Fire insurance contract is defined as “an agreement, whereby one party in return for a consideration undertakes to indemnify the other party against financial loss which the latter may sustain by reason of certainly defined subject-matter being damaged or destroyed by fire or other defined perils up to an agreed amount”
Fire, in order to make the insurer liable under the contract, must satisfy two conditions. First, there should be actual fire or ignition, and second, the fire must be fortuities in its nature.
It is a well-known fact that the fire causes huge losses every year. The individual owner by taking fire Insurance can prevent the fire waste to some extent.
The insurer acts as a middleman between all the members of the society who are exposed to the fire risk on the one hand and the members who will be the actual victims of the fire losses on the other.
The insurer charges the premium from all the insured members and makes good the losses when they occur to any of them.
The system of fire insurance cannot save the society from the economic loss to the community to the extent of the property lost by fire, but it compensates someone and this saves him from a ruinous loss, at the cost of a group of some others.
The party responsible to indemnify the loss is called the insurer, the party who is to be indemnified is called the insured, the consideration for the contract is termed ‘the premium’, the defined subject-matter is termed ‘the property insured” the sum set forth in the contract is called the assured sum, and the document containing the terms and conditions of the contract is known as ‘the policy.’