This article is written by Gursimran Kaur Bakshi. In this article, the author explores the possibility of claiming business insurance in cases of riots and looting.
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The COVID-19 pandemic was responsible for shattering stronger economics but it especially impacted the working of businesses across the globe. But this is not the sole reason why frequent business interruption has taken place over the last few years.
Businesses all across the world also have been interrupted because of civil unrest and protests between the government, state entities and non-state actors. There are continuous protests taking place in the Hong Kong Special Administrative Region (‘HKSAR’) against China over the extradition bill and the security law, in India because of the Citizenship (Amendment) Act, 2019 and in the United States over the brutal killing of black-American George Floyd.
According to the Global Protest Tracker, protests around the globe have become widespread. More than 230 anti-government protests have taken place since 2017. These protests have resulted in vandalism and destruction of public and private properties. It has equally impacted the growth of businesses since these civil unrest leads to frequent closure of the local businesses and thus, impacting the market. That is why a growing concern has surfaced regarding the insurance claims when businesses are interrupted due to these issues to recover the losses suffered.
The normal business insurance policy usually does not cover conditions of global pandemic and civil unrest since these two events are highly unpredictable and depend on the contingency of the event. That is where the Business Interruption Insurance (BII), which is a product of necessity faced during COVID-19, can prove vital. This article analyses the possibility of claiming BII during other types of civil unrest where riots and looting are two usual events that take place.
What is business interruption insurance
Insurance is a legal arrangement between two parties, namely, the insurer and insuree wherein the former indemnifies the losses incurred to the insuree on a happening of a contingent event. It is a contract of indemnity which is based on the principle of utmost good faith. However, there is no specific standard of claiming insurance.
There are general insurance packages which are available to cover risk management relating to a wide range of things including property. Such a policy can be beneficial to shopkeepers, employees, including those who are engaged in business, based on their needs and which can further be customised.
In specific terms, a business insurance policy can cover loss that arises out of damage caused to the property because of natural disasters and arson, to name a few. However, since the COVID-19 pandemic brought a lot of uncertainty and insecurity in terms of the normal operation of the business which was further hampered due to riots and protests, a need was felt to bring changes in the current policy of business insurance.
BII, as the name suggests, was offered by different insurance companies, especially during the pandemic, to overcome this issue. BII is not a new model of insurance as it has been traditionally referred to as an extension to fire or property insurance policies. It also goes by the name of consequential loss policy. Since it has been considered as an extension of the fire insurance policy, it covers damage incurred to the business property and the loss of income due to the same based on the happening of an event. It broadly covers the loss to the property, revenue earned based on the annual financial records had the disaster not occurred and other ancillary expenses.
Scope of BII
In the current scenario, there could be two types of BII claims. One that specifically covers the loss incurred due to the inoperation of business during the COVID-19 pandemic. This could be claimed in a general package available. In regular cases, business insurance is not claimed exclusively. It is a part of the comprehensive package policies. Other than the package policies, there is a stand-alone policy to fulfill the specific need of the insuree. In normal circumstances, a package policy is considered the standard for claiming BII.
There could be two types of business insurance policy, the Business Owner Policy (BOP) and the stand-alone policy. In the BOP, both liability and property insurance is covered. In the stand-alone policy, only specific risks are covered. Whereas, the other type of insurance could be the one based on BII in addition to the factors that have taken place due to civil commotion and protests. This type of claim can be divided into two parts. If this is claimed by the insuree as a part of the BII during COVID-19, then the claims could only be satisfied through stand-alone policy. Whereas, if business losses are claimed independent of the COVID-19 factor, this could very well be accommodated in the BOP that covers property losses, since riots and looting definitely leads to the damage to the property.
Civil authority coverage
There is another concept known as the civil authority coverage which work claims in addition to the one covered in BII. It allows the insuree to claim insurance over the restriction imposed by state authorities in cases where physical damage has occurred. This type of coverage is usually used in cases of natural disaster which causes severe damage to the properties. But this can be extended through the BOP BY including insurance for situations like civil unrest.
BII may include preventive measures to mitigate the socio-economic damages caused due to COVID-19
There has been a need felt to widen the ambit and the meaning of business insurance to include events that occur due to civil unrest. However, there seems to be no fixed ground on the scope of BII because it is still evolving. Recently, the European Insurance and Occupational Pensions Authority (‘Eiopa’) have also asked the insurers in the European Union to clarify the extent of BII. The Eiopa, an EU agency, in its staff paper has stated that since BII claims have increased during the pandemic, it is also necessary that insurance include preventive measures within the policy to cover socio-economic damages that may incur in a form of loss of revenue. These preventive measures are only helpful if the BII claims are based both on COVID-19 pandemic and losses incurred due to unrest. However, the normal business policies can be used to claim damages for the latter.
Possibility of claiming BII during riots and looting in different jurisdictions
BII claims in India
During the protests on the Citizenship (Amendment) Act, 2019, the Uttar Pradesh Recovery of Damages to Public and Private Property Ordinance was promulgated for the recovery of compensation against those who were accused of causing destruction to the public and private properties. This was one such incident in recent months where the damage to the property has been caused both wilfully by protestors who wanted to show aggression and dissent against the government and also by those who took advantage of this situation and intentionally caused damage to both public and private property. That is why along with the protests, rioting and looting were frequently accompanied.
