Magazine article Risk Management

Do You Have a Superstorm Sandy Claim? Time Is Running out for Businesses to Assess Whether or Not They May Have a Contingent Business Interruption Claim from Superstorm Sandy

Magazine article Risk Management

Do You Have a Superstorm Sandy Claim? Time Is Running out for Businesses to Assess Whether or Not They May Have a Contingent Business Interruption Claim from Superstorm Sandy

Article excerpt

Superstorm Sandy struck the Northeast United States more than a year ago, impacting thousands of businesses in densely populated areas including retail, corporate offices, transportation, manufacturing and energy plants. Some suffered severe damage and were unable to reopen for months, if at all. Other businesses continue to face enormous financial losses--even without suffering any physical damage--because of power outages, evacuations, halted public transportation, government shutdowns, or damage to facilities of key suppliers or customers.

While Swiss Re estimated that insured losses from the storm totalled $35 billion, to some degree, the actual losses have not been fully realized since many businesses are adversely affected not only as a result of the physical loss of their business property, but also because of the lasting impact of the disaster. Specifically, first-party commercial insurance covers damage to a business's property and resulting business interruption (BI) loss, but most policies also contain protection against contingent business interruption (CBI)--losses caused by damage to others' property.

To incur a BI or CBI loss, an insured business must suffer an actual loss of income. In the case of BI, the interruption must be due to physical loss or damage to its own property as a result of a covered cause of loss. A BI claim can also be triggered if the work location is not accessible due to a "civil authority" order telling people to stay out of an area.

CBI coverage provides additional protection for loss of income when the insured's operations are disrupted by damage to another's property. For instance, if a policyholder's supplier can't operate and customers are affected, even if the policyholder has suffered no direct physical damage, CBI coverage provides protection.

Sandy-related CBI claims also don't have to arise in the northeastern part of the country. The insured business only needs to establish that it lost income as a result of physical damage to the property of a customer or key supplier--typically described in the insured's policy as a "contributing," "recipient," "dependent," "leader" or "attraction" property.

Unlike CBI claims, which can arise anywhere in the world, BI, civil authority and ingress/egress claims will be concentrated in the areas directly affected by Sandy. Businesses located in or near closed subway stations or in the seven-block area around the damaged construction crane that hung over midtown Manhattan are likely to make civil authority or ingress/egress claims under their commercial property insurance policies. Businesses in the path of the storm whose property was damaged are likely to make BI claims. CBI coverage is available not only to these businesses, but also to businesses with locations many miles from the storm center.

Contingent Coverages

Contingent business interruption coverage has taken on much greater importance for businesses as more companies are now outsourcing portions of their manufacturing, logistics and services, and have increased reliance on outside suppliers. CBI covers the insured's financial losses caused by damage occurring on the premises of a supplier or customer.

Companies dependent on New York-area business that provide goods and services or that are major customers, for example may have incurred economic loss attributed to Sandy, even if they were not in the path of the storm and did not have any damage to their property. These affected companies may have claims for CBI coverage if their business operations were adversely impacted by damage to customers and suppliers.

Contingent business interruption coverage may give coverage where a business faces loss due to its suppliers' inability to offer needed parts and resources, or its customers' inability to take delivery of product because of the damage to their own business ventures. Other types of insurance that may respond include policies for trade disruption, event cancellation, and directors and officers. …

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