Japan Earthquake a Wake-Up Call for Contingent Business Interruption Coverage



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Sheila E. Salvatore

ADJUSTING TODAY is published as a public service by Adjusters International, Inc. It is provided for general information and is not intended to replace professional insurance, legal and/or financial advice for specific cases. AT11 2001-EA


Copyright © 2011 Adjusters International, Inc. Adjusters International ® and the AI logo are registered trademarks of Adjusters International, Inc. Image earth in water wave copyright 2011 somchaij; Japan earthquake disaster 2011 copyright 2011 AntoMale; detailed Japan earthquake map copyright 2011 Alexander Kaludov; ocean wave copyright 2011 ck; tsunami warning sign on Mook Island in Thailand copyright 2011 Gina Smith; all used under license from Shutterstock.com.

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...loss that could adversely affect its business, or purchased a DIC policy on an international basis. If the insured property was damaged by fire as a result of the earthquake or tsunami, the basic property coverage would trigger the contingent coverage.

Because of ambiguities, disputes will undoubtedly arise over some property policies written for U.S. businesses dependent on foreign sources. Considering how some property policies are structured, with a mix of standard and nonstandard forms and endorsements, it does not take much imagination to surmise potential arguments — issues that are very likely exacerbated by the enormity of financial loss.

These disputes will also include such questions as whether a tsunami is associated with earthquake or flood coverage, particularly if a business did not purchase flood coverage or maintains it for lower limits than may be needed, the application of deductibles, and limits.

Mr. Malecki is a principal of Malecki Deimling Nielander & Associates, LLC, an insurance and risk management firm. He began his career over 50 years ago and has held the titles of insurance underwriter, broker, insurance company claims consultant, archivist, historian and teacher.

Donald S. Malecki, CPCU

Adjusting Today on the Web — www.AdjustingToday.com

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Finally, what the impact might be from nuclear radiation and whether it was insured, is uncertain. The way the nuclear facilities were constructed, it was said that they took into consideration earthquakes given that Japan is earthquake-prone. The severity of the earthquake in this disaster of 2011, however, apparently was not contemplated. Whether first and third party liability coverage therefore was purchased through the nuclear pools is something that was unknown initially.

____________________ Copyright, ISO Properties, Inc., 2001. One should not assume that “suspension” means slowdown, since some independently filed policies, unlike ISO, limit suspension to complete cessation of business. Ibid. Use of the term “DIC” may appear to be archaic in the minds of some insurance and risk management people, given the common reference to “global” as the term to connote broad and all encompassing property policies today. The old term is still referred to here because some insurers still refer to it by that name, particularly when issued for businesses that do not have international exposures.