Property Insurance, and What It Covers

In one line

Property insurance indemnifies the owner of a thing against its physical loss or damage, and every rule in it follows from the fact that the promise is one of indemnity and not of payment.

In the wording a student can write in an exam: property insurance is the class of general insurance in which the subject matter is a physical thing, the assured must have an insurable interest in that thing both when the policy attaches and when the loss happens, the contract is one of pure indemnity so the assured recovers his actual loss and no more, and the insurer who pays is subrogated to the assured's rights and may claim contribution from any other insurer of the same interest.

Where the class sits in Indian law

There is no Property Insurance Act. The class is a commercial description, not a statutory one, and it is regulated in three ways.

By the Insurance Act, 1938, as a business. Section 2(6A) defines fire insurance business as the business of effecting contracts of insurance against loss by or incidental to fire or other occurrence customarily included among the risks insured against in fire insurance policies. Section 2(13B) defines miscellaneous insurance business, into which burglary, engineering, crop and everything else falls. Whoever writes either must be registered under section 3, must hold the solvency margin under section 64VA, and cannot assume the risk before the premium is received, by section 64VB.

By the Authority, as a product. The All India Fire Tariff, 2001 once fixed the wording and the rate for every fire risk in India. Rates were freed in 2007 and wordings in 2019, and then, from 1 April 2021, the Authority replaced the Standard Fire and Special Perils policy for dwellings and for micro and small businesses with the three Bharat products, which are worked in their own chapter.

By the general law of contract, as a contract. The Indian Contract Act, 1872 supplies offer, acceptance, consideration and capacity, and the common law rules of insurance supply the rest.

The four principles as they apply to property

Insurable interest, and when it must exist. In property insurance the interest must exist both at the date of the contract and at the date of the loss. That is the difference from life insurance, where it is needed only at inception, and from marine insurance, where section 8 of the Marine Insurance Act, 1963, requires it only at the time of the loss.

The reason is that a fire policy is a contract of indemnity and nothing else. A man who has parted with the house before it burns has suffered nothing, so there is nothing to indemnify. And the interest must be a legal or equitable one, not a mere expectation of benefit.