TLP Ltd. is engaged in the business of manufacturing of garments and has been in this business since 1995. The Company has recently got its new building constructed and inaugurated the same. TLP Ltd has borrowed working
CS Professional · Insurance - Law and Practice · PYQS · December 2021
TLP Ltd. is engaged in the business of manufacturing of garments and has been in this business since 1995. The Company has recently got its new building constructed and inaugurated the same. TLP Ltd has borrowed working capital from BBB Bank Ltd. As per terms and conditions of sanction, the company was required to insure all its primary and collateral security. Accordingly the insurance policy was obtained from an insurance company and bankers/financier's name duly incorporated in it. As per routine requirements, bank appointed Mr. D as stock auditor. The Stock auditor visited the factory premises and carried out the stock audit. Everything went well except the following observation of the stock auditor: The Fire extinguishers installed by the company are not up to the mark and Employees are not well trained to handle the same. He further stated that, tomorrow if something unwanted happens, insurance company will be well within its right to reject the claim. Management of the company fails to understand as to how the said observation can affect them. Discuss the observation of the stock auditor in reference to insurance laws.
Answer & Explanation:
Principle of Loss Minimization is Applicable Under this principle it is the duty of the insured to take all possible steps to minimize the loss to the insured property on the happening of uncertain event. According to the Principle of Loss Minimization, insured must always try his level best to minimize the loss of his insured property, in case of uncertain events like a fire outbreak or blast, etc. The insured must take all possible measures and necessary steps to control and reduce the losses in such a scenario. The insured must not neglect and behave irresponsibly during such events just because the property is insured. Hence, it is a responsibility of the insured to protect his insured property and avoid further losses. Thus old/expired fire extinguishers and lack of training to employees means this principle is getting violated. Insurance company may take the shelter of this principle and reject the claim, if filed.
Topics: Insurance Law and Practice
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