Principle of Indemnity in Fire Insurance: A Critical Analysis
Fire insurance means insurance against any loss caused by fire. Fire insurance has no direct relation to saving but is always a question of indemnity for property. The principle of indemnity, which arises under common law, ensures that the insured does not recover more than actual loss suffered by him/her. The principle of indemnity gives rise to the principles of subrogation and contribution which ensure that an insured does not gain under the insurance contract. The application of these principles to a contract of fire insurance raises imminent questions about concepts such as policy coverage or depreciation, status of salvage value, underinsurance and limited interest. A Standard Fire and Special Perils Policy must be discussed in the light of these nuances. Thus, the purpose of this paper is to provide a clear picture as to the nature and purpose of fire insurance by studying the application of principle of indemnity and incidentally, the principles of subrogation and contribution to a contract of fire insurance. The discussion leads to results which help in understanding the settled position taken by courts regarding the aspects of fire insurance contract. Further, based upon the discussion, ways and methods have been recommended to resolve the studied issues and make the fire insurance regime in India more efficient and efficacious. The paper has value for all stakeholders, especially insurance companies and its customers as its ultimate aim is to help in eliminating uncertainty in fire insurance contract which would help both, insured and insurer, in better implementation of a fire insurance contract.