Is Plinth & Foundation Covered or Not in the Standard Fire & Special Perils (SF&SP) Policy?

In the original standalone Fire Policy, plinth and foundation were not covered unless specifically asked for by the insured. This was done in order to reduce the premium cost for the insured, in those days, when the fire rate was much higher than today. The reason why this was in order in a ‘fire-alone’ policy was that in the normal course, fire travels upwards, and hence, unless the fire is very long lasting or is a fire having an explosive impact, it usually does not affect the plinth and foundation. In those days, Flood, Storm, Tempest and Inundation (FSTI) cover had to be taken separately as additional cover. If FSTI cover had to be taken, it was advised that plinth and foundation be included, because these perils invariably can affect the plinth and foundation. When the policy was made into the SF&SP policy, the policy wording was not changed to include plinth and foundation specifically, though at the same time, they were not specifically excluded in the policy. However, due to the traditional mindset, it is still seen that generally both insurers and surveyors tend to treat plinth and foundation as excluded unless they are specifically included.

This matter was considered in a case before the Madras High Court: Hdfc Ergo General Insurance ... vs M/S. Shree Ganesh Fridging &Cold Storage Pvt. Ltd. (2019). In this case, the insured had a Cold Storage, which was insured at the insistence of the lending Bank, and a Standard Fire & Special Perils Policy was issued by the insurer for Rs. 8 crores. It was also insured with Oriental Insurance for Rs. 16 crores. On 08.05.2013 there was an accidental fire in the premises which continued for more than 37 days. The insured's cold storage units were totally destroyed. Apart from the destruction of building, machinery, stocks and other contents, stocks worth Rs.31.02 Crores were also damaged. The fire not only damaged the building above the ground but also the foundation beneath.

The insurer paid the claim less the indemnity for plinth and foundation and hence the matter went for Arbitration. The Arbitration claim went in favour of the insured, and so the insurer was forced to appeal. Their main contention was that that the policy does not cover the plinth and foundation, and that it only covers the building. It was also argued that the policy of the Oriental included plinth and foundation, and so they paid the plinth and foundation claim but their policy excluded the plinth and foundation, by implication, in the light of the fact that the Oriental had specifically covered plinth and foundation.

However, the insured argued that, the aspect that the building does not include plinth and foundation was raised for first time before the HC only. Further it was argued that the Policy did not exclude the plinth and foundation specifically. There has to be a specifically worded exclusion for denial of a bona fide claim. When the building is insured, it means that the plinth and foundation are also covered. Therefore, it cannot be stated that policy did not cover to the plinth and foundation. It was further argued that the Insurance Policy is to be strictly construed since the contra proferentem principle is to be applied against the insurer.

The court in its reasoning noted that in the Supreme Court of India in the case: Jai Narain Parasurampuria (Dead) ... vs Pushpa Devi Saraf & Ors decided on 24 August, 2006 stated that: In P. Ramanatha Aiyar's Advanced Law Lexicon, Volume 2, 2005, the word "house" has been defined to mean in the section 'Word and Phrases, (Permanent Edition, Volume 19A,) as :"The word "building" necessarily embraces the foundation on which it rests; and the cellar, if there be one, under the edifice, is also included in the term "house" or "building". If there be a cellar, the word "building" includes it, unaffected by the height above the foundation Benedict v. Ocean Ins. Co., 31 N.Y. 389, 394." Furthermore, it is now well settled that the building includes the land on which it stands, unless by express stipulation it is excluded. [See T. Lakshmipathi & Ors. vs. P. Nithyananda Reddy & Ors. (2003) 5 SCC 150, paras 19 to 24]. The court also referred to Delhi High Court judgement in the case Satya Developers Pvt Ltd vs Pearey Lal Bhawan Association on 13 October, 2015: "29. (b) Business-like Interpretation. It is an accepted canon of construction that a commercial document, such as an insurance policy, should be construed in accordance with sound commercial principles and good business sense, so that its provisions receive a fair and sensible application. (See also the words of Lord Diplock in Antaios Cia Navieras SA v. Salen Rederierna AB, The Antaios (1984) 3 All ER 229 at 233, (1985) AC 191 at 201 cited at (7)(iv) by Longmore LJ: If a "detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense".)"

It was also noted that the learned Arbitrators were also the expert engineers, and they held that the term building includes Plinth and Foundation. The Arbitrations have interpreted the contract in a reasonable manner. When the arbitrators reasonably interpreted the contract and which is a plausible view, such view cannot be interfered merely because some other view is also possible. When the contract does not specifically exclude the plinth and foundation, the Arbitrators reasonably interpreted the coverage in terms of the contract, the same cannot be interfered. The Apex Court is also in its judgment held that building also includes foundation. Such being the position, now the insurer cannot canvas such point before this Court for the first time.

The court stated that “The Contract placed before this Court does not exclude it specifically. In order to exclude certain items in the insurance contract there must be specific exclusion. Admittedly, there is no specific exclusion of plinth and foundation in the contract. Therefore, the contention of the learned senior counsel that the plinth and foundation was not covered in the contract cannot be countenanced. Insurance contract should be strictly construed to determine in the extent of insurer's liability. This has been held by the Apex Court in the Sony Cheriyan's case (supra), that since the Insurer undertakes to compensate the loss suffered by the insured on account of risks covered by the insurance policy, the terms of agreement have to be strictly construed to determine the extent of liability of the insurer.”