G Textiles Pvt. Ltd. Co. availed a Standard Fire and Special Perils Insurance Policy as per the standard format for factory building and machinery and also for stocks as given below. Insurance coverage for the building a

Reinstatement clause: In fire insurance the principle of indemnity can be modified in the case of building, machinery and other fixed assets but not on stocks where subject to the sum insured representing the value of similar new property, it can be insured under 'Reinstatement Value' clause. In case of reinstatement value policy, the basis of loss settlement is the value of new properly without taking any depreciation into account. This type of insurance enables the owner to replace his property without any financial strain on his own resources and is quite commonly taken by industrialists and building owners. Reinstatement clauses typically do not reset a policy's coverage limit, but they do allow the policy to restart coverage for future claims Average clause: Average clause comes in to affect, when the policy taken covers the loss up to a specific amount which is less than the real value of the property. The actual value of the property is not taken into consideration while determining the amount of indemnity. Such a policy is not subject to 'average clause'. 'Average clause' is a clause by which the insured is called upon to bear a portion of the loss himself. The main object of the clause is to check under-insurance, to encourage full insurance and to impress upon the property owners to get their property accurately valued before insurance. If the insurer has inserted an average clause, the policy is known as "Average Policy". The doctrine of average or average clause is always applied in indemnity policies primarily in property claims fire and engineering. At the time of taking the policy the insured has to consider the value of the risk or subject matter of insurance-sum insured. He must ensure that the adequate value has been declared and insured. Due to the presence of the average clause in the fire insurance policy, the liability of the insurance company is reduced as per the application of the proportionate approach. The insurers do not pay the full amount of loss incurred to the insured. The insured is then responsible for the payment of the unpaid claim amount. Coinsurance clause: Where the amount of insurance on large industrial complexes is substantial, it is possible for the insured to interest different insurers in the risk for varying proportions of acceptance, so that the total is covered. The practice is for each insurer to issue a policy with a specification or schedule giving a description of the property insured, with the "co-insurance clause" included therein. Survey of the risk, rating, collection of premium and preparation of the specification is carried out by the "leading office", that is the office earning the largest share in the business. All co-insurances are agreed upon prior to the issue of the original policy. In the event of a claim all policies would contribute equally, subject to maximum of actual loss. In case, in rare instances where two policies are extent for a same risk, both would contribute in proportion of their interest in the sum insured at the time of claim. Notably, polices would contribute in a manner to ensure that the insured is indemnified and not benefitted from the loss. In marine cargo claims, subrogating to the rights and remedies enjoyed by the insured against the carrier or third party, illustrates the practical application of the principle of subrogation. Over-insurance: This refers to a situation, when an individual insures the asset at a value at a higher sum than its market value, then it is said to be over insured. However, in such a situation the maximum compensation that the policyholder is entitled to receive is the market value of the vehicle as the policy owner cannot 'profit' from a motor insurance claim. Example: Your car is insured for ₹ 200,000 and is written off in an accident. The assessor comes to the conclusion that the car can be replaced for ₹ 160,000. As a result only ₹ 160,000 is paid out. You have however been paying premiums to cover an amount of ₹ 200,000 and those premiums paid on the additional ₹ 40,000 have been paid unnecessarily. Over insurance is a risk to the insurance industry and especially to insurance fraud. The insured who is over insured may be tempted to make a false claim to profit from a loss. Salvage clause: Salvage is also a form of recovery in any claim. In most property claims, including transit insurance claims, damaged property can be disposed of for either lower or scrap value, this is done to reduce the financial impact of claims. Hence, most insurers advise the surveyors to complete the net assessment by valuing the salvaged value of the damaged property as well. Especially in total loss cases, the insured may abandon the wreck or damaged property in favor of the insurer who would thereafter sell the same and credit the sale proceeds to claims account.