Decoding Force Majeure: A Comprehensive Guide for Insurance Claims and Coverage

As we all know, businesses can face numerous obstacles from unforeseen events which are beyond our control, which can disrupt normal operations as well as cause major financial loss and strain. In such situations, one legal term often referred to is force majeure, however it is frequently misunderstood impacting commercial insurance policies.

In the world of insurance, force majeure can become a game-changing factor. Businesses often rely on their insurance policies to protect themselves from potential losses. However, when force majeure events occur, it’s ever-so-critical to understand they influence your policies, as they help you manage your risk and in turn, maximise your insurance.

Force majeure is a French term meaning "superior force." According to Britannica, “in commercial and international law, it is an extraordinary and unforeseen event whose occurrence would free the parties in an agreement from certain obligations to one another.”

Essentially, force majeure is invoked when an event takes place that could not have been predicted, anticipated or controlled, therefore excusing the affected party from all liability. These incidents typically include wars, natural disasters (e.g., hurricanes, floods or earthquakes), terrorist attacks, epidemics, civil unrest (e.g. riots) and actions from the government such as lockdown which we recently experienced.

It’s important to note that not all insurance policies cover force majeure events, and even when they do, the coverage can vary significantly policy by policy. There is no one-size-fits-all approach when it comes to insurance policies and therefore it’s ever so important to read and fully understand the fine print of your policy.

As mentioned above, typical force majeure events covered by standard insurance policies might include:

For an event to qualify as force majeure, it generally needs to be all of the following:

Understanding the fine print in each policy and its clauses is vital for policyholders. The events which trigger force majeure coverage are narrowly defined and may vary between different insurers. Policyholders should always review their policies to ensure they are adequately protected, lowering their risks at the end of the day.

However, these types of events aren’t always automatically covered. Force majeure clauses in insurance policies are often subject to exclusions, limitations and conditions. A class example may be that particular policies might cover a flood, but exclude damages caused by gradual intrusion of water.

As with all legal concepts, there are a plethora of misconceptions about force majeure in the insurance world. Here are two common myths:

Myth 1: All force majeure events are automatically covered by insurance.

Unfortunately, this is not the case whereby insurance automatically covers the events. Insurance policies have very specific definitions and limitations of what constitutes a force majeure event, and just because a business is impacted by a disastrous event, it doesn’t mean it will be covered.

Different insurance policies may have their own comprehensive definition, and may not even include a force majeure clause. In addition, some policies may explicitly list what is or isn’t considered force majeure.

Myth 2: Invoking a force majeure clause will automatically lead to compensation.

Contrary to common belief, invoking a force majeure clause does not automatically guarantee compensation. Compensation usually depends on the specific T&Cs of the insurance policy, however such clauses can offer some form of relief from fulfilling contractual obligations due to these unforeseen events. If these events are covered in a policy, it’s important to note the policy limits, deductibles and exclusions.

These misconceptions underline the value of understanding your policy’s exact definition and limitations. Seeking expert advice from experts such as Harris Balcombe early can help avoid unexpected financial shocks when making claims for force majeure related events.

As with all insurance policies and claims, when faced with the complex and intricate language and clauses in a contract or policy, many individuals find themselves overwhelmed and not sure where to begin, especially in the aftermath of a force majeure event.

This is where Harris Balcombe’s expert team of Loss Assessors can add real value, when understanding and interpreting insurance policies, understanding the various nuances in the fine print and when negotiating with insurers to maximise the policyholders claims outcome.

Therefore, navigating the complexities of force majeure claims requires substantial proficiency of insurance policies and the specific implications of how insurers assess claims. Our expertise lies in the way we advocate for all our clients, ensuring they receive the full compensation they are entitled to when, unfortunately, a disaster strikes.

Businesses should always know whether or not they are protected in case of a force majeure event. We’ve highlighted 5 key tips for reviewing your policy on a regular basis:

Whilst nobody can predict or anticipate when a force majeure event will strike, there are a few strategies businesses can proactively use to mitigate risks and help minimise the financial impact and strain.

Businesses should regularly review and where necessary update their insurance policies, especially as their businesses, operations and demands evolve. Additionally, engaging with professionals like Harris Balcombe can help in assessing ongoing risks, and ensuring your business is fully covered with no gaps left uncovered.

There are pros and cons of relying on single suppliers, however a downfall is that it may leave your business vulnerable should they be affected by a disaster, as discussed. With this in mind, many businesses have a disaster recovery plan in place so that if / when a disaster happens, they have something to fall back on with all the necessary information and how best to respond. This may include things such as backup business systems, alternative suppliers as well as temporary locations to operate from.

Understanding force majeure as a concept and how this can impact insurance policies is crucial for businesses and their operation. Often navigating these complex clauses or managing the risks associated with future events, can cause stress and leave a business feeling vulnerable. This is where Harris Balcombe can step in with their expert advice, their deep understanding of the nuances of coverage, in order to protect your business and its financial stability in times of crisis.

The team at Harris Balcombe are on hand to help guide you and your business with your force majeure claims and help safeguard your future. Contact us today or start you claim now and we will be happy to partner with you to ensure your coverage is comprehensive and you’re adequately protected.