A common question asked me of me, that prompted me to write this series (this is the fourth) of articles on MOP / Stock Throughput policies, is “can the Insured still make a claim for Business Interruption when the only thing damaged is stock and this [the stock] is not insured under the business pack or ISR policy?”
The trigger for a Business Interruption claim under an ISR policy is damage to property owned or used by the Insured at the situation caused by an insured event.
The following is the trigger clause under the Australian Mark IV Advisory Industrial Special Risks (“ISR”) Policy.
In the event of any building or any other property or any part thereof used by the Insured at the Premises for the purpose of the Business being physically lost, destroyed or damaged by any cause or event not hereinafter excluded (loss, destruction or damage so caused being hereinafter termed “Damage”) and the Business carried out by the Insured being in consequence thereof interrupted or interfered with, the Insurer(s) will, subject to the provisions of this Policy including the limitation on the Insurer(s) liability, pay to the Insured the amount of loss resulting from such interruption or interference in accordance with the applicable Basis of Settlement.” [emphasis mine]
The issue from this clause is that the loss or damage to stock must be at “the Premises”.
There is no definition of Premises in the ISR policy other than what is recorded on the Schedule and /or in the Schedule of Declared Assets against the heading: Situation and/or Premises. Therefore I recommend that the following wording after all the Insured’s locations are listed:
Principally ……….and any other situation/premises in Australia owned or occupied by the Insured for the purposes of the Business or elsewhere in Australia where used by the Insured or where the Insured is undertaking work or has goods or property (including where goods or property are stored, or undergoing processing, repairs, maintenance, overhaul or improvements).”
The Policy will not, without agreement with the Insured, provide coverage for Business Interruption arising from loss or damage to stock overseas.
For Australian based stock, where the above wording has been used, the Business Interruption section will be triggered but there is a second test, this is known as the Material Damage Proviso.
This Proviso reads as follows:
Provided that the Insurer(s) will not be liable for any loss under this section unless the Insured’s property lost, destroyed or damaged is insured against such Damage (loss arising out of destruction or damage by explosion of Boilers and/or Economisers excepted) and the insurer or insurers by which such property is insured shall have paid for, or admitted liability in respect of, such Damage unless no such payment shall have been made or liability shall not have been admitted therefore solely owing to the operation of a provision in such insurance excluding liability for loss below a specific amount.” Emphasis mine.
You will note that the Proviso does not require the property damage that gives rise to the disruption to be insured under the ISR, but any policy will do and this, of course, includes a MOP or Throughput policy.
What is required is that the stock is insured, that the stock loss is met under the other policy and that the ISR policy does not have an exclusion, such as flood, that would exclude a Business Interruption claim in any event.
To learn more please read pages 148 and 149 of volume 1 of my book, Understanding the ISR Policy – the Mark IV.
A note of warning: many business pack policies are not as wide and require the stock to be covered under the same business pack policy that provides the Business Interruption coverage.
The issue can be very complex where there is a prevention of access or other factors also involved as we are seeing in Christchurch and elsewhere but that is a book in itself.
I finish my series on the MOP / Stock Throughput policies tomorrow where we look at whether we need to insure business interruption at all if we insure the stock for full retail under an MOP or similar policy.