Fire InsuranceFire Loss Of Profit
Table of ContentsFire Loss of Profit (FLOP)
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Fire Loss of Profit (FLOP)
Fire and Special Perils Policy compensates only for Material Damage to the insured property. It specifically excludes any consequential loss. In case of a significant loss caused by fire, there could be an interruption in business operation, leading to a reduction in turnover finally resulting in possible loss of profits. However, standing or fixed charges continue to accrue regardless of whether there is any production or not. Such loss cannot be covered under a Fire policy. This policy can be taken only in conjunction with a Standard Fire Insurance Policy.
Consequential Loss Policy compensates for the profit, plus insured's in other words, revenue loss minus variable expenses suffered by the enterprise. Hence, for complete protection to the business enterprise and its profitability, Consequential Loss Policy is essential in addition to Standard Fire and Special Perils Policy.
This policy is also known as Business Interruption Policy or FLOP (Fire Loss of Profit Policy).
- Fire insurance is designed to protect in respect of loss to buildings, machinery, fixtures, goods etc. by fire and or other insured perils. In other words, fire insurance affords cover for 'material damage'.
However, an indemnity for the material damage does not provide complete protection to the insured who will also suffer trading losses due to total or partial stoppage of his business. The object of loss of profit insurance (also known as Consequential Loss or Business Interruption insurance) is to make good for loss of gross profit.
- The Fire insurance policy is issued for a maximum of one year term and expires thereafter. Still, the loss of profit policy indemnity period may go beyond even after the expiry of Fire policy, as the same is calculated from the date of actual accident/loss.
- Loss of net trading profit
- Standing charges (continuing fixed expenses)
- Loss in respect of wages other than those covered by the standing charges
- Increased cost of working
- Auditor's fees
Add on covers
For a more comprehensive cover, you have the option to select the following add-ons at an additional premium.
- Accidental failure of public electricity/gas/water supply
- Damage to customer's premises due to perils covered under Fire Insurance Policy
- Damage to supplier's premises due to perils covered under Fire Insurance Policy
- Spoilage Risk extension
- Wages-dual basis or pro-rata basis
- Lay-off and retrenchment compensation
- Notice Wages Liability
- Insured's property stored in other situations
- Molten material damage
- Cost of preparation of fire and consequential loss claims
- Litigation costs connected with fire or consequential loss claims generally
- Third-party claims
- Failure to recover book debts owing to the destruction of records
- Loss of goodwill
- Loss of market
- Fines and penalties payable due to delayed fulfilment or cancellation of sale/service contract
- War, invasion, the act of a foreign enemy, hostilities or warlike operations (whether war be declared or not), civil war
- Mutiny, civil commotion assuming the proportion of or amounting to a popular rising, military rising, insurrection, rebellion, revolution, and military usurped power
- Nuclear power reactions and radiations
- The difference between the value of the stock at the time of the fire and at the time of subsequent replacement
- Depreciation of undamaged stock after a fire
- Loss that is not admissible under a Fire (Material Damage) Policy
In the event of loss, the following are immediate actions to be taken
Intimate to the insurer the occurrence of loss, submit a full statement in writing of the claim, provide the nature and extent of loss and also the estimate of loss. Any delay in intimation might jeopardize the claim as the insurer may express an inability in accepting liability of the loss/damage.
- To take all steps to reduce and minimize the extent of loss/damage and liability.
- Proximate cause of the loss and assess the type/extent and whether it is within the scope of the policy
- To extend full co-operation to the insurer and the surveyor appointed for completion of the survey work and for proper assessment of the loss.
- Produce all such records and proof as may be required by the surveyor or the insurer for arriving at the extent of loss and the liability under the policy.
- Provide documents such as claim form, Claim bill, copy of policy etc.
- Keep the damaged property under the safe custody until advised by the surveyor/insurer regarding its disposal.
- Identification of the subject-matter insured.
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