Departmental Clause under Fire Loss of Profit Policies

This clause says that if insured’s business is conducted in departments where independent trading results can be ascertained, Loss of GP shall be calculated    independently for the department affected by the loss based on its trading results. If more than one dept is affected, BI loss shall be computed for each dept affected by loss.


But this would be subject to condition that if the Sum Insured under the policy is found less than the sum total of Gross profit of each department  (whether affected or not) then, the payable amount shall be reduced proportionately.” That means it would attract Under insurance.

 

In a nutshell, this shall mean


a) Insured must have more than one production blocks or units in one compound.

 

b) Each Dept./section/production block must have proper accounting system to evaluate their respective Gross profit.

 

c) In the event of Loss in one Dept/Section/Unit, Loss of GP shall be computed considering reduction in production based on accounting figures of affected section / dept. but the adequacy of sum insured shall be checked by comparing the declared SI with sum total of GP of all department at the time of loss whether they are affected or not.

 

d) In absence of this clause, the loss shall be computed on the basis of overall reduction in TO at company level and it may be possible that overall loss of TO  is compensated by over production in other dept & finally it may happen that at company’s level there is no reduction in TO & there is no BI loss even though the affected plant was closed for a month or so.

 

e) However, in such a situation, additional expenses incurred in compensating the TO loss can be paid as ICOW.

 

f) This clause can also be used in case of Group companies where a single policy is taken by the “Holding company” provided Financial accounts are maintained independently by each company,

 

Example
Let us assume that a Risk has 3 departments / Blocks & Block ‘A’ suffers a loss then loss shall be computed based on individual block ‘A’ values of ROGP & RITO. Now let us see how to apply Underinsurance on assessed loss If the Policy Sum Insured is Rs 40 crs, and ROGP & ATO for each block are as under


Block A – Gross Profit = ROGP 10% x ATO Rs 60 crs   = 6 crs
Block B – Gross Profit = ROGP 15% x ATO Rs 160 crs = 24 crs
Block C – Gross Profit = ROGP 20% x ATO Rs 250 crs = 50 crs
Total GP of all blocks                                                   = 80 crs


Hence, we shall apply Under Insurance to the extent of 40/80 i.e 50% loss suffered.

You may also go through my video on the same topic available on my youtube channel vpinsupedia.




 

 

Comments

  1. khushalSeptember 30, 2020 at 10:12 AM

    Dear sir ,

    How this clause will be applicable in large windmill policies ( eg no of windmill are 30 )

    ReplyDelete
    Replies
    1. V.P SharmaOctober 1, 2020 at 11:28 PM

      Each windmill shall be treated as individual department

      Delete

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