COVID-19 pandemic has severely affected businesses in business parks, commercial premises, shopping malls, manufacturing units, hotels, restaurants, multiplexes, etc. The lockdown imposed by the government has rendered these properties inaccessible to many stakeholders, thus resulting in loss of business and revenue. The stakeholders generally insure their premises against risks and hazards associated with their businesses, with many of them opting for an additional protection against business interruption. The moot question is whether the extant insurance policies will cover the losses suffered on account of business interruption.
In India, a business interruption insurance cover is typically offered as an add-on cover to the main insurance policy, viz. “Fire and Special Perils Policy”, “Material Damage Policy”, “All Risk Policy”, etc. A common feature of such policies is that there should be a physical loss, destruction or damage to the property insured on account of the causes covered by the policy. Any restriction on operation imposed by a public authority is commonly found as an exclusion in standard wordings of such policies.
Generally, the terms of an insurance contract are given strict interpretation by the Indian courts. The insured is not entitled to anything more than what is covered by the insurance policy. Also, courts cannot rewrite or create a new contract between the parties through its interpretative process. It has to simply apply the terms and conditions of the agreement as agreed between the parties. The courts are guided by the Contra Proferentem principle that if there is any ambiguity or a term is capable of two possible interpretations, one beneficial to the insured should be accepted consistent with the purpose for which the policy is taken.
The Indian insurance industry has decided to relax the general condition found in Standard Fire and Special Peril policy that renders the policy invalid if the property insured remains unoccupied for a continuous period of 30 (thirty) days. This relaxation is granted from 25 March 2020 till 3 May 2020 and will ensure uninterrupted policy coverage for the insured during such period. Though this is a welcome gesture from the insurance industry, this will not protect the businesses from losses suffered by them due to the interruption.
In United Kingdom, the Finance Conduct Authority (FCA) is actively engaged with the insurers as well as insured to streamline the process of assessing and settling claims quickly during the current crisis. In India, IRDAI has issued various Circulars containing various directives relating to functioning of insurers. The Asia Pacific Real Estate Association has requested IRDAI through the General Insurance Council of India to include limitation of access to property on account of pandemic, a national disaster, as a reason for business loss. However, IRDAI has not issued any circulars or directives giving any clarity on this aspect till date.
Pending such clarification, the interpretation of the insurance policies will be governed by the policy wordings. The insurance contracts will have to be reviewed on case to case basis. It remains to be seen if the insured will be entitled to indemnification from the insurer and how the insurers deal with any claims arising on account of business interruption resulting from the pandemic or the resultant lockdown. Any disputes arising from such cases could be referred to courts / tribunals for adjudication.
All in all, it is high time that insurers in India offer business interruption insurance as a standalone policy which will enable better protection for the insured, thereby making businesses more robust, resilient and sustainable.
DISCLAIMER: This article is for informational purposes only, and not intended to be an advertisement or solicitation. This article is not a substitute for professional advice. Hariani & Co. disclaim all responsibility and accept no liability for consequences of any person acting or refraining from acting on the basis of any information contained herein.
