Corporate policyholders that do business with companies in Japan face a complicated process when they attempt to tap their contingent business interruption coverage because of the intertwining nature of the disasters that have struck the nation, observers say.

Many U.S. corporations receive critical components and materials from Japan, and experienced risk managers likely have contingent business interruption coverage as part of their business interruption coverage, observers say.

“If you're a company sitting in the Midwest and you've got a component of your product that comes out of Japan, you may not be able to get the product. In that case, you're going to want to pursue contingent business interruption” coverage, said Nancy Sher Cohen, a partner with law firm Proskauer Rose L.L.P. in Los Angeles.

The catastrophe also will affect U.S. companies that sell products in Japan, “where clients are no longer there” or do not need the product right now, said Duncan Ellis, New York-based property practice leader for Marsh Inc.

Sorting out business interruption claims in Japan is not likely to be a simple process.

“This is going to be one of the most complicated catastrophes that I've seen,” said William Oklesen, Chicago-based director of property claims for Lockton Cos. L.L.C. There are “so many variables,” including the original quake, the tsunami, resulting fires, nuclear power plant dangers and the government rationing of electricity.

Mr. Oklesen noted, for instance, that triggering coverage for a service interruption generally requires there be physical damage of a type that is insured under the policy. “The whole factor of the government coming in and dictating when and where power can be distributed just adds one more potential problem and hurdle for recovery of a business interruption claim,” he said.

Tom Teixeira, London-based executive director of Willis Global Markets International who leads Willis' supply chain interruption capabilities, said risk managers face two scenarios.

The first is that high-tech firms that have “companies that manufacture unique components, products and ingredients” in Japan. There is “a lot of risk there and we still don't know how bad it is.” If “suppliers disappear overnight due to natural peril, it will have a massive (business interruption) effect on major customers,” he said.

Under the second scenario, there is a “lot of interaction between different components and parts” of the supply chain. “If one supplier disappears overnight, it has cascade effect across the supply chain between various components.” Eventually, he said, “the customer ends up with no supplies at all.” Mr. Teixeira said it could be a smaller supplier that causes the problem.

“It's going to take anywhere from 30 to 60 days to really ascertain what the particular exposure is to the insurance industry,” said Tal Piccione, chairman and CEO of intermediary U.S. Re Cos. Inc. in Pearl River, N.Y.

Risk managers doing business with companies in Japan should conduct a risk analysis right away, he said.

Local, admitted policies in Japan are supplemented by master policies that apply on a nonadmitted, difference-in-conditions basis, said Mr. Ellis.

“I would just caution people to make sure that you understand the facts around your specific loss, and also make sure you're reading your (policy) wordings, because everything's going to be a little bit different depending on how somebody perhaps amended the wording of a specific exposure or amended the wording for a specific supplier.

“If you're very aware of a very specific supplier of a product, you may have written in a specific sublimit, or limits in your program to address that,” Mr. Ellis said.

Receiving payment for a claim, however, will not necessarily go smoothly. Linda D. Kornfeld, a partner with Jenner & Block L.L.P. in Los Angeles, said most business interruption policies “have fairly specific procedural requirements that insurers will argue must be strictly complied with in order to protect the coverage.

“As policyholder counsel, we may have a different view on how strict compliance needs to be, but policyholders would prefer not to be in a situation later in the coverage discussion where there's some argument that they have complied with it,” she said.

For instance, there is the issue of “proof of loss,” a document that insurers frequently require 60 to 90 days after the loss, Ms. Kornfeld said. But “it's going to be difficult to know with any degree of certainty the full nature of the loss” under the circumstances in Japan, “so we advise clients to the extent there's difficulty complying with the time restrictions that are set forth in these policies that the insured communicate with the insurers and obtain an agreement” for an extension.

“The other thing we advise our clients is, immediately, they should be reviewing their policies and identifying all procedural requirements, making sure they're aware of those requirements so that they can use their best efforts to comply, or talk to their insurer if they're not going to be able to comply,” Ms. Kornfeld said.

Another challenge, she said, is proving the amount of lost profits. “Early in the process, it's also important to maintain adequate records and have the right professionals involved to document the lost profits in order to assist in the ultimate proof of the claim,” she said.