Why Companies Can’t Claim Insurance For Covid-19 Losses,

Why Companies Can’t Claim Insurance For Covid-19 Losses,

COVID-19 has already proven to be an unprecedented disaster, with a much broader impact than any other disaster in the history of mankind, be it the loss of human life or economic loss. In India, due to COVID-19 outbreak, the central and state governments have imposed restrictions on businesses across industries. Due to nationwide three-week lockdown and social distancing, businesses are facing various operational constraints, resulting in severe disruptions and temporary closings. The result is huge business losses for various businesses.

Companies, in India, having Business Interruption Insurance will rely upon them in funding the recovery of their loss due to COVID-19.

This article explains what this insurance typically covers, and whether losses caused by COVID-19 are or will be covered by BI?

What is Business Interruption Insurance?

Whenever any losses incurred due to an insured peril to an insured business establishment or property or machinery, the fire and machinery policies compensate for the loss of property. However, when a property is damaged, the affected industry may not be able to carry out business. But the industry or the business may still have to pay salaries, rent, and incur other operational charges. Further, the profits that one would have otherwise made are also lost. All these losses are covered by Business Interruption Insurance.

What is covered under a Business Interruption Insurance Policy?

Business Interruption Insurance can be issued as a separate stand-alone policy, but in India, it is incorporated in Fire Policy or Machinery and Boiler Explosion Policy. It offers protection to the net profit, standing charges, and an increase in the cost of working to maintain normal output or turnover.

Whether losses caused by COVID-19 are or will be covered by insurance?

Recently, it has come into media that insurers and top companies are likely in for a tussle regarding claims arising out of COVID-19 outbreak; and quite a few companies are eyeing claims under the “loss of profit” clause in their insurance contracts.

For the business interruption cover to trigger, according to industry pundits, it is necessary for the property insured to suffer physical damage due to a covered peril such as fire, flood or earthquake, and hence, such policies would not cover loss caused due to COVID-19.

In India, Business Interruption Insurance is not sold standalone and is dependent upon property coverage. BI cover in India can be taken as a separate policy only in conjunction with fire insurance or as part of a package in products such as industrial all-risk insurance which covers both property damage and business interruption. Hence, if a claim is triggered on property damage, only then is the Business Interruption Insurance cover triggered