Pandemic, Force Majeure and Insurance Sector in India

The COVID 19 pandemic is having a catastrophic effect globally. One of the biggest humanitarian health crises after the Spanish Flu of 1918-20, affecting over 14.6 million people spanning across 213 countries and territories. With modern healthcare system humanitarian loss is not scalar level to another pandemic, but economies and businesses of the world are facing the heat of economic crisis owing to large scale lockdown for preventing the spread of disease. This uncertainty will prevail till a proper vaccine is developed, to mitigate this business, as well as a common man who is not covered by Ayushman Bharat, are claiming their insurance policies.

Insurance as a sector is vital for the smooth functioning of the economy as it provides stability in the market. However, pandemic being force majeure is under great discussion. The clarity over force majeure clause is given by the Insurance Regulatory Authority of India hereafter referred to as IRDA.

Difference between Force Majeure and Vis Majeure

The Black Law Dictionary defines Force Majeure and Vis Majeure respectively,

‘Force Majeure’ means an “event or effect that can be neither anticipated nor controlled . . . [and] includes both acts of nature (e.g., floods and hurricanes) and acts of people (e.g., riots, strikes, and wars).

‘Vis Major’ (meaning ‘Act of God’ in Latin) is defined as an “overwhelming, unpreventable event caused exclusively by forces of nature, such as an earthquake, flood, or tornado.” 

The SC in Dhanrajmal Gobindram v. Shamji Kalidas & Co. acknowledged the distinction between Force Majeure and Vis Majeure/ Act of God as former is wider than latter.

Force Majeure and Indian Contract Act,1872

Two provisions of the Indian Contract Act, 1872 are relevant to force majeure and vis Majeure/ Act of God. Section 32 covers contingent contracts, that is a contract based on happening or non-happening of the event(s) in future. If such an event becomes impossible then the contract becomes void, whereas section 56 covers frustration of contract and provides that because of any event which the promisor could not prevent after the contract is made. Then in that scenario, the contract becomes void. 

The principle of frustration is an aspect of the discharge of a contract. Under the statute, the doctrine which Courts adopt in India is that of intervening impossibility or illegality as laid down under Section 56 of the Act. Per-contra, if the contract contains implied or expressly a term according to which it would stand discharged on the happening of certain contingencies, the dissolution of the contract would take place under the terms of the contract itself and such cases would be outside the purview of Section 56 of the Act. These would be dealt with under Section 32 of the Act.

COVID-19- Is the frustration self-induced?

In examining the doctrine of frustration, the Supreme Court observed that Section 56 of the Act, lays down a rule of positive law and does not leave the matter to be determined according to the intention of the parties.

When the event which is alleged to have frustrated the contract arises from the act or election of a party, there would be no protection under the doctrine of frustration. Premised on the observations of the Supreme Court, it can be averred that commercial exigencies cannot lead to frustration.

Judicial interpretation over COVID – 19 

As mentioned above the national lockdown imposed for 70 days made it impossible for contracting parties to complete their contractual obligations. This resulted in an onslaught of a contractual dispute over the frustration of the contract. The varied approach if Indian courts;

Rural Fairprice Wholesale Ltd. & Anr. vs IDBI Trusteeship Services Ltd. & Ors. on 3 April 2020, Bombay High Court

A court considered the market scenario restraining the bank from acting over sale notices and directed the bank to withdraw any pending sale orders for the pledged shares.

Standard Retail Pvt. Ltd vs Gs Global Corp And Ors on 8 April 2020, Bombay High Court

The Bombay High Court did not grant interim measures to the petitioner. As the commodity in question was an essential commodity, therefore the petitioner should complete his contractual obligations.

M/s. Halliburton Offshore Services Inc. vs Vedanta Limited & Anr. 20 April 2020, Delhi High Court

The Delhi Court observed that countrywide lockdown was like force majeure. Therefore, special equities do exist and granted the prayer, to injunct invocation of the bank guarantees.

Insurance sector and Covid-19 pandemic


1. As per circular dated March 4, 2020, IRDA instructed all health insurance insurers, covering the cost of hospitalization;

a. To expeditiously settle all claims regarding medical expenses incurred for treatment or during the quarantine period according to terms and conditions of insurance of policy.

b. To come up with policies to cover the treatment of COVID – 19 to meet the health insurance requirements of various sections.

2. As per press release of March 23, 2020, allowed insurers to condone the delay of 30 days for renewal of health insurance policy.

3. Ministry of Finance, issued Insurance (Amendment) Rules, 2020, amending Rule 59 of Insurance Rules, 1939. The ministry also provided provisions concerning payment of renewal premium for Motor Third Party Insurance Policies and Health Insurance Policies, that may fall due for renewal during the lockdown period.

4. IRDAI in its circulars dated April 2, 2020, for motor third party insurance policies and health insurance policies, and on April 16, 2020, for motor third party insurance policies and health insurance policies has provided that:

a. The insurers shall:

    • Communicate details about the payment of renewal premium and the conditions thereof to policyholders;
    • Inform the agents and intermediaries of the last date for payment of premium, to ensure continuity of the insurance cover;
    • Ensure that the period of cover of the policy on the payment of premium shall commence from the date on which the renewal fell due within the lockdown period, without any break in the policy; and
  • Ensure adequate arrangements to facilitate ease of payment of premium by policyholders;

b. The policyholders shall make the payment of renewal premium by April 21, 2020, for the entire period of 12 months from the due date.

5.Life Insurance Council declared that death due to COVID – 19 will not be covered by force majeure.

6. The Supreme Court issued notices to the Central Government and IRDA on a plea by Adv. Gaurav Bansal, for seeking direction to Health Insurers to provide mental health coverage under the medical insurance as Medical-Healthcare Act,2017.  

Concluding Remarks

The COVID pandemic has altered the way businesses will operate or courts will invoke economic jurisprudence to answer the questions put forward to them. On deeper scrutiny, approaches by courts will vary involving the question related to the frustration of contract due to force majeure, as there is no straight-jacket formula owing to the wide definition of the force majeure. Although COVID situation is temporary but has a longer after effect. The contractual parties should try to save the contract instead of salvaging on the grounds of force majeure, as it will have a far-reaching positive impact on businesses.

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