Banking and Insurance - Laws and Practice · General and Health Insurance

Fire and Marine Insurance: Policies, Perils and Claims

Updated 11 October 2026 · Fact-checked

Fire insurance indemnifies loss or damage to property caused by fire and listed perils. Marine insurance indemnifies loss of ships (hull), goods (cargo) and carriage earnings (freight) at sea or in transit. In answers, state the policy type, apply the principles to the facts, then conclude on the claim amount.

Understand Fire and Marine Insurance

Fire and marine insurance are old branches of general insurance. Both are contracts of indemnity. The insurer promises to put you back in the position you were in before the loss, not to make you richer. The contract runs for a fixed period (fire) or for a voyage or time (marine).

Fire insurance covers loss of or damage to property by fire. Standard policies also cover named perils such as lightning, explosion, riot, storm, flood and impact damage, if the policy says so. The loss must come from a fortuitous event. Damage from deliberate acts of the insured is not covered. Fire policies include the valued policy (agreed value), the floating policy (one sum over goods at several locations), the specific policy (a stated sum, subject to average) and the consequential loss policy (loss of profit after a fire).

Marine insurance has three main classes. Cargo insurance covers goods in transit by sea, air, rail or road. Hull insurance covers the ship and its machinery. Freight insurance covers the shipowner's freight earnings if cargo is lost and freight is not paid. Marine policies can be voyage (port to port), time (a fixed period, usually up to twelve months), mixed, valued, unvalued, floating or open cover.

Both branches rest on the principles of utmost good faith, insurable interest, indemnity, subrogation, contribution and proximate cause. Differences matter in exams. In fire insurance, insurable interest must exist both when the policy is taken and at the time of loss. In marine insurance, it must exist at the time of loss, though not necessarily when the contract is made. Marine policies are freely assignable, as the goods change hands. Marine policies imply warranties such as seaworthiness and legality of the voyage.

Claims are handled in steps: notice, claim form, survey, assessment, settlement. Under the Insurance Act, 1938, claims at or above the amount fixed by regulations need a report from a licensed surveyor or loss assessor, except where the Authority directs otherwise.

Key rules to remember

Average clause (underinsurance): Claim payable = Loss × Sum insured ÷ Value of property at time of loss; Applies where the policy has an average clause and the property is underinsured. Payment is also capped at the sum insured.
Indemnity limit: Claim payable ≤ lower of (actual loss, sum insured); The insured cannot recover more than the loss suffered.
Marine insurable interest: Interest must exist at the time of loss; It need not exist at the time of taking the policy. Fire insurance needs interest at both inception and the time of loss.
Surveyor report rule, Section 64UM(4): Claim ≥ amount specified by the Authority → report from an approved surveyor or loss assessor needed; The insurer may still settle at a different amount. Below the limit, under Section 64UM(8), the insurer may use another person if a surveyor is impracticable and costly.
Subrogation: After paying, insurer steps into insured's rights against the wrongdoer; The insurer recovers only up to the amount it paid.

How to solve Fire and Marine Insurance questions

Use this method for any theory or case question on fire or marine insurance.

1Identify the branch and the class: fire, or marine cargo, hull or freight.
2Name the policy type involved: valued, floating, specific, voyage, time, open cover and so on.
3List the key principles raised by the facts: insurable interest, utmost good faith, indemnity, proximate cause, warranties.
4Check the peril: is it covered, excluded, or only covered by an add-on?
5Check the procedure: notice, claim form, survey and the Section 64UM surveyor requirement.
6Compute the claim if figures are given, applying average and the sum insured cap.
7State a clear conclusion on whether the insurer is liable and for how much.

Quickest way: Peril, interest, cap

When to use it: For short case questions with limited time.

Ask: was the cause a covered peril, and was it the proximate cause?
Ask: did the insured have insurable interest at the time of loss?
Ask: was there any breach of good faith or of a warranty?
Cap the payment at the lower of loss and sum insured; apply average if underinsured.
Write one line on the claim process and surveyor report.

