Reinstatement of any property generally means replacement of what is lost or repairing the damaged property by bringing it to its original value and usefulness.

The term “reinstate”, in a Fire Insurance Policy refers to buildings and the terms “replace”, refers to goods which have been completely destroyed. But we generally use term “restoration “which has combined effect of “reinstatement “as well as “replacement”. Normally insurer indemnify the insured of the loss suffered by him, but the insurer with the consent of the insured can take recourse to reinstatement.

 Reinstatement Value This is the fire policy with the reinstatement value clause attached to it. The clause provides that in the event of loss, the amount payable is the cost of reinstating property of the same kind or type, by new property (i.e.) “New for Old”. This basis of settlement differs from the basis under the fire policy where the losses are settled on the basis of market value i.e. making deductions for depreciation, etc. Under reinstatement value policy, it is possible to cover the depreciated value of the building or machinery. The cost of replacement of the damaged property is ascertained by new property of the same kind. If due to technical improvements the new machinery is better than the damaged machinery e.g. output is increased with less consumption of power, the insured is obliged to bear a part of the cost of the new machinery to ensure that he does not derive any undue benefits. Thus, the principle of indemnity is still observed. The reinstatement value clause incorporates the following special provisions:

(a) Reinstatement must be carried out by the insured and completed within 12 months after the destruction or damage, or within such extended time as may be allowed by insurers, failing which the loss will be settled on the normal indemnity basis i.e. according to the Fire Policy. 

(b) Until reinstatement is carried out, the liability under the policy remains on the normal indemnity basis. i.e. market value basis. 

(c) Pro-rata Average is applied by comparing the sum insured with the cost of reinstatement of the entire property insured as on date of reinstatement. 

(d) The reinstatement basis of settlement will not apply

 (i) If the insured fails to intimate to the insurer within 6 months or any extended time his intention to replace the damaged property. 

(ii) If the insured is unable or unwilling to replace the damaged property. In such cases the loss will be settled on the normal basis of indemnity.

(e) The work of reinstatement may be carried out upon another site and in any manner required by the insured provided the liability under the policy is not thereby increased.These insurances are granted to insureds whose bonafides are satisfactory and, are generally issued only in respect of building, plant and machinery in a comparatively new condition. 

These insurances are not granted on stocks.

b) Local Authorities Clause 

Reinstatement Value Policy may be extended to cover such additional cost of reinstatement of the destroyed or damaged property as may be incurred solely by reason of the necessity to comply with the Building or other Regulations under any Act of Parliament or bye-laws of any Municipal or Local Authority.

c) Agreed Bank Clause 

All policies in which a Bank has a partial interest are to be made out in the name of the Bank and Owner or Mortgagor and the Agreed Bank Clause incorporated in the policy. 

The salient features of the clause are : (a) The claim is payable to the bank whose receipt shall be a complete discharge and binding on all parties insured. (b) Any notice under the policy is sufficient if given by or to the bank. (c) Any settlement, compromise etc. in relation to dispute if made with the bank shall be valid and binding on all parties insured. (d) Any alteration or increase in risk does not invalidate the insurance, provided the bank notifies the same as soon as it comes to its knowledge and pays additional premium.