Page 50 - Fire Insurance Ebook IC 57

Fire and Consequential Loss Insurance

Fire policy Reinstatement value policy

In fire policies the insured can Under these policy it is possible
recover only the depreciated to recover the cost of replacement
value of the property of the damaged property by new
property but of the same kind.

Here market value is the Here new reinstatement or new
Sum insured replacement value is the sum
insured.

Salient features of reinstatement value policies

n This form of insurance was introduced in the U.K. during the
inflationary conditions that prevailed after the first world war.

n The depreciation funds, normally provided by business concerns
in their annual accounts, were not sufficient to fill the gap between
the amount payable under fire policies and the cost of new
buildings and plant.

n The words "property of the same kind and type" are important.
This means, for example, textile machinery cannot be replaced by
chemical machinery.

n The new property which is being replaced should not be better
than the old property. If due to technological improvements the
old model is not available the insured will have to bear the part of
the cost ie insured will pay a part of the cost of new machinery
since it will result into more benefit to the insured.

There are four provisos in the Reinstatement clause.

i. The work of reinstatement must be commenced and completed
within 12 months after the destruction or damage, or within such

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