Rioting under Section 146 of the Indian Penal Code, 1860 (‘IPC’) means the use of force or violence by an unlawful assembly, or by any member thereof, in furtherance of a common object of such assembly. This makes every person of that unlawful assembly liable. In usual cases, an unlawful assembly(Section 141) is armed with weapons that may or may not be deadly. If they are armed and in pursuance of using force or violence, they commit theft (Section 354 IPC), then it would either amount to robbery (Section 390) or dacoity (Section 391). The only difference is that in the latter the members of an unlawful assembly are five or more and they conjointly commit or attempt to commit robbery. Thus, the offence of theft committed by the unlawful assembly is called robbery (looting) which could either be by way of robbery or dacoity.
Now that these two offences are defined, it is important to understand that there is always a foreseeable risk associated with the happening of these two events. The risk is the damage that could be done to the property in riots and looting. In riots, there is destruction or vandalism which either completely damages the property or diminishes the value of the same. Whereas, in looting, the property is stolen during riots or any kind of unrest. Looting does not have to necessarily take place in riots. It can take place in a normal peaceful situation as well.
There is no specific policy where insurance can be claimed on the happening of these events. But as stated above, if the claims of the insurance are independent of the impact caused by the pandemic, there is a possibility to claim BOP. Nevertheless, it would depend on the insurer who may or may not be willing to customise the insurance policy as per the need of the insuree.
BII claims in the United States
In countries like the United States, where civil unrest took place following the death of George Floyd during the Black Lives Matter, there have been speculations over the possibility of business claims. Since the protest was followed by riots and mass unrest, there was vandalism and destruction of public and private properties which included those of businessmen as well. Above that, there is a stagnant situation created by the COVID-19 pandemic in the economy. Hence, the loss suffered by many businessmen due to riots and looting required mitigation since the pandemic would not allow them to start the business from scratch.
While the different possibilities have been explored, there are concerns over the misuse of such types of insurance because there can always be a case where the person claiming insurance was a part of the mob who intentionally vandalised the property.
BII claims in Hong Kong
In Hong Kong, BII is not new and was extended to businesses that suffered during the Severe Acute Respiratory Syndrome (SARS). However, BII till now has not been given in cases of protests. Firms in Hong Kong have raised their concerns about the lack of such types of insurance during the riots that took place over the interference of China in the autonomy of HKSAR.
BII claims in Massachusetts
In Massachusetts, Senator Diana DiZoglio and Dylan Fernandes have introduced Companion Bills S.D. 1845 and H.D.3170 in favour of introducing BII for employers employing 50 or less employees on the basis that their business has been impacted because of the public health emergency. But these Bills focus only on the COVID-19 pandemic.
Since it has been newly introduced, there are limited debates on whether its scope can be extended in cases of civil unrest. The Bill uses a term called ‘rebuttable presumption’ which basically means that the insuree does not have to prove that COVID-19 has caused direct physical damages to the business unless it is proven otherwise.
The Bill has been drafted in regards to a ruling of last year. In Verveine Corp. v. Strathmore Insurance Co (2020) the Supreme Court of Massachusetts denied a BII to the restaurant who were claiming loss of their business revenue due to the pandemic. The Court held that the parties could not prove that the direct physical loss to their business occurred due to the COVID-19 pandemic. That is when a need was felt to propose legislation where the insuree does not have to specifically prove the impact of the COVID-19 on their businesses.
Advantages and disadvantages of business insurance
The basic advantage of insurance is that it covers risks and allows financial stability and security. This is a much-needed requirement in any country where there is constant unrest and instability. The market economy is also dependent on insurance because if a business is interrupted due to some reasons, it brings unemployment to the market and it could lead to scarcity of certain resources as well.
The disadvantage associated with insurance is that there is always a growing need to expand its ambit. For instance, now, people are claiming insurance for businesses in case the property is damaged due to civil unrest. In the future, there are certainly strong chances of companies offering insurance over events that are not even foreseeable since COVID-19 was an unpredictable event.
At the same time, not everybody is in a position to afford an insurance package to mitigate losses. As the business of insurance is growing faster than ever, the companies are offering customised package policies that are expensive. This is another form of risk-taking which businesses are supposed to afford to remain in the competitive race in the market. Further, there is a lack of clarity on when BII claims become mature. Whether it is not the cessation of a business or a temporary shutdown, there is no specific stand on the same.
Now, with the COVID-19 pandemic, there are expectations to include business interruption insurance as a part of the stand-alone insurance policy to recover the losses incurred due to the pandemic. The pandemic has significantly changed the face of the market. The business sustaining in these uncertain times are necessarily required to secure the foreseeable and unforeseeable risks associated with it. Nowadays, along with the risks, there are other socio-political issues in the country that add to the already identified risks.
The choice of security is ever-expanding and at the same time, the cost associated with it is sky-soaring. Not securing insurance is no more a feasible choice in any marketplace now. Notably, the availability of choices on the type of insurance to buy also attracts potential foreign investors in countries along with attractive financial returns. Business insurance in cases of riots and looting has become an attractive venture especially in the last few years that have seen constant unrest, protests, and use of police powers by the government. Thus, there is a need for business insurance against the growing demand for it.
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