Shopkeeper's Insurance Policy

Introduction

Shopkeeper Insurance Policy has been devised in the form of complete policy to cater the needs of small shopkeepers. Originally this cover was framed under Market Agreement and the Policy contained 10 Sections, out of which Fire & Allied Perils for contents and Burglary and Housebreaking are compulsory and form the remaining sections insured is free to opt, any number of sections as per his need subject to selection of minimum four sections.

After liberalisation in Insurance Sector this cover has been freed from the clutches of market agreement and now the Insurers are free to decide their own rates for affecting the policy.

Further personal accident cover has also been de-tariffed and discount is being allowed in rates by some insurers.

Recently, with advent of market economy, a new section "Business Interruption" is added as Section XI in the line of Loss of Profit Policy."

Scope of Policy:

The shopkeepers Insurance Policy can be issued mainly for small shopkeepers, where the value at risk including Building covered should not exceed Rs. 10 lacs.

Explanation

• In case where the insured has no insurable interest on building the value of stock in trade including Furniture & Fixture should not exceed Rs. 10lacs.


• It is not permissible to issue a Shopkeeper Policy for sum insured upto Rs. 10 lacs and for the balance a separate policy or another shop-keepers policy.


• In the event of sum insured exceeding Rs.10 lacs proper policy should be issued for entire value at risk.


• The policy has been devised for shops but it cannot be issued to:

• The shop for which specific covers have been devised e.g. Jewellery shop for which "Jewellers Blocks Policy" is available.
• The Show Room and Display Centre where the goods are kept purely for display and no sales are being carried out.
• Tea/Coffee Shop and Restaurant though these establishments come under the purview of Shop and Establishment Act but the tariff (Fire Policy 'A' or 'B') prescribed distinct rating for these establishment.
• Confectionery, Sweet Meat Shops, Dry Cleaner Shop, if the process of manufacturing and/or dry cleaning, laundering is carried out in the same shop.
• Tailoring shop, Watch repairing shop may be granted this cover only if repairing is being carried out as incidental process and the main business if for selling,
• Gumty shops, Vendors and Shops with inferior class of construction (other than as per Class A) must not be granted this cover.

Specification of Class 'A' Construction:

EXTERNAL WALLS of Stone/Bricks/Concrete Blocks/ Asbestos Sheet, Cladding Metal sheet, Cladding/ Glass Panel Partly or Fully open sided.

ROOF: RCC/ Masonry/Asbestos Concrete sheets/Metal Sheets/ Tiles Wooden Shingles or Boarding on RCC/Steel/Wooden Framework.

vii. Shop dealing in hazardous goods like crackers, fire work, hay, jute, matches etc. having flash-point below 32°C for which fire tariff (B cover) provides rate more than 3.35 per mille (with deletion of RSD MD). (Presence of hazardous goods incidental to insured trade to the extent of 1% of sum insured is permitted).

viii. Godown not forming part of the shop.

Policy Contract

As per Shop Keepers Insurance Policy clause attached to and forming part of Shopkeepers Policy in the event of loss or damage to Insured Property, Company will pay to the Insured the value at the time of happening.

Explanation:

The term "value" is to be determined by the Surveyor's looking into the nature of the trade and circumstances of the loss. It may be market value and/or value to the Insured and /or depreciated value as the case may be.

The Surveyor has to apply himself keeping in mind the basic principles of indemnity i.e. to place the insured as far as possible in the same financial position where he was just prior to the loss. The measure of indemnity varies from case to case and surveyor has to apply their mind and experience in ascertaining the Insurer's liability under this policy for different trades and circumstances.

Example-for damages to building its cost of repairing and/or reinstating. Similarly, for furniture, fixture & fitting its new making cost less depreciation. For Stock in Trade, the measure of indemnity is the net cost to insured which in the case of Retailer would mean the net cost of replacement from a whole-seller and so on.

