Interpretation in detail of Exclusion No. 7 under standard Fire and Special Perils Policy

The exclusion No.7 of Fire Tariff is herewith produced regarding loss of Electronic/Electrical Equipment under Fire Policies.

This policy does not cover any loss, destruction or damage to any electrical/electronic machines apparatus, fixtures or fittings (excluding fans, and electrical wiring in dwellings) arising from or occasioned by over running. Excessive pressure, short circuiting, arcing, self heating, or leakage of electricity, from whatever cause (lightning included) provided that this exemption shall apply only to the particular electrical machine, apparatus, fixture, fitting or portions of electrical installations so affected and not to other machines of the electrical installations which may be destroyed by physical fire so set up.

Fire is a product of three ingredients i.e. Fuel, Heat, oxygen which may come into contact together at any time. The same is called as natural fire as per physics.

Fire Policies cover the pecuniary loss of Insured on account of natural fire spread to subject matter of Insurance such as stocks / machinery etc. by external means and burnt or spoiled by smoke soot, besides other perils such as impact damage by Rail / Road vehicles or animals and STFI etc.

In similar way spontaneous combustion (Spontaneous combustion is nothing but an inherent characteristic of subject matter of insurance which get themselves burnt by generated fire by internal means when the critical temperatures of subject matter exceeds the atmospheric temperature just like happens in hay stacks, Coal heaps etc.) of subject of matter of insurance is also excluded from indemnity as the spontaneous combustion is caused to subject matter by internal means of subject matter but not by spreading natural fire from external means.

The logical exclusion of fire loss of above cited Electrical and Electronic Equipment made by fire Tariff is solely based on that any fire developed by short-circuit or excessive pressure in the circuits of electrical equipment does not fall under the meaning of natural fire as stated above. Secondly, such arcs, short-circuit burning of materials of electrical equipment are considered as damaged not by natural fire but by excessive electrical pressure (voltage or over current) developed within the electrical equipment by internal means due to various reasons such as voltage drop from power supply companies or insulation failure of windings or cables etc to withstand against the developed over current within the power circuits of the Electrical equipment etc.

Whatever may be the reasons for damage of Electrical equipment due to excessive pressure/short circuit etc. other than the damage of such electrical equipment by spreading to it by natural fire from external means is an exclusion under the policy. The logical conclusion made by fire Tariff Committee in this regard is, such damage or loss to electrical equipment not caused by natural fire on which the policy is devised, but on artificial fire developed within the power circuit of electrical equipment due to high electrical over current developed in the equipment due to reasons such as drop of voltage or insulation failure etc. 1) Power in single phase line = Phase Current x Phase voltage x Power factor 2) Power in 3 Phase line = Ö3 x Line current x Line Voltage x Power Factor When voltage drops in single phase or 3 phase lines, Current will shoot up to keep the rated power in Kilo Watts to meet the load of equipment. As such, the loss of electrical equipment when they are under live condition any damage or loss of equipment is excluded by Fire Tariff Committee basing on the criteria that, such loss not took place on account of natural fire spread to equipment but damage took place only by internal means of equipment, that also not by natural fire but artificial fire in the form of arcs emanating from short-circuit due to said insulation failure or voltage fluctuation etc. Due to above said criteria, loss caused to electrical and elctronic equipments while they are under live condition (under flow of current in the line circuit as well as control circuit), Fire Tariff made this exclusion specifically.

Though lightning is a peril covered under the scope of policy, loss, destruction to any electrical/electronic machine, apparatus, fixture/fitting arising by over running excessive pressure, short circuiting by interaction of the electrical pressure (Surge voltage) of lightning with the electrical pressure of the equipment (voltage) is also an exclusion along with causes such as insulation failure, over loading, etc. which result into short circuiting/arcing etc. under the policy.

It implies, when any electrical/electronic equipment is not under live condition (operation) loss caused by lightning falls within the scope of policy as there will not be any electrical pressure/voltage of equipment to interact with the electrical pressure (surge voltage) of lightning.

Examples : Packed Transformers stock stored in the finished product godown of Transformers manufacturing company ready to be dispatched. A spare transformer installed in a factory not in live condition either in line circuit or in control circuit. A line transformer not under operation in a factory under lock out etc.

CONCLUSION

Any fire loss to the electrical or electronic equipment while they are not under live condition i.e. They are not under flow of current in their circuits, cause of loss arising from or occasioned by over running, excessive pressure, short circuiting, arcing, self heating, or leakage of electricity, from whatever cause (lightning included) doesn’t arise.

As such exclusion No.7 of fire tariff under SFSP policies, are not applicable to electrical and electronic equipments/apparatus/fixtures etc., when they are not under operation i.e. working condition without flow of current in their circuits. Whatever may be the cause of fire and the claim towards such equipments damaged are absolutely admissible under the fire policies and payable by insurers.

A novel example is presented in this context

Example : A wind power generating Mill was hit by lightning strike and the windings of the generator were burnt besides breakage of fan leaves of system. Insured furnished bills of renewal of system to bring it into working condition for Rs.2 lacs towards rewinding charges of generator windings burnt and Rs.50000/- towards replacement of the fan leaves of the system broken due to lightning strike. Find out the amount payable to insured under a fire policy covered with adequate sum insured. Salvage offer by insured for Rs.20,000/- accepted by surveyor and the same is taken into assessment.

  1. As per the system meters when the wind mill rotating fan wheel (of leaves) is not rotating when the system was switched off for the purpose of preventive maintenance of machinery.
  2. As per the system meters when the wind mill fan wheel (of leaves) is rotating.

Solution :

  1. When the fan wheel of the system is not rotating that means there is no current flow in the generator windings of the system. As such rewinding charges of Rs.2 lacs are admissible besides Rs.50,000/- towards replacement of fan leaves of the system caused by lightning as per above criteria stated under the sub heading conclusion of article. Depreciation is not applicable to generator windings and rotating wheel leaves.

FINAL ADJUSTMENT OF LOSS

Loss assessed Rs.2,50,000/-

Less : Salvage Rs.20,000/-

Excess @5% of loss Rs.12,500/- Rs.32,500/-

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Net amount payable to insured Rs.2,17,000/-

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  1. When the fan wheel of the system (fan leaves) is rotating and the loss is occurred by the lightning strike, it is quite clear that there is electrical pressure, called as voltage which is existing in the generator windings of the system. As such as stated above when the electrical pressure existing in the equipment falls under the exclusion No.7 the winding losses are not payable because such charges fall under the said exclusion. However the loss of breakage of leaves of the rotating wheel fall under the scope of the policy as the leaves of rotating wheel does not contain any electrical voltage or pressure and loss due to lightning stroke is a covered peril under the fire policy.

FINAL ADJUSTMENT OF LOSS

Loss assessed Rs.50,000/-

Less Salvage 20,000 x 1/5 Rs. 4,000/-

Excess @ 5% of loss Rs.10,000/-

(Subject to minimum of Rs.10,000/-) —-     Rs.14,000/-

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Net amount payable to insured Rs.36,000/-

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By Mr. Boyapati Suresh Babu, Hyderabad, Published in The Insurance Times, October, 2005