The Covid-19 pandemic has affected everyone across the Republic of Zimbabwe, with the vast majority of Zimbabweans subject to executive orders to contain the transmission of Covid-19. Consequently, such orders resulted in major business disruptions and closures. In such circumstances, business owners facing major financial disruption sought money to help assuage the loss. One source of potential funds that many businesses have turned to is insurance and, more specifically, business interruption insurance. This article carries a broad overview of business interruption insurance claims in the Covid-19 epoch.
A typical contract of insurance involves the following:
- payment of a premium (an agreed sum of money payable at a particular period) to the insurer by the insured
- an undertaking by the insurer to pay to the insured a compensatory amount, or its equivalent, on the happening of a specified uncertain event in which the insured has some interest
The purpose of business interruption insurance is to protect the insured against losses that occur when its operations are unexpectedly interrupted and to place it in the position it would have occupied if the interruption had not occurred.
What the Zimbabwean law says regarding business interruption insurance
In Zimbabwe, the primary statute that governs insurance is the Insurance Act [Chapter 24:07]. The Insurance Act however does not make provision for business interruption insurance despite the fact that insurers offer it. The failure to address business interruption insurance specifically results in protection gaps in the regulation of business interruption insurance.
The prerequisites of a business interruption insurance agreement
The requirements of a typical business interruption insuring agreement are, covered cause of the loss must cause direct physical loss of or damage to the property at the described premises, the covered loss must cause a necessary suspension or interruption of operations, and the business income loss must be caused by the suspension or interruption.
The Insurers’ Position
Insurers have widely denied Covid-19 business interruption claims, maintaining that pandemics are not insurable events. Following the outbreak of the Severe Acute Respiratory Syndrome (SARS) in 2002-2003, many insurers added exclusions for any losses caused by viruses or bacteria. By definition, exclusions are the cases for which the insurance company does not provide coverage. Thus, it has been assumed, as a rule, that business interruption insurance will not cover pandemic losses, as since 2003 insurance companies have routinely excluded SARS epidemics, which would include Covid-19 from the scope of coverage.
The shortfalls of business interruption insurance
- In most cases, business interruption insurance only covers lost income and expenses for property damage-related claims due to a disaster for example, a flood or hurricane. Therefore, if the business interruption is not caused by a business property loss it will not be covered by business interruption insurance.
- Standard interruption insurance does not cover claims related to incidents like the Covid-19 pandemic. However, it all depends on the insurer and the contract.
Business interruption insurance in the United States of America: Lessons for Zimbabwe
The United States of America as a jurisdiction has dealt with the question of whether losses triggered by the Covid-19 pandemic can be recovered through a business interruption insurance claim. The important takeaways from these cases are as follows:
- Firstly, standard practice is that when an insurance policy is ambiguous it must be construed in favour of coverage.
- Secondly, the court’s rulings are to the effect that closures of premises in whole or in part constitute a direct physical loss.
- The final key takeaway is that but for the virus, there would have been no order limiting or shutting down a business.
This article advocates for the Zimbabwean courts to replicate the stance adopted by the American courts. Although the Zimbabwean Courts have not yet heard a case to determine whether the Covid-19 pandemic should trigger pay-outs under business interruption policies, Zimbabwe should adopt the same interpretation approach when confronted with such issues.