London underwriters have issues over Christchurch
27 July 2012

London market underwriters are concerned about business interruption issues from the Christchurch earthquakes and are questioning how tougher regulations on strengthening buildings will affect the cost of repairs and rebuilding.

New Zealand-based DLA Phillips Fox partners Crossley Gates and Grant Macdonald, who recently gave an earthquake update to the International Underwriting Association in London, say the earthquakes have tested policy coverage, particularly over business interruption cover.

Mr Gates told the London market believes reinsurers are closely watching Christchurch business interruption issues because of their much larger exposure to the Thai floods, where disruptions to manufacturing caused global disruption in a range of industries.

Disputes have arisen in Christchurch over the triggers for losses and whether these allow businesses to claim full or partial payouts.

A similar issue arose after Hurricane Katrina hit New Orleans in 2005 and business-owners suffered damage to their premises as well as loss of customers because people could not get into the city. This has also happened in Christchurch, with the central business district closed while damaged buildings are demolished.

Mr Gates believes Christchurch business interruption disputes are probably headed for the courts.

He says insurers and reinsurers want to know the extent to which the Christchurch City Council can increase seismic strengthening requirements for buildings that have to be replaced or repaired.

“There is a serious issue as to whether [the council] is legally able to do that,” he said.

Other concerns relate to how costs should be allocated between the 41 earthquakes as well as reinstatement of sums insured.

Mr Gates says many claimants are arguing for full reinstatement of the sum insured after the February 2011 quake, on top of as yet unspent repair costs from the September 2010 quake.

“Amounts in the millions of dollars are at stake,” he said.

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