Beware - Your Shop’s Fire Insurance Policy May No Longer Be Valid Amidst Lockdown

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Remember how Paresh Rawal’s role Kanji Mehta went on to file a lawsuit against God in the film OMG – Oh My God when his insurers declined his disaster claim for his earthquake-hit store because the insurance did not cover natural calamities classified as ‘Act of God’?

If you own a retail shop or run a factory, you might have to face a similar situation in a little different way during this lockdown. But why should you be worried about your closed store or manufacturing units, when you already have a valid fire insurance policy?

Check Again! Take a look at the exclusion clause of your fire insurance policy once again. You will come across a line:‘If the building insured or containing the insured property becomes unoccupied and so remains for a period of more than 30 days losses / expenses won't be covered.’

Concerns Over the 30 Days Unoccupancy Clause

Right now, we have already crossed the mark of 30 days of lockdown since 25th March, with economic activities coming to a screeching halt in an attempt to contain the spread of the novel coronavirus.

With only essential services being permitted, you might be one of the many shop owners who have been forced to shut down their store /warehouse /factory temporarily. So, now with more than 30 days of inoccupancy your store / stock is no longer insured for fire and other risks like flood, typhoon etc. related damages.

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And that’s not all! Remember all those times when you didn’t have to worry about any financial ups and downs owing to fleeting disturbances like a short circuit fire or theft because you had insurance to back you up? Well, guess what? Owing to the unprecedented circumstances of COVID 19, insurance companies are no longer liable to secure your business against financial losses incurred as a result of the lockdown.

In the period of non-occupancy of your business store and cessation of activities, the business interruption cover ( if opted as a rider) from your general insurer stands void now!

So, what is the solution?

“While this Exclusion Clause in your fire insurance policy may bring fear in your mind about probable damage to your building or stock at any moment and consequently facing irreparable business losses, the solution to the crisis is as easy as writing a letter”, says Mr. Agrawal, the Founder of and a veteran in Financial Planning and Investment Planning. What he essentially means is that you just need to inform the insurance company formally in advance about your requirement for an extension in the clause owing to the coronavirus-led lockdown. If you don’t, there’s a high probability of your claim being rejected if you approach them with a case of loss or damage post the 30 days period.

GIC Re is saying, "we might offer an extension to all policyholders, considering the difficulties the shop owners might face in initiating a written communication." As of now, they are planning to give the extension to retail businesses and SME sectors with an insurance sum of Rs. 5 crores or less. However, the larger businesses are at a disadvantage here.. Insurance companies are asking for an explicit written request from business owners with insurance coverage above Rs. 5 crores to continue receiving the benefit of the insurance. Whether your insurer will provide an extension or not, however, will vary on a case-to-case basis. In either case, business owners have been advised to take all safety and precautionary measures such as burglary alerts, smoke and fire detections, etc.

Therefore, to be on the safe side, do not rely on verbal commitments as they don’t stand valid with time. Write a letter to your insurer asking for a coverage continuation amidst lockdown and collect the confirmation in the form of policy endorsement from the insurer on their company letterhead. Then, if any disaster hits your shop or warehouse, you won’t at least have to run to the court like Kanji Mehta to sue God for the so-called ‘Act of God’.

Update, as on 30th April'20: Keeping in mind the difficulty of many policyholders in written communication with the insurance company for an extension in their fire policy coverage, upon the request of the Insurance Brokers Association of India, GIC Re has decided to give a one-time relaxation in the exclusion clause. Properties that remain unoccupied from 25th March to 3rd May'20 will continue to receive the coverage, even without a written letter from the policyholder.

Revisit this section for further updates on 3rd May 2020 at 2:00 pm.