FIRE INSURANCE

Q: An insured sought clarification from me about the following:
- The insured had insured stock for RM5,000,000 for the period of insurance from 01/09/2014 to 31/08/2015. Renewal of the policy for the subsequent period from 01/09/2015 to 31/08/2016 was finalised on 20/08/2015 with the sum insured increased to RM6,500,000.

A fire broke out at about 11.00pm on 31/08/2015 and raged on for a few hours before it was finally brought under control at about 3.00am on 01/09/2015. The entire stock valued at RM6,350,000 was totally destroyed. The insured asked me if the insurer would indemnify him for his loss at RM6,350,000.

Some points to consider:

(1) The Operative Clause of the policy says 'The company agrees subject ......... such property be destroyed or damaged by fire or lightning during the period of insurance stated in the schedule or of any subsequent period in respect .........., the company will pay or make good to the insured the actual value of the property insured at the time of the happening of its destruction or the actual amount of such damage.'

(2) The schedule attached to the policy will show the period of insurance 'from ....... to ....... (both dates inclusive)'

(3) No time is shown in the policy to denote time of commencement of cover and time of expiry of cover.

I seek members' opinion on this claim.

A: 

Sabrina Mickagnes Lee: Should cover the former as point of consideration should be time of first occurrence of fire which is about 11pm.

Raymond Huang: The argument is that part of the damage was caused during the first period of insurance and the other part during the second period of insurance. The insured asked - 'Why cannot pay since the policy says the insurer will pay if destruction or damage occurs during the p/i or subsequent p/i and there is also no mention of time in the policy?'

Another point of argument is that the operative clause did not mention 'destroyed or damaged by fire OCCURRING during the p/i'. It says 'destroyed or damaged during the p/i or subsequent p/i' There is a technicality here.

Sabrina Mickagnes Lee: I would stand to argue on the point 'of the time the fire started and it's a continuos event with no break in the chain of causation' which explains during and subsequent as it is foreseeable we can't put out fire on the dot as we wish. That is how I would read the context of 'subsequent p/i' intended by insurers. 

But just saying, if the insurer is kind enough, Insured would be under insured in the 1st period of insurance and average applies on pay no doubt. So arguably, if insured is able to prove the actual value of stock in the 2nd period of insurance,'if only insured could ascertain the remaining stock value' at 12am which sorry to say, there is probably no stock left at 12am to be insured on 01/09/2015, insured may well get paid extra. It is insured duty to ensure insured is adequately insured at all times and insured choses to reflect the increase in the new p/i.

Raymond Huang to Sabrina Mickagnes Lee - Good argument put up but there appears to be some grey areas in the wording. Who pays when there is ambiguity? Or is there none in this case?

Sabrina Mickagnes Lee: The grey areas in the wordings are 'room for considerations' indirectly allowed by the insurers. In this case, I don't think it is ambiguous but insured I'm sure will argue otherwise and it is only wise to put up a fight irregardless and be ready to understand if it doesn't pan out. From insurers point of view, pretty straight forward that accident occurred on 31/08/2015 with no break in chain. Similarly put if a chain car collision were to happen at 11.59pm and the last car hit after all the spinning etc was at 12.02am, the new p/I is by another insurer, would the new insurer be liable for the accident? The answer is a likely 'no' cause there is no break in the chain of causation and the previous insurer would still be held fully liable

Raymond Huang: Very good example but the facts here are slightly different because of the wording which a lay person would read and come to a different conclusion. I think the key word is 'OR' in the phase 'or subsequent p/i'. It would make a world of difference if the word 'OR' is replaced by 'AND'. I would like to hear further comments from other members.

Would the policy wording be clearer if the word 'happening' is inserted to make the operative clause read 'destroyed or damaged by fire or lightning happening during the period of insurance or happening during any subsequent period'. No one will misconstrue the intention now.

Richard Foong: If the stock insured are on declaration basis, the insurers have to pay the claim in full, provided there are no other subsisting insurance. The insured also must declared the value of his stocks of each calendar month within 30 days for the premium to be calculated on the expiry of the policy 31/08/15 based on the rate applicable on the average sum insured. If the resultant premium be greater than the provisional premium, the insured shall pay the difference but if it be less the difference shall be repaid to the insured but not exceeding 50% of the provisional premium. 
If there are no declaration policies clause, the sum insured in the policy shall be as the value of risk. 5mil. During the loss, their stock inventory revealed its value in hand is around 6,350,000.00, then average would be applied for claim settlement due to its inadequacy of cover. The policy period for this loss should be 2014/2015 as the fire started at 11pm on 31/08/15. No doubt there are no mentioned of time to start the cover and time to expired unlike motor policy, however if the forensic are able to prove its time of loss, I don't think the insured can argue on its period of insurance. Hope fire experts can explain further.

Julian Teoh to Raymond Huang:, we need to know whether there is any occurrence / aggregation-type language in the policy. For example, if the policy contains a provision which deems all loss or damage arising out of one event to be treated as a single occurrence, the event (i.e. the fire) clearly look place in the first period of insurance and would be subject to the lower sum insured.

William Ho: The Insured's contention distinguishes time of loss ie when did the fire happen & time of damage ie when was the insured property damaged. If he expects his claim to be settled on the basis of the increased sum insured because the damage occurred in the renewal period would he also, on the same basis, accept a lower amount had the sum insured been reduced to say RM1m for the renewal period? The sword cuts both ways.