The Colombian Supreme Court of Justice has addressed one of the
most complex insurance types: Business-Interruption
("BI") insurance, establishing an important precedent
regarding how and since when should the statute of limitations be
computed for the insured in order to recover damages from the
insurer (Article 1081 of the Colombian Code of Commerce).
The Court reviewed a case in which the plaintiff's
facilities were set on fire, having coverage by BI insurance in the
UK form. The carrier did not challenge the claim despite having
received all the documents requested to the insured, but later
moved for dismissal of the complaint alleging that it was barred by
the statute of limitations, because more than two years had elapsed
since the fire. The court of appeals agreed with the defendant and
declared that the plaintiff's action was in fact barred by the
statute of limitations.
The Supreme Court of Justice reversed the decision of the court
of appeals, and in-lieu established that regarding BI insurance in
the UK form, the statute of limitations is computed not only from
the occurrence of the covered peril –the fire- but also: (i)
since the agreed indemnity period; or (ii) since the restoration of
the insured's normal business –whatever happens first
Thus, in BI insurance the statute of limitations of the
insured's course of action to recover its damages from the
carrier will not start computing until the policyholder's
business has been restored to a no-loss state or until the
indemnity period has elapsed.
The aforementioned, explained the Court, owes to the fact that
the insured risk in BI insurance is actually the indemnity period,
this is, "the lapse of losses or actual decrease in income,
fixed in advance in a reasonable form, corresponding to the cycle
of re-adaptation of the company since the occurrence of the loss
until reaching a productivity level that is similar to the one
prior to the occurrence of the loss". (Free translation)
In addition, the Court explained:
BI insurance in the UK form provides
coverage to the insured, within the indemnity period agreed, for
loss of the profit of the insured's business, had the insured
event –fire- not occurred in the first place. It can also
provide extra coverage to necessary and extraordinary expenses
needed to be done during the business interruption.
BI insurance in the US form, on the
other hand, provides coverage to the insured's losses or
damages suffered in its gross earnings, in other words, including
the net incomes and normal operation expenses until the time it
takes to rebuild or fix the insured's property. In contrast to
the UK form, coverage ends when the insured property is fixed or
substituted, regardless of whether the policyholder's business
is still paralyzed or not.
The Court also reminded the
requirements for triggering BI insurance coverage:
Physical damage to the insured
property caused by a covered peril.
Current and necessary business
interruption caused by the covered physical damage.
Loss or covered damages to the
insured as a direct result of the business interruption.
The insured can only recover losses
during a certain period of time known as "indemnity" (UK
form) or "restoration" (US form) period.
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