General Conditions:

The important general condition as regards to the Surveyor's point of view are discussed as below:

1. Claim Procedure:
Insured should lodge a complaint with the police in case of theft and take all practical steps to apprehend the guilty persons and to recover the property.

Explanation
From the above condition, it is clear that F.I.R. must be lodged in the event of theft.

2. Indemnity
The company may at its option, reinstate, replace or repair the property or premises lost or damaged or any part thereof instead of paying the amount of loss or damage or may join with any other insurer in so doing but the company shall not be bound to reinstate exactly or completely but only as circumstances permit and in reasonably sufficient manner and in no case, shall the company be bound to expand more in reinstatement than it would have cost to reinstate such property as it was at the time of occurrence of such loss or damage or more than the sum insured by the company thereon.

3. Average:
(Applicable to Sections Nos. II, IV, V, VI) if the property hereby insured shall at the time of any loss or damage be collectively of greater value than the sum insured thereon then the Insured shall be considered as being his own insurer for the difference and shall bear a rateable proportion of the loss or damage accordingly. Every item, if more than one of the policy shall be separately subjected to this condition.

Explanation:
The general condition of average is the same as in the case of Standard Fire Policy. This condition will apply to all Sections except for section I& VII.

4. Definition of Term Burglary and/or House Breaking:
This is a very important feature in the SectionII Burglary & House Breaking - Contents. The policy has specifically defined the term Burglary & House Breaking to admit the claim under Section II.

Definition
The term of Burglary and/or House Breaking shall mean theft involving entry into or exit from the Insured premises by forcible and violent means or following assault or violence or threat thereof to the Insured or any employee of the Insured or members of the Insured family.

Explanation:
In nutshell under Section II of the Shopkeepers Insurance Policy in the event of loss or damage to the property the claim is admissible if the loss has occurred on account of burglary and/or house breaking as per definition given on the face of the Shopkeepers Clause.

While assessing the claim under this policy, the Surveyor should clearly understand the theme of forcible and/or violent entry/exit into the premises, which may not be with visible sign in certain circumstances.

Section -1 : Building Contents Excluding Money & Valuables:

This is clearly based on Fire Policy 'A' with certain changes in perils, exclusions and conditions. The perils covered are as below:

• Fire, Lightening Explosion of gas in domestic appliances.


• Bursting and overflowing of water tanks, apparatus or piper.


• Aircraft or articles dropped therefrom.


• Riot, Strike or malicious Act.


• Earthquake Fire and/or Shock Subsidence and Landslide (including rockslide) damage.


• Flood, Inundation, Storm, Typhoon, Hurricane, Tornado or Cyclone.


• Impact by any Rail/Road Vehicle or Animal.

Important Pints for Surveyors:

1. Special Condition of Average;
In the case the Insured property, stocks are under insured by or less than 15% then there shall be no application of average clause. But if the % under insurance is more than 15% then this condition has no effect and average will apply.

2. Goods held in trust or commission are automatically covered and not to be specified if they are an important element of insured trade e.g. Tailoring shop, Watch repairing shop etc. or any other goods on which insured has a insurable interest.

3. Loss by theft during and after the occurrence of any insured peril is also covered, and the loss so suffered should be dealt under the same section of which the peril has operated.

Survey Proceedings

• Inspection of site to ascertain class of construction and occupation.


• Photographs.


• Site investigation on the cause of fire, inspection of Electrical fittings, blown fuses, identify location of short circuit, fire & smoke pattern etc.
  
  The basic idea of site inspection is to investigate the cause of fire in view of the circumstances narrated by insured.


• Take physical inventory of totally and partly damaged including sound stock and content left after fire. The damaged stock should also include the water/smoke affected stock. The inventory must be signed in the presence of insured and an eye-witness and copy of the same should be given to the insured for their record. Surveyor should make effort to settle the issue of loss on % loss basis as quickly as possible to avoid introduction of second thoughts.


