LMI are attending a number of insurance claims arising out of the earthquake in New Zealand. More than one of the clients has had extensive damage to their building in the heart of Christchurch. This area has been for sometime the subject of a closure by public authority order.
In more than one case it could be said that had the client’s business not been effected, ie, their buidling and contents destroyed they would have made extra sales as the population of Christchurch replaced the home furnishing and other household items destroyed in the same earthquake.
Rather than honour the policy of insuance, some insurers and loss adjusters are saying that the closure by public authority extension applies as the Insured would not have been able to trade even if their premises where not damaged due to the fact it located in the “red’ zone. Closure by public authority is often an additional benefit under the policy which is now being used not as a benefit at all but a limitation of cover. In New Zealand, the limitation is 10% of the sum insured on each section of cover, ie, Gross Profit, Additional Increase In Cost of Working etc.
I appreciate that Business Interruption insurance is a contract of indemnity but if the business would have traded well but for the damage to their building they should be indemnified, not ripped off. I also appreciate the accumulation risk that earthquakes and floods create for insurers.
The insurers seem to forget that the damage to the Insured’s building(s) have contributed to the need to create the ”red” zone. Which came first, the chicken or the egg? Does this mean that if a building was destroyed in stand alone fire and the police put up a barracade around the building that the Insured can only claim the prevention of access or closure by public authority limit. It really becomes a nonesense.
Why to people take out insurance. To protect themselves in the event of a loss, particularly a major loss. These clients have been paying premium to insurers for many many years. The city and their building/contents are destroyed or badly damaged by a major insured peril and when they go to claim they are begrudgingly paid 10% of their sum insured. There are few times when I am embarrassed to be associated with this industry I love but this is one of them!
Clearly one of these claims will need to be taken before the court for a determination and I can only hope that common sense and fair play prevail.
Interestingly, the UK loss adjusters and insurers are reluctant to rely on the principle in dealing with the London and UK riots.
For the sake of completeness I would advise that the US case on which those insurers that are attempting to limit their liability is Orient-Express Hotels Ltd v Assicurazioni General S.p.a. (UK Branch) [2010 EWHC 1186 (Comm); decided on May 27, 2010]