Forty-seven-year-old Amit Aggarwal (name change on request) runs a garment manufacturing unit in Noida. They have purchased property/fire insurance cover to protect their establishment. His policy also includes a cover called business interruption or loss of profit. Due to the lockdown, the functioning of his unit was completely stalled and till now the matter has not been back on track. Now Agrawal is trying to find out whether the business cover with business interruption will compensate him for the business losses incurred during the lockdown.
Bundle cover
General insurance companies provide business interruption cover to business establishments such as restaurants, shops, factories. It comes with a property/fire policy. Property/fire policy protects against loss due to events like fire, flood, storm, earthquake, riots. So will Covid-19 also be included in the policy? Those associated with the general insurance industry say that losses due to Covid-19 will not be compensated. He says that there is a provision for 'material loss' in the business interruption cover.
This means that no claims of business interruption will be accepted if material losses are claimed due to a disaster mentioned in the insurance. CR Mohan, senior vice president and national head (property and risk engineering services), Bajaj Allianz General Insurance, said, "If a claim is admissible under a property policy, assuming there is a fire or a flood and it causes business If an interruption occurs, a claim can be made under the business interruption policy.
Mohan says that there are two reasons for not getting damages in Covid-19. He says, "Business disruptions have occurred, but there has been no damage to property." Even if property is damaged, it is not caused by insured disasters. Covid-19 is not a disaster under this policy.
Subrata Mandal, Executive Vice President of IFFCO Tokyo General Insurance also agrees with this view. He says, "Business interruption cover is not applicable if there is no actual physical damage to the property due to the insured disaster." Some legal experts also agree with this. Aparajit Bhattacharya, partner at DSK Legal, said, "As of now, accidental physical loss or loss or damage is considered a business interruption, so it will not include the impact of business from Covid-19."
Experts of advisory companies say that the compensation will be given to the traders in the same situation when they have bought the epidemic cover separately. Jaydeep K. Roy, Partner and Leader (Insurance) at PwC India, said, 'Pandemic is a separate insurance cover that one has to buy. Like insurance of damage from mold and mold or mold, epidemic cover is also bought less because customers want to keep the premium low. '
The business interruption policy also states that the loss of business interruption will not make up for any loss caused by the imposition of any restriction on the operations of government officials (as has happened in the present case). Also, very few business establishments in India take business interruption cover. Of the total number of people who take a property policy in the country, only 0.1% of people take business interruption cover. The premium for a standard fire policy varies from 0.015 to 0.50 percent of the sum insured. It depends on the nature of the insured goods or items. A similar premium is also charged on business interruption cover for losses due to fire or other related disasters. According to legal experts, the most important thing is to look at the fine details of your policy document. Jayshree Parihar, senior assistant at PSL Advocates and Solicitors, said, 'If the' loss of profit 'in the policy comes under the insurance cover and the risk against which the insurance is insured, the holder can get the payment only.'
SARS example
The Severe Acute Respiratory Syndrome (SARS) epidemic began in February 2003. Sources say that no payment was made even at that time. Tarun Mathur, chief business officer (general insurance) at PolicyBazaar.com said, "As far as I know no payment was made in India as there was no cover for the epidemic here."
In fact, after SARS, general insurance companies made their policies strict. Parihar said, "In the middle of April in the year 2004, a notice was issued about SARS not being included in the policy everywhere. He included the policy document not to include infectious disease to prevent potential harm from the virus in the future. Now, if the provision of Covid-19 is not included in the policy, then the situation of the existing Covid-19 may also be affected.
Will Force Major apply? A contract includes the circumstances under this section, under which it may become impossible for either or both parties to fulfill the contract. The Force Major clause frees both parties from the obligations of their contract. Mandal said, 'The Insurance Regulatory and General Insurance Council (GIC) has issued clarifications in this regard. Just being a Force Major is not enough. The provision for material loss must also be met. '
No denial of disputes
However, experts predict that legal disputes will arise on this issue. Bhattacharya said, "There is going to be a big debate about whether the lockdown due to Covid-19 should be considered a material loss or not." The policy rarely defines what physical harm means. In such a situation all kinds of common law cases and principles will be debated in the courts.
Insurance claims
Even if no payment is made under business interruption. But a business establishment can get compensation under important person insurance. Mathur said, "If a company has bought important person insurance for its directors and one of them dies due to Covid-19 then a certain amount will have to be paid."
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