Fire Insurance

Q :	A factory arranged a fire policy covering machinery & trade utensils. If a fire occurred, how would the insurance company assess the loss of the machinery?
A :	If there is no special endorsement in the policy, the amount of compensation should be the total costs of repair to the damaged machines after deduction of depreciation. If it were a total loss, the insurance company would pay the value of the machine at the time of loss. However, if the sum insured were not sufficient to cover the total value of the items insured, compensation amount would be calculated on average basis. Thus the sum insured should reflect at the market value of the machines insured. We should note that the amount of compensation would not in any way exceed the sum insured of such insured item. If there is a "replacement value clause" in the policy and the sum insured reflects the replacement value, there should be no depreciation deducted from the settlement of claim.
Q :	Your client just sold his house to A. The sales contract indicated that the house should be cleared and pass to A after the next month. Is the fire policy of the client still valid at the moment? Otherwise, is A have the insurable interest to arrange a new fire policy for the property?
A :	Although the house has been sold, the transaction has not completed yet and the client as a trustee of house is still responsible for the house. Thus his fire policy is still valid until the house being passed to A. Since A had bought the house, he has to bear any damage to the property and so he should have insurable interest on the house. In this circumstance, A should also be entitled to effect insurance to the house. If both of them had arranged separate insurance for the house and a fire occurred at that moment, both policies would have to pay on "Contribution" basis.
Q :	If the client caused a fire at the insured premises when he was repairing electrical appliance, is fire policy cover the loss?
A :	Normally, the Fire policies in Hong Kong would not limit the right of the insured to repair electrical appliance in their own hand. Once it is proved that the fire was an accident and not deliberately caused by the insured, the insurance company would cover the loss. However, some foreign countries like Canada, there are requirements for repairing electrical appliance by qualified technician only. So, the situation may vary depending on the circumstances.