Business interruption claims after the deluge
The widespread flooding in the North and Central Plains of Thailand has, thus far, inundated seven industrial estates in Ayutthaya and Pathum Thani Provinces. This deluge is likely to be considered as "flooding" in the context of insurance policies.
If you have business interruption insurance it is very important to determine whether or not your insurance policy covers flood damage. If the damage is covered, you will have a claim for compensation.
Business Interruption insurance is designed as extension of coverage under an all risk or property insurance policy. In Thailand, an insured may be compensated for the actual physical loss or damage to property identified in the policy, e.g. factory or warehouse, stock or machinery/equipment. Under a policy commonly known as an "Industrial All Risks Insurance Policy" (IAR Policy), the insured will not be covered for financial loss due to interruption or interference to business, unless the IAR Policy is extended to specifically cover “business interruption.”
The purpose of the business interruption insurance is to restore the business of the insured to the same economic position it would have maintained had no loss occurred. This type of insurance provides coverage for loss of gross profits, proximately caused by a peril, which has been insured against. The loss can be calculated by comparing the business's rate of gross profits with the reduction in turnover. Some policies are also extended to cover the additional increase cost of working representing the additional expense reasonably and necessarily incurred by the insured for the sole purpose of minimizing a reduction in turn over during the indemnity period. It is also quite common to include prevention of access or denial of access clauses in business interruption policies. By adding such a clause in the policy, it could trigger a claim if the insured was prevented from accessing the business premises or precluded from their use as a result of perils insured, regardless of whether the business premises or property of the insured was damaged.
Standard Business Interruption policies cover losses to a particular length of time which is known as "the business interruption period" or "indemnity period". This is usually defined as the period beginning at the time the damage occurred and ending when the business ceases to be affected by the damage. The usual minimum indemnity period is 12 months and the maximum period is commonly 24 months.
As with property insurance policies, business interruption insurance requires the insured to notify the insurer of a claim within a period specified under the policy. Some notification clauses require notification to be provided as soon as reasonably practicable. Some clauses require notification to be made "immediately" or "as soon as possible" or "within 30 days". It is important to know and understand the meaning of the relevant notification clause in order to comply with this critical, time-sensitive requirement. Under the Thai law, a breach of a notice clause by the insured will entitle the insurer to claim compensation for any damage suffered as a result of such violation. A breach of the notice clause which has been set forth as a condition precedent to liability under a policy may give rise to a right in the insurer to repudiate the insured’s claim for loss.
If a business is affected by a flood, the premises and offices where manufacturing documentation or necessary financial data or records are stored may be ruined. If this is the case, it may cause difficulty for an insured to locate evidence to establish its business interruption claim. In such a situation, it may be necessary to rely on records kept by the insured’s accountants or in electronic systems in different locations.
To establish the loss under a business interruption insurance policy, it is important to gather various types of documentation to support the claim and is advisable that a competent accountant be involved in the assessment and calculation of the claim. As a result of the complex nature and numerous issues related to interpreting relevant provisions of business interruption insurance policies, it is also advantageous to engage legal counsel early in the process and immediately seek necessary legal advice as-needed.
