principle of Insurable interest plays out.

Principle of proximate cause

Proximate cause is the cause that sets off the chain of events that results in a loss. In other words, this principle helps your insurer tell whether or not and they’re liable for paying out on your claim.

For example, if a house catches fire due to an electrical fault and then burns down due to windy conditions, proximate cause would be found within that initial electrical fault,If it had happened under different circumstances (in other words, without wind), you might have had no loss at all. A good way to think about proximate cause is: “If I remove this single factor from this event, what would happen?”

Principle of Contribution and Indemnity

The principle of contribution and indemnity is a legal principle that says that each party is responsible for paying their own share of the cost of a loss or damage. In other words, if one person caused $100 worth of damage to another person’s property, then both parties are responsible for paying $50 each.

The principle of contribution and indemnity is used to determine the amount of money that each party should pay.

Principle of Subrogation

If your insurance company pays out on a claim and then finds out that it should not have to pay, it has the right to take over the claim. This concept is known as subrogation.

Subrogation means that your insurance company can become an additional party in litigation against another party (like an at-fault driver) for damages caused by that person’s negligent actions. Your insurer will seek to recover from the responsible party any amount paid out on behalf of its insured, plus any costs associated with bringing such action against them.

For example, let’s say you were injured in a car accident caused by someone else who was insured through their own policy but had no liability limits high enough to cover all of your medical bills or lost wages. In this scenario, your health insurance provider would be able to file suit against both parties, your health care providers and the other driver—to recoup what was paid out on your behalf (plus interest).

Principle of Participation

The principle of participation is a method of calculating losses in the event of a fire.

It is based on the principle that the loss is shared among all the insured. The premium paid by the policyholder is shared among the other policyholders, so that each one pays their share of any claims made against them.

Principle of Reinstatement

The principle of reinstatement is a provision in the policy that allows the policyholder to rebuild their property, or to replace the damaged property with property of equal value. This can be an expensive proposition, so it’s important to check any reinstatement limitations that may apply.

Principle of Average Clause

The Average Clause is a clause in a fire insurance policy that provides for the settlement of the claim by the payment of an amount that is equal to the average value of the property insured. The average value of property at any given time is determined by averaging out its cost at different times, based on sales prices and other factors.

Principle of Loses minimization/ Precautionary measures.

When you buy fire insurance, there are several things you can do to protect your property and lessen the chance of a catastrophe.

Minimize the damage from fire.
Make sure that all electrical wiring and other flammable materials are properly installed and protected against overheating. Also make sure to keep wooden or cardboard boxes away from heat sources like stoves and radiators.

Minimize the damage caused by smoke;
Which can also cause serious health problems. Install smoke detectors on every level of your home; check them regularly to ensure they’re working properly; replace batteries when needed; clean filters at least once a month; do not obstruct air circulation in vents or ducts with furniture or other objects—just keep them clear!


There are yet many more Principles of Fire Insurance, I’ll just give you a shot of all of them quickly

Principles of Fire Insurance

1. Fire is an event and not a cause of loss

2. Every risk has its own value and premium

3. Fire is an insurable peril only when it involves the insured property in particular and identifiable ways

4. The insured must have an insurable interest in the subject matter insured

5. The loss must be sudden, Know, measurable, certain and reasonably expected.

6. Fire Insurance may be written on the basis of either replacement cost or indemnity basis

7. Fire Insurance covers the direct loss or damage to property from fire and lightning only

8. Fire Insurance does not cover loss or damage by flood, earthquake, war and aircraft

9. The owner or tenant must take all reasonable precautions to prevent fire.

10. The owner or tenant must not use any flammable material in a manner that may cause a fire at his or her premises.

11. A person who has suffered loss of life or property through the negligence of another should have a legal remedy against him for damages sustained by reason thereof.

12. Every man’s home is his castle, and he should be protected in it against both enemies from without and dangers from within.

13. The contract must be underwritten by the insurer at his own risk with no liability upon the assured beyond that specified in the policy.

14. The insurer may not avoid payment under cover on the ground of fraud or misrepresentation by the assured except in cases where he had knowledge of such fraud or misrepresentation at the time when he made his contract of insurance.

15. Fire Insurance is a contract by which the insurer agrees to indemnify or insure the insured against loss or damage to property or its contents from fire, lightning, explosion and other accidents.

16. The premium must be paid before the policy commences, unless otherwise specified by the insurer in writing.

17. The policy must be endorsed by an agent authorised to do so by the insurer and countersigned by a witness in his presence, who must sign his name on the back of such endorsement after having read it carefully through (or over) to him.

18. Fire insurance can be obtained for both commercial buildings and homes, but not all policies cover both types of buildings equally well or at the same price point due to differences in their risk profile across different areas around the country (some places are much more prone to fires than others).

19. It is designed to protect individuals and businesses from financial loss due to fire damage. The policyholder buys the contract from an insurance company at regular intervals over a specified period of time, usually one year. The premium paid by the policyholder is determined by various factors such as location, building age and type of construction material used in its construction.

20. In case of loss, the claim should be made within thirty days from the date of receipt by insured party of notice from the insurer of occurrence of loss or damage, otherwise it shall be deemed waived by him/her.

However, if such notice has been received by insured party within thirty days but he/she has not received it within fifteen days after receipt thereof, then such notice shall be deemed received by him/her on fifteenth day after receipt thereof and he/she shall have one month thereafter to make his/her claim.

The insurer must pay for loss of or damage to property covered by the policy if it is caused by fire or lightning when any part of that property is used for business purposes. The insurer does not have to pay for loss of or damage caused by any other peril unless that peril was specifically included in the policy or unless another peril causes damage resulting from such other peril.

When there is more than one insured under an insurance policy covering several buildings on the same premises, each building shall be considered separately as far as possible; but if two or more buildings are so closely connected with each other that they cannot be considered separately from each other, they should all be considered as one building.


As you have seen there are so many Principles of Fire Insurance… An Overview to this is that there is no limit on the amount of coverage available under fire insurance policies, which means there is no upper limit on how much money you could be awarded if something happened to your property due to fire damage.

However, this doesn’t mean that all properties are eligible for 100% coverage—it all depends on what’s covered under the individual policy and what type of property you have (for example, if you live in an apartment building and your unit catches on fire from faulty wiring or faulty appliances).

Finally, another important principle is that each company has its own set of rules when it comes to how much coverage they’re willing to offer and what kinds of exclusions apply (exclusions are things like earthquakes and floods

Fire insurance is a type of insurance that ensures the policyholder against any damage or loss to his property caused by fire or smoke. In fact, it covers damage caused by both fire and smoke. It is often referred to as fire insurance or non-marine property insurance and can be either commercial or personal.

The policyholder pays an annual premium for this type of coverage, which may protect his home, automobiles and other valuable items from being damaged by fires.

The exact amount you need depends on the value of your belongings; for example if you have expensive jewelry in your home then you might need more coverage than someone who only has bookshelves full of paperback novels at home!


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