Contingent Business Interruption Issues Continue Following Disasters in Japan



Manuscript type policies are unique by design. Standard ISO type forms can be radically different due to the myriad endorsements that can be attached to any given policy. This absence of uniformity in policy language makes the discussion of contingent time element coverage rather challenging. However, a focus on the wide-ranging terms and provisions of the insurance policy should provide the policy- holder and their representatives with a better understanding of what is and what is not covered by the policy, as well as how to determine if coverage is available when others assert that none exists.

The Insuring Agreement

Generally speaking, the insuring agreement in a contingent time element policy form or endorsement can be summarized as follows:

we will cover business income and extra expenses losses that you sustain as a result of physical damage caused by a covered cause of loss that wholly or partially prevents others from delivering or providing to you goods and/or services.

While the specific language may vary from policy to policy, this is the general concept behind contingent time element policy coverage. The concept “caused by a covered cause of loss” is a critical component in triggering contingent time element coverage. The physical damage to the dependent property must be caused by a peril not excluded by your policy. The primary causes of loss in Japan were obviously from the earthquake and tsunami. Accordingly, in order for contingent time element coverage to be triggered, your policy must be endorsed for flood and/or earthquake, or alternatively, the policy must not exclude such perils. In the absence of flood and/ or earthquake coverage, there may be a possibility that your contingent loss is covered if due to a resulting fire or other peril that ensued from the earthquake and/ or tsunami. However, under these circumstances, one must pay close attention to the anti-concurrent causation language associated with the perils of earthquake, flood and nuclear damage, as this could preclude coverage even though the contingent loss was caused by an otherwise non-excluded peril.

Thus, the threshold issue of determining the applicability of contingent time element coverage is subject to all of the terms, conditions and provisions of the policy, including but not limited to the type of property insured, excluded causes of loss, loss valuation clauses, sub-limits, and coinsurance. Contingent time element coverage is not a standalone form of coverage, but rather an extension of the business income coverage that is afforded for your primary business. Therefore, you must have an understanding of the complete policy, as well as the contingent time element endorsement or coverage grant to perfect a contingent time element loss.

“Contingent time element coverage is not a standalone form of coverage, but rather an extension of the business income coverage that is afforded for your primary business.”