On February 22, 2011 a 6.3 magnitude earthquake destroyed thousands of homes and businesses in Canterbury, New Zealand. To make matters worse, the catastrophe area experienced a series of earthquake aftershocks as late as December of 2011, which inevitably delayed rebuilding projects and insurance payments.
Most commercial policies have a 12-month period of coverage. Those who could afford it were pressured to pay increased costs to speed up construction and resume normal operations by February 22, 2012. Those who could not afford the out-of-pocket expenses to speed up constructions and deal with slow insurance payments were cut off from business income coverage and left not quite in the same position as they were before the earthquake.
The New Zealand Manufacturers and Exporters Association (NZMEA) recently conducted a survey of manufacturers in the Canterbury region regarding the industries’ experience with insurance companies in the aftermath of this calamity. The survey identified business interruption as the biggest insurance problem for firms after the earthquakes. The survey results are available here.
The indemnity period for business interruption ran out on February 22nd for half of the firms surveyed so it is not surprising business interruption was the biggest issue.
The comments centred on payments being too slow making it difficult for firms to meet costs, and fine print making it difficult to substantiate a claim. Delays in dealing with material damage mean that repairs, and the business lost while they occur, will occur outside the business interruption indemnity period for some firms. There is a view that the indemnity period should be extended in these cases and there is some talk of legal action if insurers do not comply.
It is important that this performance improves and insurers start to take on new risks so that firms can get back to focusing on their own activity rather than building and insurance distractions.
Claims professionals following this catastrophe anticipated this situation and hoped that insurers would take adequate measures to avoid unfair results. I noted in – New Zeland’s Quake Approaches its One Year Anniversary – Understanding Business Interruption Claims –that:
Notwithstanding the panoply of pressures, policyholders should not cave to the insurance and reinsurance market. In fact, the U.S. has had numerous experiences with catastrophic claims handling and, under similar contractual agreements, policyholders have been successful in extending the period of restoration beyond the theoretical period of coverage, which is calculated by insurers and rarely considers real world circumstances like aftershock delays. Christchurch policyholders can also benefit from the newest business interruption claims handling trends, where some courts have agreed that post-loss market conditions (i.e., recessions and downturns) should benefit policyholders. For a brief outlook on these issues, readers can follow this blog at Can "Real World Circumstances" Be Considered To Establish a Theoretical Period of Restoration? – Understanding Business Interruption Claims, Part 26 and To Consider the Economy, or Not To? ‘That is the Question’ — Understanding Business Interruption Claims, Part 9.