Do insurance policies cover rain damage and business interruption?

Most claims will be for damaged vehicles and from businesses and homeowners who have property policies

Cars drive in a flooded street following heavy rain in Dubai. In a claim involving natural calamity, the insurer has no recovery rights. AFP

Incessant rain hit Arabian Gulf states over the past few days, and while the stormy weather was expected, the amount of damage caused was unprecedented.

Insurance companies are now facing several claims after the storms.

Most of these claims would be for motor vehicles damaged during the heavy rain. Such claims vary between complete or partial damage. A completely damaged car would be declared a “total loss” while a partially damaged case would be subjected to the claims process. If covered, the insurer will have to bear the cost of it.

In a typical motor accident involving more than one vehicle, the insurer of the at-fault party has to cover the repair costs of the other vehicles. As a result, the insurer of the non-faulty car is able to recover these costs.

But in a claim involving natural calamity, the insurer has no recovery rights. Therefore, such losses affect them more than the usual losses.

The other significant claims, lesser in number but higher in quantum, that insurers are potentially looking at is from businesses that have property policies.

Property policies for businesses are generally structured as property all risk and business interruption (PAR & BI) policies.

While the exact coverage depends on the policy wording, the PAR aspect of these policies is typically designed to protect the property owner against contingent events, including water damage. The policy would cover the cost of repair or replacement of the damaged property.

While PAR and BI are capable of being independent policies, they are often sold together, and, therefore, if the policyholder has a PAR & BI policy, it would, usually, cover them not only for damage but for the loss caused due to interruption of the business.

A business which has a policy that covers the above and has suffered damage from rain, directly or indirectly, should now be looking at their plan to determine whether their damage is covered, and to what extent.

Policy terms will determine the extent to which the damage is covered.

In insurance, the devil lies in the details. These policies will often have sub-limits for the various benefits and the cover is capped to the sub-limit, not necessarily the overall amount.

The policy will often have exclusions and other conditions that must be ticked off to determine whether a claim falls within the bracket of being “payable”.

Similarly, a common requirement, and an established insurance principle, is that the policyholder must act as a prudent uninsured, implying that the policyholder is expected to take care of the property as if it were uninsured.

If you have this coverage and intend to get the insurance benefit, then a discussion/notification to your insurer or broker at the outset is highly recommended.

The insurer would expect to be notified before you take any action relating to the incident, which could affect the risk and the connected losses, failing which the cover could be denied.

The policy terms that set out what is covered are complemented with exclusions and need to be read together to determine whether the loss is covered. Seeking advice from lawyers or your insurance provider is encouraged.

Another aspect to consider, which often comes into play where the loss is small, is what is the deductible, or the minimum limit above which the claims are valid under the policy.

For instance, water damage to a shop or a warehouse, which may seem like a lot initially, may subside once the rain stops and the water level recedes.

If the damage is not substantial, due consideration ought to be given before the claim is made.

PAR cover will usually have a deductible specified in terms of quantum, whereas BI will usually be for a certain number of days or hours.

For instance, if the business was up and running within 24 to 48 hours, there is probably no eligibility for BI coverage under the policy.

Another important question is whether a typical homeowners’ insurance policy covers damage caused to the house on account of the flooding from the rain.

This will depend on the nature of the claim itself, as a homeowner's policy is supposed to cover damages resulting from perils relating to the property itself, such as a burst pipe or accidental leakage caused within the property and not external factors.

However, flooding can be added as a cover under these policies, in which case such damage could be covered.

Homeowners’ policies are popular globally but are yet to find a firm footing in the UAE market.

Whatever the policy, they will have bespoke terms and conditions. These need to be thoroughly reviewed to determine what is covered and what is not.

Even if no insurance claims are made, this exercise will help in finding the gaps in coverage and make sure the insurance going forward covers what it is required.

Anand Singh is senior counsel for transport and insurance at Al Tamimi & Company