2011 provides business interruption, other lessons: Marsh

There are five major lessons to be learned from a series of catastrophes that struck around the world last year, Marsh Inc. said Monday in an analysis.

One issue involves how the denial of access clause in business interruption policies is treated by insurers when a catastrophe lasts for a prolonged period, the unit of New York-based Marsh & McLennan Cos. Inc. said.

In the wake of a second earthquake that struck Christchurch, New Zealand, the government restricted public access to the city's central business district as well as shopping malls, hotels and businesses regardless of whether they sustained damage. Thus, Marsh advised, buyers should check their policy to determine if the business interruption insurance covers against losses emanating from events as well as specific damage.

“An extended period whereby access is denied (as seen in Christchurch and Thailand) can expose any limitation,” Marsh said in the report. “It is very helpful if the denial of access extension covers not just denial of access but hindrance as well. Business can suffer if a location is difficult or highly inconvenient to get to, just as much as if access was physically impossible.”

Similarly, public disturbances in Egypt, the United Kingdom and elsewhere last year highlighted ambiguities in all-risks policies, which typically exclude terrorism.

The events in Egypt “have variously been described as nonviolent civil resistance, civil disobedience, popular uprising, revolution and terrorism,” Marsh said in the report. “These terms are frequently used generally and without appreciation of any insurance policy implications. However, the interpretation of these terms can have a significant impact on policy response.”

Likewise, flooding that inundated Australia last year shows that policyholders need to discern between damage attributable to floods vs. that attributable to storms.

“Timing of the damage can be important,” Marsh said in the analysis, “Lessons Learned from the Catastrophes of 2011: The Marsh Point of View.”

“In such cases, if it can be established that all, or part of, the damage was caused by the storm first (e.g., rain water runoff) rather than flood, then the flood exclusion will not operate to exclude the damage that occurred first,” Marsh said.

The 72-hour notice clauses common to many property insurance policies also are subject to interpretation, Marsh said. Such clauses “often apply to named perils,” such as flooding. Whether a flood is categorized as a single event or as multiple events will determine how much an insurer pays, Marsh said.