Page 215 - Fire Insurance Ebook IC 57

The Insurance Times

n It must be remembered that depreciation, as understood for
insurance purposes, is different from depreciation allowed by
income-tax authorities.

Buildings

n In the case of total destruction of a building it would not be
appropriate to consider market value or sale value of the building
as such value will be determined by extraneous factors such as
value of site, locational advantages, etc. which factors have
nothing to do with the Value of the building for insurance purposes.

n Indeed, some buildings such as schools, museums, temples and
churches have no market value.

n In respect of buildings the indemnity is provided on the basis of
cost of reinstatement or reconstruction of the building. This cost
is determined with reference to the cost of labour and materials at
the time and place of the loss plus other professional and incidental
charges.

Machinery

If the machinery destroyed is relatively new the cost of replacement
less depreciation is not difficult to decide. But complications and
controversies could arise where;

(i) the machinery, although old, still performs well for the purpose
for which it was designed, or

(ii) the machinery destroyed is old and out of date in industries where
the rates of obsolescence and technological improvement are
high.

In either case, fair basis of settlement would be the cost of replacement
less depreciation or betterment.

Website: www.bimabazaar.com Call: 033-22184184 / 40078428 228

Copyright@ The Insurance Times. 09883398055 / 09883380339