Empty manufacturing plants may lose property cover

Large manufacturing plants that have fallen silent due to the lockdown risk losing their insurance cover if the Covid-19 induced restrictions get extended beyond May 3. Risk managers are in a panic as insurers have reminded them of a clause whereby the cover ceases if plants are unoccupied for over a month and said that they will give a one-time dispensation and allow coverage until May 3. Normally, if a unit is left unoccupied for a month, the insurance company has the right to reassess the risk. If companies insist on examining every fire policy in force after May 3, there would be uncertainty over coverage if the lockdown extends beyond that date.

The 'unoccupied premises' clause is present in every fire insurance policy. This clause is aimed at ensuring that companies do not leave plants unattended, thereby increasing the risk of loss. However, it did not envisage a lockdown situation. National reinsurer GIC Re had indicated that large plants that are shut will not be automatically covered unless insurers expressly agree. Subsequently, insurers wrote to their clients, stating that the extension of cover from May 3 will be based on further government orders aimed at controlling the Covid-19 outbreak. They also said that extension beyond May 3 would be subject to review.

The General Insurance Council on Tuesday clarified, “We do understand that in the current crisis, it might not have been possible for some policyholders to send communication to insurance companies for the continuation of coverage and obtain endorsements. Therefore, it has been decided that a one-time relaxation is given to all policyholders whose property is unoccupied on or after March 25, 2020 till May 3, 2020. Properties of such policyholders shall be deemed to be covered subject to the policy being in force.”


Insurance CEOs contacted by TOI did not want to comment as they were awaiting directions form industry regulator Irdai. They pointed out that the policy terms and conditions were approved by the regulator and could not be changed by companies. In a letter to Irdai, Insurance Brokers Association of India president Sanjay Kedia said, “The current period of lockdown should not constitute either unoccupancy or cessation of work or any material change in the risk, which hampers the continuity of cover.”

While the council's clarification gives companies time until May 3, there is still some confusion. The clarification applies only to fire insurance policy, while the clause is present in other package policies as well. Another cause of concern is that insurers have told companies that cover will cease if there is a change in the use of premises. Many companies engaged in the Covid fight have shifted use, with Alcobev companies manufacturing hand sanitisers, textile companies making masks and others making ventilators.

One public sector insurer has informed clients that the cover will cease in both cases - if the premises remain unoccupied or even if the premises continue to be operational in violation of the government orders on lockdown. One broker described the situation as bizarre.