• Record statement of first eye-witness, local people and the local inhabitants who have participated in fire fighting including insured in detail.


• Verify all the books and records available at site and countersign each book at first and last entry and block any possibility of tampering of books.


• Instruct the insured to clear the debris and salvage the stock as far as possible.


• Contact the police station where the FIR is lodged and also Fire Brigade Authorities for their observation on cause and quantum of loss.


• In case if Bank is involved try to contact them on the same day and obtain last stock statements submitted by the party duly certified by the Bankers.
  
  Enquire the Bankers about the status of the loan account, whether regular instalments are being paid by insured and also outstanding on date.
  
  Some time insured changes their trade without intimation to the bank, this aspect is to be investigated.


• Verification of Books & Records:
  
  This is the most intricated aspect of the claim in view of different nature of trade and wide coverage under Shopkeepers Insurance Policy.
  
  The Surveyor must understand the ground reality in each case and only ask for documents customery and traditionally maintained for a particular trade. e.g. Stock Register from a General Mercantile Shop or a Balance Sheet, Trading, Profit & Loss Account from a Small Shopkeepers having meagre turn-over should not be asked.
  
  The Surveyor should proceed for verification in a very systematic and methodical manner. This policy has also a social objective and surveyor's approach should very positive and helping. In cases where no debris is left for any verification and books of accounts are not available, surveyor should make extra effort to develop the modus operandi to work out the losses by creating information / documents from the other sources.

Section - II : Burglary & House Breaking:

The procedure of loss assessment under this section is the same as above except for:

• The Surveyor must investigate and examine that whether the loss or damage has occurred due to Burglary and/or House Breaking as per definition given on the face of the policy.


• Physical inventory of the left-over stock is to be prepared and valued on the present cost price/market value/wholesale price as the case may be. The element of obsolescence if any must be taken into account.


• Physical inventory of the left-over stock is to be prepared and valued on the present cost price/market value/wholesale price as the case may be. The element of obsolescence if any must be taken into account.


• The amount of loss in terms of Rupees must be mentioned on FIR and if the exact quantum is ascertained after one or two days of the knowledge of the theft, then a list of stolen articles alongwith their value must be submitted to the concerned Investigating Officer.

Important Note

• The provision of special condition of average as per Section 1 is not applicable in this section.


• Loss by theft during or after the occurrence of any insured peril must be considered in the same section under which the peril in operation is covered.


• Loss or damage to building due to theft is not covered under this section.


• The approach of surveyor in these claims should be investigative. The incident of theft must be confirmed with local people independently.
  
  Surveyor should also carry out the explanatory exercise in order to confirm the moral hazard of Insured and their trade status.


• The Surveyor should also try to contact the Investigating Officer of the case on the same day and gather his observation and probability of recovery of stolen articles and apprehension of culprits.

Section - III : Money Insurance
A. In Transit:

• Limit of Liability: not exceeding Rs. 50,000/- per any carrying.


• Coverage: Loss by accident or misfortune, while the insured money is in his hands or in the hands of his employees in transit, between any two places within radius of 15 miles from insured premises.

Explanation:

The term accident and misfortune provide a very wide and rather complete coverage of loss of insured money in transit. But the money lost must be business money and this is what surveyor has to investigate. Important Point:

Important Point:

• The surveyor must see the element of gross ignorance in ascertaining that whether the loss has really occurred due to "Accident or Misfortune".


• The area of transit as per provision of the policy is between two places within a radius of 15 miles from the Insured premises which is to cater the need of small shopkeepers having small amount in transit operating in a small area.

It must be observed with the same spirit. In our opinion the money carried from and/or to beyond 15 miles radius from insured premises is not covered even the accident or misfortune takes place within the prescribed limit of 15 miles.

B. In Safe Limit of the Liability:

2% of the sum insured under Section I or Rs. 10,000/- whichever is less.

Underwriting Consideration:.

