BILA Seminar The Tohoku Earthquake & Tsunami – Legal Issues Daniel Saville 20 May 2011
Overview · Japanese Insurance Act · Adjustment issues · Coverage and exclusions · Business interruption · Aggregation Reynolds Porter Chamberlain LLP 1
Insurance claims in Japan · Insurance litigation unusual - few reported cases · ADR clauses are common: claims referred to ADR Centres prior to litigation · New Insurance Act: Law Number 56, 6 th June 2008 保険法 - (平成二十年六月六日法律第五十六号) Chapter 2 - Damage Insurance Contract 第二章 損害保険 · Applies to (re)insurance policies subject to Japanese law · Exemptions for marine, aviation, cargo & nuclear Reynolds Porter Chamberlain LLP 2
第一節 成立 Section 1 Establishment Article 4: Obligation to notify the Insurer “When entering into a damage insurance contract, the insurance policy holder … must notify the truth to the insurer of material information relating to the likelihood of damage arising, of which the insurer requests notification. . . ” Article 28: Insurance can be cancelled due to non disclosure for bad faith or gross negligence Article 31: Cancellation not retroactive unless damage relates to non-disclosure Reynolds Porter Chamberlain LLP 3
第三節 保険給付 Section 3 Insurance Payment Article 13: Occurrence of damage and prevention of the magnification of damage Article 14: Obligation to give notice of damage “without delay” Article 15: Destruction of insured items after insured damage “Where damage to an insured item has occurred that is covered by the insurance contract, and the insured item is destroyed by an occurrence which is not covered by the insurer thereafter, the insurer is liable to pay … for the damage. ” Reynolds Porter Chamberlain LLP 4
第三節 保険給付 Section 3 Insurance Payment Article 18: Calculation of damage (over-insurance) · Where agreed value significantly exceeds insurable value, insurable value will apply Article 19: Partial insurance (under-insurance) · Recognises proportionate insurance Article 23: Responsibility for costs · Insurer to pay for costs of loss calculation and mitigation Article 26: Mandatory provisions · “A special agreement which is disadvantageous to insurance policy holder … is invalid. ” Reynolds Porter Chamberlain LLP 1 February 2011 the 5
Adjustment issues · General Insurance Association of Japan (GIAJ) certifying losses under homeowner policies in certain regions from satellite and aerial photographs · Life Insurance Association of Japan announced that indemnification provisions will not be applied; established database of missing persons · Proper and businesslike adjustment procedures required for reinsurers to follow the settlements · No official requirement for Japanese registered loss adjusters, although expected to use GIAJ “Registered Property Loss Appraisers” unless reason otherwise Reynolds Porter Chamberlain LLP 6
Coverage - Earthquake & Tsunami · Property all risks policies will cover losses subject to exclusions · Policies covering specific insured perils (eg. fire, explosion, landslip) more likely to exclude earthquake · Various terms could encompass damage by water: 'tsunami', 'tidal wave', 'inundation from the sea', 'flood’ · Sher v Lafayette - Louisiana Supreme Court decision on ‘flood’ exclusion following Hurricane Katrina losses Reynolds Porter Chamberlain LLP 7
Nuclear & Pollution Exclusions · Nuclear exclusions drafted broadly - refer to effect rather than source eg. ‘ionising radiation or contamination' · Check application of exclusion where concurrent causes: Wayne Tank & Pump Co v Employers’ Liability Assurance · Pollution is generally excluded but: – may write back cover eg. for clean-up costs where pollution caused by an otherwise insured peril, or – can extension of cover for pollution/ contamination override nuclear exclusion? Reynolds Porter Chamberlain LLP 8
Business Interruption · Overall losses to Japanese economy ~ USD 300 bn Orient Express Hotels v Assicurazioni Generale · Policy covered: "loss due to interruption or interference with the Business directly arising from Damage" · BI losses shall be adjusted: "to provide for the trend of the Business and for variations in or special circumstances affecting the Business which would have affected the Business… had the Damage not occurred” · Insurers entitled to exclude losses which would have been suffered but for damage to hotel Reynolds Porter Chamberlain LLP 9
Contingent Business Interruption · Covers loss sustained to Insured's business by reason of one of its suppliers or customers suffering damage at their own premises · How remote? – ‘direct supplier’ or ‘any supplier’ · Extension of cover for supply chain · Physical damage of type insured by policy · Territorial limits in direct policy and reinsurances Reynolds Porter Chamberlain LLP 10
Aggregation and Hours clauses · Property policies - direct and reinsurance, commonly provide cover per event · May be limited by an hours clause eg. LPO 98 a: “The words ‘loss occurrence’ shall mean all individual losses arising out of and directly occasioned by one catastrophe. However, the duration and extent of any ‘loss occurrence’ so defined shall be limited to: . . . 1. (b) 72 consecutive hours as regards earthquake, seaquake, tidal wave and/or volcanic eruption…” · Intervening causes such as power rationing · Aggregation problematic for CBI losses Reynolds Porter Chamberlain LLP 11
Conclusion (Re)insurers should be proactive: · understand claim handling procedures and where Act will apply · bring in loss adjusters where appropriate · keep retrocessionaires in the loop to avoid later disputes · investigate far reaching CBI exposures Reynolds Porter Chamberlain LLP 12
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