Not many people know this but most insurance agreements have Escape Clauses which can be invoked by the insurer to avoid paying out insurance claims.
I was watching the news on the TV a few weeks back and was concerned to hear that a lady who had her homes flooded could not claim for this on her insurance. It transpired that damage due to flooding was excluded within her insurance policy. I thought this was ridiculous given that we all pay insurance every year just to protect our homes and property from this sort of event, especially in the UK (flooding). That said, this got me thinking about the many commercial contracts that I have negotiated over the years, and it made me wonder how many businesses are sitting there thinking they are covered for insured losses when infant they aren’t, many due to a standard boiler plate clause called “Force Mejeure”.
As our weather patterns get more extreme then it is likely that more “Acts of God” are going to effect our life. This means we are going to see more flooding, more bush fires etc. So are businesses ready for this change in the environment. Well the simple answer, I believe, may be no.
Why do I say this? Well if you are a business owner located on a flood plane (which you can see on the EA or SEPA Flood Maps) or if you are in Australia/ California in an area know for bush fires, then it is likely that insurers will seek to mitigate their exposure by excluding damage to property due to flooding or fire (get your insurance policy out and see if this is the case). If not don’t breath easy just yet.
If you think you are covered then is there a “Force Mejeure” clause in your contract anywhere? If there is (which is highly likely) then you may still not be covered in the event there is an “Act of God”. Take the bush fires in Australia for example, if they have been started by a person (arsonist) then clearly this is not an Act of God but rather the act of some idiot and so you can easily argue that this is not effected by a “Force Mejeure”. BUT what if the fired is cause by a Lightening Strike as implied by some government agency, is this then not an Act of God?
The same is true with flooding, if a dam breaks or the operator of a hydro dam opens its gates to purposely reduce the level of the water held in the basin and the valley below gets flooded as a result, then this is arguably NOT an Act of God. BUT if the river near you simply bursts its banks due to excessive rain fall, then again is this not an Act of God? Again, if you look at your policy document and it has a “Force Mejeure” clause in it, then you may not be covered if your premises gets flooded and your property and stock get destroyed.
In most contracts (probably all contracts) there will likely be a “Force Mejeure” clause which means that if there is an Act of God then both parties are released from their obligations within that contract i.e. your insurer is not obliged to maintain cover or pay for any damage. I term this the “Escape Clause”.
To avoid this situation there is one simple thing you can do – ask you insurer specially if you are covered for flooding or bush fires before sending them the money. If they say yes then note the date you talked with the insurer and the name of the person you talked with, you may need both of these if you contract has a Force Mejeure clause in it and if you need to make a claim.
Do understand that the Force Mejeure clause is in a contract for one reason and that is to allow parties to NOT fulfil their obligations of a contract in the event of an Act of God (or other reasons as may be defined). SO before paying your money to any insurer do make sure you are covered for what you really need to be covered for – an Act of God that could see you loose everything (be specific if you know you are on a Flood Plane or in a Fire Zone).
Hope this helps.