• In case some valuable(s) relating to trade are to be proposed alongwith money in safe then they must be clearly declared with their description and value on the face of the policy.


• The size of the safe and other description if possible be given on the face of the policy.

Coverage:
Loss or damage to money and/or valuables (if declared by the Insured on the face of the policy) by Burglary and/or House Breaking whilst contained in Safe Burglar resisting or otherwise steel Cupboard / Cash Box and/or such places under lock and key.

Explanation:
This clearly provide coverage for loss of money upto the limit of sum insured by Burglary or House Breaking as per definition provided in the policy during business as well closing hours at the business premises in a secured safe or place under lock and key. The important element is the fact that money must be properly protected and should be under lock and key.

Survey Proceedings:

• The surveyor should ascertain that safe and/or Steel Cupboard and/or Cash Box etc. from where the money is stolen was properly locked and secured prior to theft.


• The cash book and other records relating to cash flow and cash in hand must be asked immediately and countersigned for last entry.

C. In Til / Counter:

Limit of Liability:
1% of sum insured under Section I or Rs. 5,000/- whichever is less.

Coverage: Loss of money whilst lying in the cashier till and/or counter in the insured premises during business hours consequent on or following assaults and/or violence against the insured or any employee or any threat thereof burglary and/or house breaking provided always that such money are in the custody of responsible employee entrusted with work of handling cash.

Explanation:
The operation of this Section is only during business hours.

Special Provision Under Section - III

• The loss of money in transit must be discovered within two days from its occurrence and notified to the company in writing.


• The complete account of cash in safe, cash books at other places under lock and key shall be kept secured in some places other than the place where money covered is kept and the liability of the company shall be limited to the account actually shown by such record but not exceeding the sum insured.

Important Note:

In cases where surveyors observe that records relating to cash are kept in the same premises from where cash is lost and shown to them for assessing the loss, a note of this fact should be given in report..

Survey Proceedings:

Same as in the above case.

Section - IV : Pedal Cycle:

This section is not discussed as it has no importance for surveyor's point of view.

Section - V : Plate Glass

Underwriting Consideration:
The description, thickness including dimension of the Plate Glass must be given separately of each glass in the Policy Schedule. One separate list must be enclosed.

In case frames and frame work are also required to be covered alongwith their respective glasses then they must be specifically declared.

Limit of Liability:
10% of the sum insured under Section I or Rs. 50,000/- whichever is less.

Coverage:
Loss or damage to fixed plate glass in the Insured premises by accidental breakage provided that the liability of the company in respect of one loss or all losses in one period of insurance is limited to the sum set against the schedule.

Important Note:

• There shall be no application of depreciation and practically salvage value may be considered as NIL in case glass is totally smashed.


• The loss is assessed for each item separately if provided in the schedule on the basis of market value (including fitting charge) or sum insured whichever, is less.


• In cases where the size and specification of each glass is not specified the adequacy shall be judged by taking account of all the plate glass lying/contained in the insured premises.


• The term "glasses not completely or securely fixed" implies for the glasses highly vulnerable for damage during normal handling without any introduction of element of accident.
  
  Example: hinged glass doors are more vulnerable for breakage as compared to fixed glasses in the showroom.


• Breakage of Plate Glass due to operation of any insured peril covered under section I to be dealt in the same Section under "Furniture, Fixtures & Fittings."

Section - VI : Neon / Glow Sign:

Underwriting consideration:
Description, Year of Manufacture, Price and Name of Manufacturer are to be mentioned on the face of the policy. Limit of Liability:

2% of sum insured under section I or Rs. 20,000/- whichever is less.

Coverage:
1. Loss or damage to Neon/Glow Sign is indemnified in respect of loss or damage due to:

• Accidental external means


• Fire, Lightening or external explosion or theft.


• RSD MD.

