Evaluating Policies after Japan's Earthquake

By Banister, John; Dominitz, Erica et al. | Risk Management, June 2011 | Go to article overview

Evaluating Policies after Japan's Earthquake


Banister, John, Dominitz, Erica, Fleishman, Barry, Michael, Helen, Salisbury, Carl, Spangenberg, Caroline, Risk Management


Shock and tragedy were the emotions most felt throughout Japan when the March earthquake and tsunami ravaged the nation. But companies doing business there have since moved on to planning mode, looking for ways to mitigate their losses, both those already suffered and the inevitable ones to come from similar exposures in the future.

An essential first step is to review insurance coverages for losses caused by natural catastrophes. Of particular importance is the potential availability of contingent business interruption insurance coverage for lost sales to Japanese customers or lost supplies from Japanese producers.

Property insurance policies obviously cover direct property damage caused by natural disasters. But those same policies also cover other types of business losses. Time element coverage pays for the lost profits when damaged property affects a policyholder's day-to-day operations. The amount covered generally depends on the time it takes to resume normal business operations. Time element coverage can be triggered by damage either to the policyholder's property or a third party's property, and the most common kinds are business interruption, extra expense and contingent business interruption.

Business Interruption

The purpose of business interruption coverage is to restore the policyholder to the financial position it was in before the property damage occurred. To recover these losses, the lost profits, at a minimum, must relate to the event that caused the policyholder's property damage. Once the insured demonstrates covered property damage, the measure of the loss generally is the difference between expected profits during the recovery period after the event and actual profits during that period, less any unrelated losses.

Perhaps the only recent U.S. event comparable to Japan's earthquake is Hurricane Katrina. In Consolidated Cos. v. Lexington Ins. Co., the Fifth Circuit Court of Appeals ruled that business interruption losses resulting from Hurricane Katrina were covered without requiring proof to a level of specificity that the loss stemmed solely from damage to the policyholder's property as a result of the hurricane. The insurance carrier argued that the policyholder had to prove what its likely performance would have been had Katrina taken place but not damaged the policyholder's property, reasoning that, even absent damage to the policyholder's property, profits would have been reduced because of the generally depressed economic conditions following the hurricane. Instead, the court concluded that the loss should be calculated as if Katrina had not struck at all.

Coverage for this interdependent business interruption loss can extend to locations that are distant from the damaged property if the policyholder can show that the undamaged facility operated in concert with the damaged one. An example would be a policyholder's remote facility outside of Japan that cannot receive inventory because of damage to the policyholder's manufacturing plant in Japan.

Extra Expense

Extra expense coverage aims to cover additional costs the policyholder incurs to minimize or avoid interruption of its business. Examples of such coverage are: additional utility costs needed to resume business operations; additional costs to store business equipment; moving costs to relocate to temporary facilities; and costs expended for the temporary repair or replacement of property. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Evaluating Policies after Japan's Earthquake
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.