A Fire and Special Perils Policy provides coverage only for material damage to insured property and excludes consequential losses. In the event of a significant fire loss, business operations may be interrupted, causing a decline in turnover and resulting in a potential loss of profits. While fixed or standing charges continue to accrue regardless of production, such losses are not covered under a standard Fire Policy. To address this gap, the Fire Loss of Profit (FLOP) Policy, also known as a Consequential Loss Policy or Business Interruption Policy, provides essential coverage and can only be availed alongside a Standard Fire Insurance Policy.

Key Features and Benefits

  1. Material Damage vs. Profit Loss:
    • A Fire Insurance Policy offers coverage for material damage to property, such as buildings, machinery, fixtures, and goods, caused by fire and other perils.
    • However, it does not account for trading losses due to business interruptions. The FLOP policy ensures indemnity for such consequential losses, making it an essential addition to standard fire coverage.
  2. Comprehensive Business Protection:
    • The FLOP policy compensates for loss of gross profit caused by business interruptions, ensuring the enterprise’s financial stability.
  3. Extended Indemnity Period:
    • While the Fire Insurance Policy is issued for a term of one year, the indemnity period under the FLOP policy may extend beyond the expiry of the fire policy. The indemnity is calculated from the date of the actual loss or accident, ensuring continued protection during the recovery phase.

Coverage under FLOP Policy

  1. Loss of Net Trading Profit: Compensation for the net trading profit lost due to business interruption.
  2. Standing Charges: Coverage for ongoing fixed expenses that continue to accrue, even when operations are halted.
  3. Wage Loss: Compensation for wages not covered under the standing charges section.
  4. Increased Cost of Working: Reimbursement for additional expenses incurred to resume business operations as quickly as possible.
  5. Auditor’s Fees: Coverage for professional fees related to preparing and substantiating the claim.

Why Choose a FLOP Policy?

  • A Fire Insurance Policy protects material assets, but it does not account for trading losses caused by disruptions.
  • To ensure complete protection for business profitability, a FLOP Policy is critical for mitigating revenue loss and maintaining financial stability.

By combining a Standard Fire and Special Perils Policy with a FLOP Policy, businesses can achieve comprehensive protection, safeguarding both their assets and operational continuity.

Add-On Covers

To enhance coverage, the following add-ons can be included by paying an additional premium:

  1. Accidental Failure of Utilities: Coverage for losses due to the accidental failure of public electricity, gas, or water supply.
  2. Damage to Customer’s Premises: Covers damage to the premises of customers caused by perils insured under the Fire Insurance Policy.
  3. Damage to Supplier’s Premises: Covers damage to suppliers’ premises due to insured perils, ensuring minimal disruption in the supply chain.
  4. Spoilage Risk Extension: Protection against spoilage of goods due to fire or other insured perils.
  5. Wages: Coverage for wages on a dual basis or a pro-rata basis during periods of business interruption.
  6. Lay-Off and Retrenchment Compensation: Provides coverage for compensation payable to employees due to lay-offs or retrenchments.
  7. Notice Wages Liability: Covers liability arising from notice wages owed to employees.
  8. Insured’s Property Stored Elsewhere: Protection for the insured’s property stored at locations other than the main premises.
  9. Molten Material Damage: Coverage for damage caused by molten material incidents.
  10. Terrorism: Protection against losses arising due to acts of terrorism.

Exclusions

The following are excluded under the policy:

  1. Cost of Claim Preparation: Expenses for preparing fire and consequential loss claims.
  2. Litigation Costs: Costs related to legal proceedings connected to fire or consequential loss claims.
  3. Third-Party Claims: Claims from third parties are not covered.
  4. Book Debt Recovery: Loss due to the inability to recover book debts caused by record destruction.
  5. Loss of Goodwill: Loss of reputation or goodwill is not included.
  6. Loss of Market: Coverage does not extend to market value reduction or lost business opportunities.
  7. Fines and Penalties: Penalties due to delayed delivery or contract cancellations are excluded.
  8. Acts of War or Civil Commotion: Losses arising from war, invasion, military action, or civil commotion are not covered.
  9. Nuclear Risks: Damages due to nuclear reactions or radiation.
  10. Stock Value Differences: Differences between the stock’s value at the time of fire and its subsequent replacement.
  11. Depreciation of Undamaged Stock: Loss due to reduced value of undamaged stock after a fire.
  12. Unadmissible Losses under Fire Policy: Losses not covered under a Fire (Material Damage) Policy.

Claim Process

In the event of a loss, the insured must take the following steps immediately:

  1. Notify the Insurer: Report the occurrence of loss to the insurer without delay. Submit a written statement with details of the claim, including the nature, extent, and estimated loss. Delayed intimation may jeopardize the claim.
  2. Minimize Loss: Take all possible steps to reduce the extent of loss or damage.
  3. Determine Proximate Cause: Assess the direct cause of the loss to ensure it falls within the policy’s coverage.
  4. Cooperate with Insurer: Provide full cooperation to the insurer and the appointed surveyor to facilitate the survey and loss assessment process.
  5. Submit Required Documents: Present all necessary documents, including the claim form, claim bill, and a copy of the policy.
  6. Safeguard Damaged Property: Retain the damaged property securely until the surveyor or insurer provides instructions regarding its disposal.
  7. Subject Matter Identification: Ensure proper identification of the insured subject matter to avoid disputes during the claim process.

By adhering to these steps and providing all necessary documentation, the insured can ensure a smooth and efficient claims settlement process.