Common mistakes in Fire and Marine Insurance

Treating fire cover as covering every cause of damage.
Students assume 'fire policy' means all-risks cover.
Fix: Check the perils named in the policy. Other perils need an extension or an add-on.
Saying insurable interest must exist at inception in marine insurance.
Students carry over the life insurance rule.
Fix: State that in marine insurance interest must exist at the time of loss.
Paying the full loss in an underinsurance case.
Students forget the average clause.
Fix: Multiply the loss by sum insured ÷ value at loss, then check the cap.
Mixing up hull, cargo and freight.
All three arise on one voyage.
Fix: Hull is the ship, cargo is the goods, freight is the carriage earnings.
Stating that the insurer must always pay the surveyor's assessed amount.
Students overread the surveyor requirement.
Fix: Section 64UM(4) allows the insurer to settle at a different amount than that assessed.
Ignoring warranties in marine cases.
Facts about seaworthiness or voyage legality are missed.
Fix: Scan the facts for seaworthiness and legality, and say that breach can let the insurer repudiate.

Worked examples

Example 1

Mehta Traders insured stock for ₹6,00,000 under a fire policy with an average clause. At the time of a fire, the stock was worth ₹10,00,000. The loss was ₹4,00,000. How much can Mehta recover?

Show the solution

The stock is underinsured: sum insured ₹6,00,000 against value ₹10,00,000.
Apply average: Claim = 4,00,000 × 6,00,000 ÷ 10,00,000.
4,00,000 × 0.6 = ₹2,40,000.
Check the cap: ₹2,40,000 is below the sum insured of ₹6,00,000 and below the loss.

Answer: Mehta Traders can recover ₹2,40,000. The balance of ₹1,60,000 is borne by the insured as its own share of the risk.

Example 2

Sagar Exports shipped goods from Chennai to Dubai under a cargo policy. The goods were sold to Al Noor Trading while at sea, and later lost in a storm. Al Noor had bought the goods before the loss. Can Al Noor claim?

Show the solution

Marine policies are freely assignable, as goods change hands during transit.
Insurable interest in marine insurance must exist at the time of loss, not at the time of the contract.
Al Noor owned the goods at the time of loss, so it had insurable interest.
The policy must be assigned to Al Noor, and the loss must come from an insured peril. A storm is a peril of the sea.
Al Noor then gives notice and claim documents, and a survey follows.

Answer: Yes. Al Noor can claim, provided the policy was assigned to it and the storm loss is within the policy cover. Insurable interest at the time of loss is enough.

Exam tips

For case questions, follow the order: policy type, principle, peril, computation, conclusion.
Learn one clear line for each marine class: hull is the ship, cargo is the goods, freight is the earnings.
Write the average formula first and then substitute figures, so marks for method are secured.
In claims answers, cite Section 64UM for the surveyor requirement, and the right of the insurer to settle at a different amount.
When asked for differences between fire and marine, use points: subject matter, period, insurable interest timing (fire: at inception and at loss; marine: at loss only), assignability, warranties.

Practice questions from General and Health Insurance

Fire and Marine Insurance in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CMA FinalOverview of General Insurance and Its Classes

Fire and Marine Insurance: frequently asked questions

What are the main types of fire insurance policy?

The common types are valued, specific, floating and consequential loss policies. A valued policy fixes the agreed value. A floating policy covers goods at several places under one sum. A consequential loss policy covers loss of profit following a fire.

What are the types of marine insurance?

By subject matter, they are cargo, hull and freight insurance. By cover, they are voyage, time, mixed, valued, unvalued, floating and open cover policies.

How is a claim settled in fire insurance?

You give prompt notice and submit a claim form with proof of loss. A surveyor or loss assessor inspects and reports. The insurer then assesses the claim and pays, applying average if you are underinsured. Under Section 64UM, claims at or above the specified limit need an approved surveyor's report.

What is the difference between fire and marine insurance?

Fire insurance covers property at a fixed place against fire and named perils. Marine insurance covers ships, goods in transit and freight. Marine policies are freely assignable and imply warranties such as seaworthiness. In fire insurance, insurable interest is needed at both inception and the time of loss. In marine insurance, it is needed at the time of loss, though not necessarily at inception.