Contingent Business Interruption Issues Continue Following Disasters in Japan



Territorial Considerations

An important issue in assessing a contingent time element loss arising from damage to dependent properties is the necessity to check the policy for territorial limitations. Many policies limit coverage to the United States, its possessions and Canada. Other policies may provide worldwide coverage either by manuscript or by endorsement, such as the ISO CP 15 01 Business Income for Dependent Properties International Coverage. In any event, it is imperative to first determine if your policy will respond to dependent properties located in Japan.

In addition to these territorial conditions, it is necessary to identify which suppliers or recipients of goods or services upon whom you are “dependent” were actually damaged. This is necessary, as many policies will specify which locations are covered. Other policies may not specify locations and state something to the effect of “all locations” or include unnamed or miscellaneous locations in conjunction with the specified locations. If a dependent location in Japan is specifically named, this may supersede any territorial limitation in the policy.

For such a covered location, the insured must establish that the dependent property was:

This is not an easy task when the dependent property is located in Japan and there has been no access to or contact with the dependent property. Yet this must be accomplished as a condition precedent to any recovery.

Dependent Property

At this point, it may be beneficial to generally describe what constitutes a “dependent property.” First, for a property to be considered “dependent” it cannot be owned or managed by you, the policyholder. This is not always a straightforward inquiry. In many instances a company may provide to another company the designs, materials and supplies necessary to manufacture its product so that the former company closely controls the production process of the latter. Insurers will often contend that these close connections preclude such companies from triggering the definition of a dependent property, even though the two companies have no joint ownership. Putting aside these fundamental issues, a dependent property typically falls under one of the following categories:

Examples of properties that are typically excluded as a dependent property are roads, bridges, tunnels and pipelines. Accordingly, if the flow of goods to and/or from a dependent property is halted due to such infrastructure damage of the type excluded, coverage problems will occur. A related coverage issue that may arise entails a situation where the means of conveyance are destroyed, i.e., trucks, rail and cars. The question then is whether a loss resulting from such damage to conveyances is covered even though the damage to the infrastructure would have prevented passage of such conveyances.

Most contingent time element coverage forms exclude suppliers of utility services, including water and power, from the scope of dependent properties. In the event that the flowof goods and services is impeded by plants not able to operate solely...