Hotels’ cover claims may be hit

MUMBAI: Terror-hit Taj and Oberoi hotels may find it difficult to claim hundreds of crores of rupees as compensation under the terrorism risk insurance cover. Their attempts to claim compensation for the damage to the two properties are likely to hit an unpleasant speed-breaker. It is an old circular from the insurance regulator which has now been re-endorsed.
Although both hotels, like all other major business establishments in the city, have taken out terror insurance risk cover, a circular (TOI has a copy of it) endorsed by the insurance tariff advisory committee, states that damages that occurred while preventing terrorist attacks, be it by the state or any private agency, will not attract insurance cover.
The circular, in the section on exclusions, states: "The warranty also excludes loss or damage, cost or expenses of whatsoever nature directly or indirectly caused by, resulting from or in connection with any action taken in controlling, preventing, suppressing or in any way relating to action taken in respect of any act of terrorism.''
This exclusion was once again reiterated in a circular by the General Insurance Corporation in October this year to all non-life insurers and members of the Indian members of the terrorism risk insurance pool. The circular said that claims arising out of such action will be exempted from insurance cover. "This clause was attached with the terrorism insurance cover as it was felt the claims will wipe out the around Rs 1,200 crore common terrorism insurance pool, of which all the insurers are members,'' said a senior official with a public sector insurance company.
The GIC circular became necessary as companies were misinterpreting the exclusion clause. Many insured companies felt that if they were not involved in any terrorist activity or their properties were not terrorist hide-outs, then their claims did not attract the above exclusion. The October GIC circular states unequivocally: "It is reiterated that the above exclusion should be invariably applicable in all claims involving losses arising from action taken in controlling, preventing and suppressing terrorism, without exception.''
So, in the case of the two south Mumbai hotels, the insurers might contend that since the NSG commandos and fire brigade also damaged the structure and other assets while trying to flush out the terrorists, these losses need to be excluded while calculating the compensation claims.
But, insurance experts and surveyors say this clause goes against the ethics of property insurance. "This would mean insurers can claim exemption by stating that the damages were inflicted by the police and NSG while trying to prevent the terror attacks. But, how are we going to assess who destroyed what,'' said Parimal Shah, a property insurance surveyor said. He said that this clause will attract long-term arbitration and the policy holders will be at the receiving end. Snap estimates suggest that the two landmark hotels incurred losses over Rs 800 crore. "The insurance companies will send their surveyors in a few weeks and will estimate the losses,'' said an insurance official.
Commercial establishments and religious institutions are paying crores every year to insure themselves against terrorism in Mumbai. Insurers estimate that these establishments, along with individuals from the corporate world, pay around Rs 65 crore every year as premium for insurance cover against terror attacks.
The insurance cover for terrorism is usually taken as part of the fire-insurance policy, say senior officials of insurance agencies. The terrorism premium comes to about 0.21% of every Rs 1000 of sum insured.
The nine insurance firms dealing with property insurance formed a common pool five years ago. The premium collected by all the dozen firms goes into this common kitty and the insurance firms are allowed to withdraw money from the common pool and compensate claimants in case of terror attacks on insured structures. This common pool has now swelled to over Rs 1200 crore. "The new clause was added so that the common pool does not get wiped out in one go,'' said an insurance official.