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Fire Insurance Policy Clauses (Part-11).

Byline: Majid Khan Jadoon

Reinstatement Clause:

Re-Instatement Clause is usually endorsed on a Fire Insurance Policy, for indemnifying the Insureds, in respect of Loss or Damage to the Insured Properties, proximately caused by Insured Perils. This Clause is usually provided for Machineries/Properties which would indemnify the Insureds' Cost of Replacement or Re-Instatement of the same or alike Machinery/Property on the same Site. Or with the written Approval of the Underwriters, the same or alike Machinery/Property can be Replaced/Re-Instated at another Site as well. However, the entire Costs of the Machinery/Property on the same site or another approved-site by the Insurers, must be within the Sum Insured of the covered Machinery/Property.

It must always kept in mind that the Replacement Clause of the Fire Insurance Policy would entertain the Replacement of the same kind or Type and Capacity of Machinery/Property as was Insured when the same was a new. The Insureds cannot Claim for Superior or extensive Machinery/Property than the Insured-ones and the Replacement shall be subject to the terms and conditions of the Policy, as well as the Special Provisions of this Clause, as described within the same.

The Replacement/Re-Instatement

Costs would include CandF Value, plus Import Duties/Taxes, Clearance and Transportation, as well as Installation Costs of the Insured Machinery/Property.

But any Replacement/Re-Instatement of the Machinery/Property must be of the same Description, Specifications and Capacity as the Insured-ones when a new but must NOT be of the Superior Quality or more Extensive Capacity than the Insured Machinery/Property.

Special Conditions applicable to the Replacement/Re-instatement Clause:

1) The work of Replacement/Re-Instatement of the Machinery/Property may be allowed on another Site, but after the written Approval of the Underwriters.

However, it must be ensured that the Costs of Replacement/Re-Instatement on another Site must not be increased than the Liability of the Insurers, vis-a-vis the Item-wise Sum Insured of the Insured Machinery/Property.

The Operations of Replacement/Re-Instatement must be commenced and carried out within 12-months after the Date of Destruction or Damaging of the Insured Machinery/Property. In case, if due to certain genuine reasons, it might not be possible to commence and complete the Replacement/Re-Instatement of the Insured Machinery/Property within 12-months after the Destruction/Damaging of the Insured Machinery/Property, then Written Permission from the Insurers must be obtained for the extended period of doing the needful.

Conversely, if the Replacement/Re-Instatement is not completed within 12-months of the destruction/damaging of the Insured Machinery/Property, the Insureds' Claim would be considered for Assessment/Adjustment of the Loss under the terms and conditions of Normal Fire Insurance Policy and the Costs, inclusive of the afore-mentioned Levies/Expenses applicable through the Replacement/Re-Instatement of the Destroyed/Damaged Machinery/Property would not be taken into account.

This would imply that in case of non-completion of the Replacement/Re-Instatement of the destroyed/damaged Machinery/Property, the Underwriters' Liability shall be restricted to the Normal Fire Loss Indemnification Rules which shall be subject to the application of Depreciation for the Normal Wear and Tear, as well as other Policy Deductibles, even if this Memorandum would have been endorsed on the relative Fire Insurance Policy.

2) In case, however, if the Insureds would not have incurred the Expenditure on the Replacement/Re-Instatement of the Destroyed/Damaged Machinery/Property, the Insurers shall not be held liable for any Payment for Indemnification in Excess of the amount which would have been Payable under the circumstances of a normal Fire Insurance Policy Claim.

In other words, this would expressly imply that the Insureds must, at first, incur the entire Expenditure of the Replacement/Re-Instatement of the claimed Machinery/Property from their own sources and only then can prefer their Claim on the Underwriters for Indemnification under the Re-Instatement Clause of the Policy, by providing Documentary Evidences of the Replaced/Re-Instated Machinery/Property.

3) If at the time of the Insured claiming a certain amount of Loss as the Replacement/Re-Instatement Cost of the Destroyed or Damaged Machinery/Property and the same Claimed Amount would Exceed the Sum Insured thereof at the time of the breaking-out of a Fire and the consequent Destruction/Damage thereto or by any other Non-Insured Peril, then the Insureds shall have to bear a Ratable Proportion of the Loss accordingly, i.e. the Pro-Rata Average Clause would be proportionately applicable. In case of alike situation, each Insured Item shall be separately subject to the Pro-Rata Average Provisions, as elaborated afore.

4) Nullification of this Clause.

a) In case the Insureds would fail to intimate to the Insurers, within 6-months from the Date of the Destruction/Damaging of the Insured Machinery/Property, of their intention in writing, to Replace or Re-Instate the Insured Property, then their alike Claim would be rendered in-admissible for Indemnification within the ambit of this Clause.

b) In case, if the Insureds are unable or are un-willing to replace or re-Instate the Insured Machinery/Property, on the same or another Insurers' approved Site, then the Effect of the Re-Instatement Clause would be rendered in-effective.

To Be Continued......
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Publication:Insurance Journal (Karachi)
Date:Mar 31, 2018
Words:922
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