FIRE INSURANCE. Fire insurance is an economic service which distributes over a large part of the community fire waste which might cripple the immediate sufferers and provides an at mosphere of security against catastrophe. By operating on a suffi cient scale the insurer is able from the contributions of the many to make good the losses of the few and to the individual the ever present risk of fire loss is replaced by a relatively insignificant payment.
Fire insurance may be said to date from the Great Fire of Lon don (i666). The widespread havoc wrought by this disaster cre ated a demand for protection, and the remaining years of the i 7th century saw the formation of several companies for this purpose. Without experience to guide them their operations were largely ex perimental, but the enterprise succeeded and at the beginning of the next century more companies were formed, some of which still exist.
Abroad progress was not so rapid and it was not until the middle of the i8th century that fire insurance appeared in Germany and North America. In France the first company formed was in 1816 and in Russia 1827.
Throughout the 18th century development in England was steady in spite of an increasingly heavy Government duty and further companies were formed soon after 1800. Sufficient experi ence had now been accumulated to put the business on a scientific footing and the offices began to pool their results to obtain a more accurate basis for the calculation of rates; this led, in 1858, to the formation of the Fire Offices Committee. In London the fire ex tinguishing appliances of the companies were also combined into a brigade for common protection. In 1865 the appliances were taken over by the municipality and formed the nucleus of the London Fire Brigade. In 1869 the Government duty was reduced to a nominal amount. In 1909 the Assurance Companies Act was passed. The principles which govern fire insurance in Great Brit ain have not been laid down by statute but have developed from cases decided in the courts.
The definition quoted above is wide enough to include more than simple ownership and among others the following may have an insurable interest : Mortgagees (since their security may vanish or be impaired). Tenants (either for life or who may, under their lease, be re sponsible for loss or damage) .
Bailees or persons who have charge in any capacity of the goods of others. (They may accept liability for loss under a contract or custom of a trade or negligence may be proved against them or their agents.) Persons taking charge of goods for repairs, etc., have also a lien on them for work done and this they may also insure. Special classes of bailees are pawnbrokers (who are liable for fire loss un der the Pawnbrokers Act, 1872), common carriers and innkeepers (whose respective liabilities at Common Law are limited by the Carriers Act of 183o and the Innkeepers Act of 1863) .
Trustees may insure the trust property. A bona fide interest, however slight, is insurable, but an expectation, however strong, is not.
The duty of good faith devolves equally on the insured and the insurer but operates mainly for the protection of the insurer, who must usually rely on the information given him. A contract of fire insurance is void if the insured has failed to disclose any fact that would influence the insurer in his estimate of the risk involved. This is called a "material fact" and it is no defence that the in sured did not know it as such. Whether a fact is material or not will depend on the circumstances of the case, but in practice the position is modified by the insurer submitting a list of questions to be answered and sometimes by his inspecting the property to be insured. It is sufficient if the information given by the proposer is substantially correct, but any fact that appears on the policy as a "warranty" must be literally accurate, and the business of insur ance, on the wide scale practised to-day, would be impossible were this provision not respected.
insurance is a contract of indemnity, which is to say that the insured, after a fire, shall be in such a position that he is neither better nor worse off than before (subject, of course, to adequate insurance). This principle is vital, as to allow a man to profit from the destruction of his property would be an incentive to arson and contrary to public interest.
A logical extension of the principle of indemnity is that of Sub rogation which is the right of an insurer who has paid an indem nity to stand in the place of the insured when there exists a right of action, arising out of a fire, against a third party. In such a case the insured has the choice of claiming from the insurer or the offending third party, and the former is usually the easier course. He must then allow the insurer, at his own expense, to prosecute the claim against the party responsible. Should the insured for any reason, such as under insurance, fail to recover the full amount of the loss from the insurer, the latter may only benefit from the third party claim after the balance of the loss has been made up.
Fire insurance in Great Britain is subject to remarkably little legislation and has been allowed to develop along its own lines. The Assurance Companies Act (r 909) stipulates that a deposit of £20,000 must be made by companies commencing business after that date, but a deposit is not necessary for fire insurance if one has been made for any other class of business. Accounts must be prepared in a specified form and submitted to the Board of Trade within a prescribed period. The remainder of the act has but little bearing on fire insurance. By the Metropolitan Fire Brigade Act (r 865) companies insuring property in the City of London must contribute at the rate of f35 per f r,000,000 insured towards the expenses of the brigade.
The majority of British fire insurance companies are members of the Fire Offices Committee, an association formed and con trolled by the member companies for the pooling of experience and fixing adequate rates for important classes of property. Other branches of the committee's activities deal with standards for fire resisting materials and construction, extinguishing appliances, com mission and agency arrangements, etc. The London Salvage Corps is maintained by the fire insurance companies and attends out breaks with the special object of reducing loss to property by ex pert treatment of damaged merchandize, disposal of water, etc.
The policy is the formal expression of the contract, which it sets out in detail. It bears a sixpenny stamp and is signed for the corn pany by a director or other authorized representative. On the face of it appear the perils insured against, which are usually fire (with certain exceptions, such as fire caused by war, earthquakes, etc.), lightning, explosion of boilers used for domestic purposes, and explosion of gas used for lighting or heating or other household purposes in any building not forming part of a gas works.
It is further declared that the company have the option of rein stating the damaged property instead of making a payment and that the contract is subject to the conditions printed on the back of the policy.
A standard form of conditions is in use by most of the corn panies and the salient points of these may be summarized as follows : Misdescription. Any material misdescription of the property insured or concealment of material fact invalidates the policy.
Increase of risk, transfer of interest or removal of the property. In these cases the insurer must be notified and his consent to the alteration endorsed on the policy, otherwise the policy is void from the date of the change.
Excepted goods and perils. Certain special classes of property, such as money, stamps, securities and documents, plans and models are not covered by a general description but must be specially men tioned. Explosives and goods in trust must also be specified and damage by explosion (except as stated on the face of the policy) is not covered. (This must not be confused with fire damage caused by explosion, which is covered.) Notice of claim and proof of loss. Notice of loss must be given immediately and a detailed claim submitted within 3o days. The insured must, if required, furnish reasonable proof of loss.
Fraudulent claim invalidates the policy.
Reinstatement. Should the company elect to reinstate the in sured must give them reasonable assistance in the form of plans, specifications, etc. Reinstatement need not be exact but only reasonably sufficient and is limited to the sum insured.
Right of entry. The company are authorized to enter and take possession of premises which have been the scene of a fire likely to give rise to a claim and to take possession of and deal with in sured goods in a reasonable manner. In doing so they do not ad mit liability but obstruction by the insured invalidates the policy. (This condition appears rather drastic but considerable discretion is used in its application. Its intention is to allow the company to minimize the loss by prompt treatment of damaged goods and to investigate details of suspicious outbreaks before they can be obliterated.) Contribution. If the property is insured by more than one com pany the liability under this policy is limited to the proportion which the insurance bears to the total, i.e., the insured must claim on all his insurers instead of selecting one or more.
Subrogation. This condition sets out the rights of the company under this heading (see INDEMNITY).
Arbitration. All differences arising out of this policy must be submitted to arbitration and an award made before action in the courts is taken. (This tends to reduce expensive litigation.)