The concept of Force majeure excuses one or all of the parties from liabilities and obligations under a group gratuity insurance policy. A force majeure situation arises when there has been:
- An occurrence of extraordinary events
- An occurrence of a specified event
- Occurrence of events that are beyond parties’ control
A force majeure condition means that the performance of the group gratuity scheme may be partially or wholly suspended when the insurer’s performance is hindered. The acts causing hindrance to insurer’s performance may arise due to fire, earthquake, war, revolution, flood, and epidemics.
Other acts causing hindrance include strike, lockout, legislation, or restriction by any government or any other authority. Such circumstances are beyond the control of the Insurer. If it’s in the capacity of the insurance company, it will resume its obligations towards the policy immediately after the force majeure event ceases. It is important the insurer intimates the IRDA, regards to the suspension of the operations in case of any force majeure event.
The insurance company takes the force majeure decisions based upon the general interest of the insured under the unit-linked policy.
Also, the market conditions may be unforeseen or unusual. Taking these conditions into account, the insurers may limit the total number of units withdrawn on any day from each fund.
The insurer may defer the surrender of the group gratuity scheme or the claim in events like:
- The unusually high volume of sale of investments within a short period
- Exceptional redemption
- Force majeure conditions arising due to market, political or economic conditions
In event of any force majeure conditions, the insurance company has the right to value assets less frequently than on daily basis. The value of the assets is very uncertain in such cases. The extent to which it can be postponed will depend on the directions of the regulators at that time.
Force majeure situations in the case of group gratuity scheme can occur when:
- A group gratuity scheme consists of assets of the funds. These funds are invested in the stock markets. A force majeure situation can occur when such a stock market that provides the valuation for the funds, is closed. (Other than a public holiday)
- When the disposal of assets under the fund is not reasonable due to any political or economic conditions
- When the market faces periods of extreme volatility
- Due to natural calamities, riots, bandhs, wars, strikes
- Any reason or calamity affecting the normal functioning of the insurers
- In case of any directions given by the Insurance and Regulatory authority of India. (IRDA)
An insurance company provided group gratuity schemes to various prospect companies. The investment fund of this policy consists of various combinations of equities, corporate bonds, money market instruments, government securities. Also, the funds’ types were different according to the risk profiles of the insureds. They included conservative funds, bond funds, balanced funds, and growth funds. The policy document for this scheme included the conditions for any ‘force Majeure event.
The clause clearly mentioned that the insurers may terminate the policy partially or fully in case of any force majeure incidents like:
- Wars and Strikes
- Market, Political or economic conditions
- Natural disasters
One day, there was a hindrance in the operations of the insurance company due to an earthquake in the area where it operated. All the operations came to standstill. Thus, the insurance company activated the force majeure condition as its operations for fund management were bought to a standstill. It also notified the regulators regarding the same.