In recent times, businesses across the globe have suffered losses due to the Covid-19 outbreak and associated lockdowns. In particular, companies affected by these interruptions are likely to seek insurance claims under the “loss of profit” clause in their contracts. However, there is ambiguity around whether losses resulting from the Covid-19 pandemic fall under the purview of existing insurance policies. This article explores the key points and provisions of common business insurance policies and how they relate to the current situation.
Understanding Business Insurance Policies
Two common types of policies taken by corporations are Material Damage Policy and Business Interruption Policy. The former is activated when there is loss of property due to incidents like fire or flood, while the latter comes into effect if profit loss has occurred due to the conditions outlined in the Material Damage Policy.
The question at hand is whether the Covid-19 outbreak can trigger such policies. Many companies may find that they may not receive any insurance claim from the Standard Fire and Special Perils Policy, more commonly known as property policy, due to the conditions of the contract.
Provisions of Property Policy
If an insured plant or office space is shut down due to damage or fire, a company is typically eligible for claims. However, the policy also stipulates that if the insured building or property remains unoccupied for more than 30 days, insurance claims may not be applicable.
Importantly, to make a claim, it is necessary to ensure the continuation of coverage before any loss or damage to the property occurs.
Relief from Policy Lapse
Given the unusual circumstances, insurers have offered relief to companies that had to shut their units for more than a month due to the pandemic. Despite usual policy clauses stating that cover will lapse if a unit is shuttered for 30 consecutive days, these companies’ policies will be allowed to remain operational.
This concession applies to “unoccupied properties” from the period of more than one month until May 3rd under the property policy. Consequently, companies can claim insurance for damages due to fire or other losses, even if the factory or unit was not operational during this period.
Force Majeure or “Act of God” Clause
Many insurers may resort to the Force Majeure or “Act of God” clause regarding loss of profit claims arising from Covid-19. This clause is commonly included in contracts and essentially absolves both parties of liability when an extraordinary event beyond their control prevents them from fulfilling their contractual obligations.
However, no concrete conclusion or clause currently exists that directly states that loss of profit due to Covid-19 can be categorized as Force Majeure. This leaves an air of uncertainty for corporations looking for financial relief through their insurance policies in these trying times.
