The Fire, Lightning & Special Perils Policy and the All Risks (Accidental Damage) Policy seek to protect the policyholder’s property against loss. The term property refers to tangible material property which is measurable in financial terms (the sum insured) and may suffer physical loss or damage as a result of a fortuitous event.
A Fire & Special Perils policy provides cover for private houses, factories, buildings, warehouses, machinery, and manufacturing goods at all stages of completion (raw materials, work-in-progress, and finished goods). The policy compensates policyholders against damage by fire and lightning, as well as special perils identified and listed in the policy. The insured is indemnified, meaning put in the same position as s/he was just before the loss occurred, by reinstatement or replacement at the lower amount between the total value of the loss or the sum insured. In the latter case, if the policyholder is underinsured, an average clause would apply where the insured would be considered his own insurer for the proportional part of the loss. The Fire & Special Perils policy and the Accidental Damage (All Risks) policy operate upon payment of the premium until 4:00PM of the last day of the insurance term, or until the day of the event in the case of a building which is displaced or falls down.
Fire is legally defined as the accidental or fortuitous ignition of an item which should not be on fire. Fire does not necessarily have to ignite on the insured property but may spread to the insured property from a third-party property. A Fire Insurance policy covers both household and commercial property. In the case of commercial property, basic cover is provided for the building itself, as well as the machinery and stock inside it, against fire, lightning, and explosion of domestic boilers or gas cylinders used for lighting, heating or other domestic purposes. Cover extends also to the damage caused in trying to extinguish the fire, such as entering the property and using water or other substances to extinguish the fire. The collapse of the building as a result of fire, and the items removed from the property to protect damage against fire damage, are also covered.
The standard policy is limited to fire and lightning, but the insured can extend cover for an additional premium to special perils, such as storm, tempest and flood, malicious damage, riot and civil commotion, earthquake, impact, explosion, burst pipes, and spontaneous combustion. Some insurance companies exclude these perils using the term ‘directly or indirectly caused by...’. For example, if this is the case for earthquake, then the Fire & Lightning Policy would not cover a fortuitous loss due to fire caused by a candle which fell on the carpet as a result of an earthquake tremor. A peril may neither be excluded nor insured. For example, if storm is neither excluded nor insured, insurers will not pay for damage caused by the storm but will still pay for the ensuing fire damage, on the premise that the loss can be segmented.
While the insured perils are listed in the Fire & Lightning Policy, this is not the case in an Accidental Damage policy. From the name itself, one can understand that it covers every loss as long as it is caused by an accidental cause, subject to policy conditions and exclusions. Whereas under a Fire & Lightning Policy, the insured had to prove both that the loss occurred and that it was caused by an insured peril (fire, lightning, special perils), under an Accidental Damage policy, the insured has to prove only that the loss occurred, and then the onus of proof falls on the insurer to apply any applicable exclusions or conditions.