The coronavirus pandemic has hit many businesses – and many have turned to their insurers in the hope that business interruption policies can bail them out amid massive volumes of lost business.

Most cases are related to “SME” BI insurance policies, which are based on property damage (also in India, one only has BI cover as a consequence of property damage). In the majority of cases, insurers have stated that they are not obliged to pay out concerning the coronavirus pandemic. And on the other hand, some insurers have already decided to pay out on BI claims as to the threat of legal action looms.

In UK & USA Policyholders have mentioned with the class action suit that intent of the wording is vital, where physical damage is just a way of specifying the non-working condition of businesses due to such incident, Vis a Vis Covid-19, and is also an interrelated damage and have caused Business Interruption, no matter the cause of damage is intangible, but the loss is tangible and is same as it would have occurred if physical damage triggering Business interruption claim.

Similarly, The Financial Conduct Authority (FCA) of UK has filed a suit to seek BI coverage clarity through courts interpretation for small businesses who have brought BI claim suits and who are about to, FCA (regulatory body) considered filing suit for SME legitimate claims & its survival. (welcomed by the majority SME BI policyholders), that will help policyholders and insurers have a much clearer view of which business interruption policies respond to the pandemic, and those that don’t. Therefore, the court has taken various policy into consideration of different Insurer’s (Hiscox, RSA, Zurich), to identify the object of the contract and to dispose bunch of cases accordingly, especially for SME (Small and medium enterprise).

In layman’s terms, Intent of the parties at the time of binding the terms will be taken into consideration or aim of the policy along with the various policy wordings.

Condition of Physical Loss or damage to trigger BI coverage

Insurance Industry all over the world is highly driven from USA and UK’s exposures, wordings and judgements. Though the courts in the USA & UK have consistently held that if a condition makes a property uninhabitable or deprives the insured of use of the property, that condition will constitute physical loss or damage, the applicability of those decisions in India maybe not far away. Further this stand to be clarified after the judgement by the UK court interpreting several policy wordings of BI.

Importance of tailoring BI policy in India

Even if one were to look past the requirement of physical damage, policies generally have a specific exclusion for any loss or damage caused as a result of an order of a government authority which results in the policyholder being prevented from accessing the property.

Opting for add-on features that cover the loss incurred due to hindrance or prevention of the use of premises as a result of a government or police action. Policyholders with such add-on features should be able to make a viable claim under their insurance policy.

Ruling in favour of SME insured for BI claim against AXA

A Paris top court ruled that AXA should pay BI losses to restaurants, even BI due to health crises is not covered under the policy, and AXA has stated that it would further pay $546 million to small companies for BI loss. The decision is taken up by the various business association in Europe for BI claim payment.

Conclusion

Based on foreign judgments, in India, there are fullest chances that some of the insureds will approach the courts for claiming the loss suffered on account of business interruption due to COVID-19. The courts may deviate from their strict interpretation of insurance contract standard to help SME (for betterment of economy Indian government also wish to revive the SME businesses after lockdown.) to get their claims by expanding the interpretation of “physical damage” to include COVID-19, on the ground of legitimate public purpose, even though the relevant policy does not have the express extension to COVID-19 like situation.

Firstly, because of the related wordings of the insurance contracts in India, and secondly, in India and the USA, the majority of business establishments are closed due to state wise lock-down enforced by the government authorities. In these circumstances, it is highly possible that the Indian companies having Business Interruption Insurance will be able to take benefit from the US case laws, if this present lawsuit is decided in insured favour.