Despite the non-imposition of a coronavirus disease (COVID-19) lockdown in Tanzania, many businesses across the country are implementing preventive and containment measures against the spread of the virus, including work-from-home policy, and, thus, they are on limited operations and reduced capacity.
The timelines for businesses returning to normalcy are quite hazy. What is pretty clear is that these measures are needed to stymie the COVID-19 public health crisis, yet they are triggering colossal disruptions and revenue losses to businesses in Tanzania.
Small and medium enterprises (SMEs), which account for 90 percent of Tanzania’s private sector businesses, are among the hardest hit by the pandemic that has left many business owners scratching their heads and wondering how they can mitigate these losses. They are also wondering if their extant insurance policies cover losses and additional expenses incurred in response to the virus.
Regrettably, there is no general answer for all insureds’ businesses. That’s the stark reality of the present situation. Available coverage must be, by and large, policy-specific. Most insurance policies contain provisions couched in vastly technical terms, of which the common businesspeople have difficulty to understand.
In order to ascertain whether or not the business has coverage, current business insurance policies should be comprehensively reviewed. These policies will often contain declarations, insuring agreement (i.e. the insurer’s major promises), definitions, exclusions and conditions — all of which must be carefully examined.
The insured retains certain continuing obligations through the policy period and the insured’s failure or refusal to discharge these obligations may foul-up the coverage that the business relies on for protection in these trying times of the COVID-19 pandemic.
Against this background, let’s consider business interruption insurance (BII). BII mainly exists alongside property insurance to cover against loss of gross profits and increased expenses due to interruption or interference of the business, caused by direct physical loss of, or damage to, the insured property, including buildings, following a fire, allied perils and natural disasters.
BII is, for many insureds, the most potential buffer against loss of gross profits or additional expenses incurred due to restrictions imposed to contain the coronavirus public health disaster. However, some BII policies may exclude coverage for losses or additional expenses as a result a business interference.
There is no Tanzanian precedent on whether coverage may be accessible under a BII policy if the business has partially suspended its operations, but the recent Canadian case of Le Treport Wedding & Convention Centre Ltd v. Co-operators Insurance, 2019 ONSC 3041 shows that coverage may be inaccessible if there’s no complete suspension of operations.
A BII policy that requires the insured to prove direct loss or damage brings to the fore the question of whether the measures implemented to wrestle COVID-19 to the floor (e.g. school and university closings; quarantine or isolation; travel restrictions; and export prohibitions) can constitute such loss or damage.
These measures have left most businesses in the education, aviation, maritime, hospitality, construction, and tourism sectors unable to utilise their insured properties, including buildings.
But is this loss of utility a direct physical loss or damage warranting coverage? This question is important and critical in discussions of potential claims.
Some BII policies may not require the insured to prove direct physical loss or damage, making it easier to prove a loss covered under the policy. Nevertheless, policy exclusions may eclipse recovery of additional expenses incurred in running the business. Moreover, given the non-imposition of a COVID-19 lockdown in Tanzania, it is arguable whether any insured with a BII policy would have obvious coverage.
Incidentally, there are BII policies that may be triggered by the threat of physical loss or damage; it all depends on the wording of the policy itself.
Other issues to take into account in BII policies include liability limits and issuance of notice of loss or damage (for instance, loss of profits or revenue).
Last but not least, the Law of Contract Act, Cap 345 (‘LCA’) provides for the general principles governing contract law in Tanzania and BII policies come under its purview — with industry regulatory oversight coordination efforts emanating from the Insurance Act, No. 10 of 2009.
Pursuant to the LCA, a BII policy holder has a duty to mitigate damages, and it is a good practice to take reasonable steps in that direction. The tax treatment of proceeds from BII policies deserves a separate article.
Paul Kibuuka (email@example.com), a tax and corporate lawyer and tax policy analyst, is the CEO of Isidora & Company and the Executive Director of the Taxation and Development Research Bureau.