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Insurers that faced business interruption claims as a result of the Japanese earthquake could see additional claims from manufacturers that shifted production to Thailand and then were hit by flooding there, according to London-based law firm Reynolds Porter Chamberlain L.L.P.
Many Japanese companies moved production to Thailand or found alternative component suppliers in Thailand after March's devastating earthquake and tsunami, RPC said Wednesday in a statement.
The move helped many companies mitigate their losses in the Japan disaster, but many face further losses as a result of flooding in Thailand this fall, RPC noted.
“The problem for insurers who provide business interruption cover to Japanese manufacturers is that they have to cover the losses stemming from the Thai flooding because so many businesses moved some or all of their supply chain there,” said Daniel Saville, legal director in the reinsurance and corporate insurance department of RPC.
“Moving production from Japan to Thailand was ‘Plan B.' The question now is whether those businesses have a ‘Plan C,'” he said in a statement.
Insurers now must work with buyers to implement contingency plans as quickly as possible, he added.
“An additional factor in business interruption claims, especially those arising from electronics manufacturers, is that production may have been scaled up to deliver goods to the Christmas market,” said Victoria Sherratt, a partner at RPC. “Losses in those cases could be even higher,” she noted.
Many of the losses are reinsured in the London market, RPC noted.
The losses in Thailand also could give rise to coverage disputes, RPC said.
For example, even if there is no express exclusion in the policy, insurers could, under Thai law, exclude claims in cases where a building collapsed or was washed away because of design or structural defects, Mr. Saville said. In addition, while many reinsurance contracts contain clauses that limit damage caused by one event to 168 hours, some Thai policies contain a 72-hour clause.
The fact that the flooding took place over several weeks and affected several provinces also may give rise to dispute over deductibles and limits, the law firm added.