The Covid-19 pandemic has really exposed loopholes that exists in various sectors of life and the insurance industry together with their stakeholders, have not been left out of the show. I have heard and read about failed attempts by various companies and businesses who have taken strides in making claims for losses from business interruptions from their insurers and I shudder at the thought. Why? Because, upon investigations and reading, it appears that most of these businesses signed up for policies that they did not even understand. Thus, my inspiration to write this piece.
Why Property Insurance for Commercial Properties?
It is undisputed that many people equate property insurance to fire insurance. A lot of people tend to think that when one enters into an insurance contract over their property (especially commercial properties), it is intended to protect that person from liabilities or losses that may be incurred from the property being damaged by fire, or as many people are aware, the cost of replacing a property that has been damaged by fire. Admonishment
However, property insurance comes in different types and is intended to cover much more than is anticipated by many people. In Ghana for instance, it is statutorily mandatory for commercial property owners, as well as occupiers to take out an insurance policy over their commercial properties as well as commercial properties under construction. This is stipulated in the Insurance Act[i] and section 183 of the Act makes it an offence for a person to construct or cause to be constructed a commercial property. It provides that a person shall not construct or cause to be constructed a commercial building without insuring with a registered insurer the liability in respect of construction risks caused by negligence or the negligence of servants, agents or consultants which may result in bodily injury or loss of life to or damage to property of any workman on the site or of any member of the public. Section 184 of the same Act also states that every commercial building shall be insured with an insurer against the hazards of collapse, fire, earthquake, storm and flood, and an insurance policy issued for it. The insurance policy issued shall cover the legal liabilities of an owner or occupier of premises in respect of loss of or damage to property, bodily injury or death suffered by any user of the premises and third parties.
Variant of the Property Insurance
It is recognised, that damage to or loss of commercial property may have a cascading effect on the businesses of the occupants and users of such properties. Hence, in taking out policies for the property, some products are designed to take care of losses incurred as a result of business interruption due to damage to property.
In Halsbury’s Laws of England,[ii]it is stated that consequential loss insurance was devised for the purpose of giving protection to the assured against losses which, though consequent upon the loss of his property by a peril insured against, such as fire, are not recoverable under an ordinary form of policy. Commonly the losses contemplated are losses which flow from the interruption of the assured’s business by reason of a fire or other insured peril which destroys or damages the premises on which the business is carried on. In such a case, therefore, a claim under a consequential loss policy necessarily assumes that the premises have been so destroyed or damaged. This form of insurance has, however, been extended to profit earning chattels, such as motor lorries, which can be effectively put out of commission by many causes other than fire, and to goods and merchandise which may be destroyed elsewhere than on the assured’s premises
The wise Insurer, the Desperate Insured and the Claim
Indeed, Insurance companies in their rapid response to the statutory mandate placed on commercial property owners as well as occupiers, have designed various products which may be accessed by property owners in complying with the insurance laws. Some of these products are packaged differently and designed to meet the insurance needs of their clients. Some of the interesting products that I have come across in Ghana include Machinery Loss of Profits or Business Interruption Insurance, Loss of Profits Insurance, Consequential Loss Insurance, etc.
Usually, for claims to be recoverable under this type of Insurance, there ought to have been an accepted property damage claim. This implies that in most cases, if the insured is unable to prove property damage caused by fire and other insured perils, they would be unlikely to succeed in their claims. Such as is the problem being faced by most businesses in their attempt to make claims for loss of profits from the insurance companies.
The Severe Acute Respiratory Syndrome (SARS) outbreak in 2003 ignited the alertness and ‘wisdom’ of most insurance companies in the world. Following the success of the Mandarin Oriental International Ltd case resulting in a $16 million pay-out by its insurers to cover for business interruption losses due to SARS, policies were revised to ensure that some perils were kept outside the fence. Thus, a lot of the policies in existence now have express and unequivocal exclusionary clauses to ensure that they absolve themselves of certain unprecedented events such as the Covid-19 pandemic. As a result of this, many businesses ae on the verge of a crunch by reason of the Covid-19, with no possible indemnity from any source.
Some experts have intimated that an argument could be made that the presence of the virus in the property may be deemed as damage to the property. That argument as at yet has not availed even a handful of companies in the claims against insurance companies. Unfortunately, many businesses are realising belatedly that their policies cannot bail them out of their crunches.
My subtle admonishment: Negotiate the terms of your insurance policy in your next endeavour
Thankfully, given that an insurance, for that matter a property insurance is a type of contract whereby one party (the insurer) undertakes for a consideration to pay money or provide a corresponding benefit to or for the benefit of the other party (the assured) upon the happening of an event which is uncertain, businesses are encouraged to negotiate the terms of their policies and ensure that the products they are signing on to tailored to suit their situations.
It is extremely important for business owners to engage their lawyers and to seek legal advice right from the onset, as to the effect of the policy they intend to purchase. Lawyers would usually have a knack for identifying such exclusionary clauses which are aimed at eventually providing very little solutions for the insured in the event of loss being incurred as a result of damage. It is therefore important that the terms of the policy are understood and agreed upon by the parties being executed.
Many businesses are at crossroads and are confused as to the road to take as a result of the effects of the Covid-19. Unfortunately for these businesses, they have now awoken to the harsh reality that their insurance policy can do very little to save them from the fiery pit of collapse. It is possible though that the narratives may change when legal actions are thrown from all directions against insurance companies.
Perhaps, insurance companies can step up the game and provide better products for their clients, while businesses and business owners also enhance their vigilance when purchasing the products.