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.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.