Know your limits
Business interruption policies often contain sub-limits, which can have an important impact on coverage. Port and terminal operators should check to see which sub-limits apply to their policies to make sure they have the cover they expect. Examples of issues that arise include:
● Increased cost of working ("ICW")/additional ICW claims: the policy may incorporate this cover. This is additional expenditure reasonably and necessarily incurred by the insured for the sole purpose of avoiding or diminishing the loss in turnover or output experienced as a consequence of the damage. Issues may arise as to whether the additional expenditure incurred was for the sole purpose of reducing the loss. There may also be an extension to the policy which provides an indemnity for the costs incurred by the insured which are in excess of the limits provided under the ICW provisions. This is known as the "additional ICW".
● Analysis of the causation of lost production/selling lost production: other factors that may influence the rate of production will need to be taken into account and an insured will need to show what is claimed as lost production was due to the property damage or other business interruption trigger.
● Indemnity period: normally, the indemnity provided will be limited to a particular length of time, which is known as the "indemnity period". It is usually defined in the policy as the period beginning at the date of the occurrence of the damage and ending when the results on the business cease to be affected by the property damage.
● Extensions to cover: in addition to the additional ICW extension, further extensions that the insured may have negotiated or paid extra for include denial of access, where accessibility of the property due to the property damage impacts upon the business.
● Other/Special Circumstances clause: this allows the parties to take into account other circumstances which may impact upon turnover/production and the calculation of the business interruption. Its aim is to ensure that the amount indemnified is as true as possible to the actual amount lost by the insured as a result of the damage.
● Deductibles/occurrences: the number of deductibles applicable to a loss can be a cause of contention. This is particularly the case where there are potentially multiple causes of the property damage and business interruption.
● Contingent liability: as explained above, this is where the insurance is triggered by property damage at the premises of a supplier or customer or other trigger such as loss of utility, denial of access or the act of a local authority/Government/Regulating Authority. For example, Port operators are reliant upon manufacturers, commodity producers, logistics and rail companies for the continuous flow of products to the ports for shipment. While policies vary, there is often extended cover for named suppliers and loss of utility supply. With the deregulation of utility supplies, the identity of the contractual supplier can often differ from the source of supply, raising issues of whether or not the policy responds to business interruption losses.