Explanation:
Above perils almost provide a complete coverage against accidental, loss or damage on account of any reason. Exclusion:

1. The Electrical failure and/or fusing or burning of bulbs and tube-lights from short-circuiting or arching or any other mechanical or electrical breakdown or fault.

Explanation:
In the event of fire due to electrical short circuiting the electrical fitting causing short circuit are excluded, whereas, loss or damage to the other section of Glow Sign / Neon damaged due to spread over of fire so set up are covered.

2. The action of Sun, Rain & Weather changes.

Explanation:
This exclusion is for normal deterioration due to change in atmospheric condition and bad weather.

Section - VII & VIII: Baggage and Personal Accident:

Not important by Surveyor's point of view, hence not discussed here and are detailed separately in the reading material.

Section IX: Fidelity Guarantee:

Underwriting Consideration: Name of the salaried person, employed by the Insured proposed for coverage including their designation, salary per month and amount of guarantee must be mentioned on the face of the policy.

Basis of sum insured:
10% of the sum insured under section 1 or Rs. 1,00,000/- whichever is less.

Scope of Cover:
This section provides coverage to Insured against direct pecuniary loss caused by act of fraud or dishonesty committed by any salaried person / employed by the insured in the insured premises, provided that:

• The liability of company in respect of any one person or all persons 'so employed and in respect of all losses in any one period of insurance is limited to the sum set opposite in the schedule.


• The loss has occurred in connection with his occupation and duties during the un-interrupted continuance of his employment and be discovered within six months, after the death, dismissal or retirement of such person or 6 months after this policy shall have ceased to exist whichever of these event shall happen first.

Important Points:

• This insurance not only covers loss of moneys by forgery, embezzlement, larceny or fraudulent conversion but also stock in trade belonging to the insured or held in trust by him.


• Unexplained losses or shortage discovered at stock taking are not covered or any other further loss in respect of the employee concerned, once default is discovered.


• The policy is restricted to cover only full time employees who are remunerated by salaries or wages and over whom the employer has control and is actively in their employment.


• The Salesman and Commission Agent not in the pay roll and only working on commission basis are beyond the scope of the insurance policy.


• Any amount due at Employer in respect of employee involved is to be deducted from the claim amount.


• FIR is a must in the claims lodged under this section.

Section - X : Public Liability

Not discussed here as not of a Surveyor's interest. However, a brief is given in other section of the reading material.

Section - XI : Business Interruption:

Scope of Work:

Loss arising out of business interruption and/or cessation of normal commercial activities on account of the operation of the peril insured under section I of this policy

Limit of Liability:

The amount payable shall be the sum produced by applying to the sum insured under section IB.

or

Actual value of operating equipment, stocks and all other contents at the time of loss whichever is less; the ratio of full working days lost as a result of operation of insured peril to the total number of working days during the period of next 12 months (3665 days) commencing from the date of interruption (date of operation of the peril).

Explanation

Explanation of above can be illustrated by an example:
Sum insured under Section IB Rs. 3,00,000/-
Value before fire of contents covered under section IB Rs. 2,50,000/-
No. of full working days lost due to fire 25
Total No. of working days during the period of next 12 months from the date of fire. 255
Insurer liability would be: 250000x25/255 = 24,510 (rounded off)

Indemnity Period:

Duration for which insured has not been able to resume his business activities due to operation of insured peril but in no case shall this extend for a period greater than 365 days counted from the midnight of the date of loss.

Important Exclusion:

1. 35% of the sales carried out during the indemnity period.

2. Interruption loss increased due to insured's lack of sufficient capital for timely restoration or replacement of property destroyed, damaged or lost.

Important Condition:

The insurance by this policy shall cease, if, the business is wound up or permanently discontinued except for the death of insured/owner.

Recent Developments:

GIC has recently advised to include two conditions:

1. Proposer should have a Sales Tax No. which should informed to the Co.
2. If proposer is an Income Tax payee, Income Tax Permanent Account No. should be advised to the company.