Insurance Claims Amid Covid-19 Outbreak – Economics

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Companies that suffered business interruption losses due to the Covid-19 outbreak and lockdown are likely to bat for the “loss of profit” clause in their insurance contracts.
Many companies had taken insurance policies to cover loss arising due to certain unforeseen circumstances but the question has risen whether Covid-19 outbreak is covered by such policies.
Corporations usually take two types of insurance policies -Material damage policy and Business interruption policy.
Material damage policy is triggered if there is loss of property due to fire or flood or machine breakdown.
Business interruption, on the other hand, only comes into force if loss of profit has happened due to the clauses mentioned under the material damages policy.
Provisions of Property Policy:
If the insured plant or office is shut down due to any damage or fire, the company is eligible for claims.
Also the Policy specifies if the building insured or containing the insured property becomes unoccupied and so remains for a period of more than 30 days (not applicable for dwellings), the insurance claims may not be applicable.
For claim, before the occurrence of any loss or damage to the property, the continuation of the coverage needs to be ensured.

Relaxation from Policy Lapse

The insurers have given relief to corporates, which shut their units for more than a month. Their policies will be allowed to be operational despite the clause that if a unit is shut for 30 days continuously, the policy cover will lapse.
The above relief is applicable for the “unoccupied properties” for more than one month till May 3 under the property policy.
It means companies can claim insurance if the property is damaged due to fire or any other loss even if the factory or unit is not operational during the period till May 3.

Most insurers will also use the Force Majeure, or “Act of God” clause but again there is no concrete conclusion or clause stating that loss of profit due to Covid-19 is Force Majeure.
Force majeure is a common clause in contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties occurs. It prevents one or both parties from fulfilling their obligations under the contract.