Financial Impact of New Zealand Kaikoura Earthquakes Felt Beyond Earthquake Zone

  • Date02 March, 2017
  • Author David Maritz
  • Location APAC

While the damage to physical property as a result of the Kaikoura earthquakes in November 2016 has been well documented, the financial impact of these events are ongoing both on businesses physically affected by the earthquakes as well as businesses located a distance from the earthquake zone.

Business Interruption Coverage Issues

In particular, the combined impacts of damage to the main road and rail networks in the upper South Island and to the CentrePort Container Terminal has meant that many businesses that normally utilise these transportation routes are faced with unexpected logistical problems and additional transportation costs.

In most cases, a standard Business Interruption policy will not respond to a claim for additional logistical and transportation costs either as an Increase in Cost of Working or as an Additional Increase in Cost of Working as there has been no damage to the Insured’s own property.

Coverage may be extended under the Dependency Extensions where this is available but in some cases the cover, particularly in respect of the Prevention of Access and Wide Spread Damage extensions, requires that the damage triggering the cover must have occurred within a certain radius of the Insured’s premises.  In many cases the damaged road, rail or port facilities will be well beyond these areas, thus excluding cover.

Some Dependency Extensions do allow cover for losses occurring as a result of damage to key transportation routes including road and rail and facilities, such as ports and airports   However, the wording of these types of extension varies considerably and may be limited to cases where the transportation route or facility is used directly by the Insured as opposed to a third party acting on behalf of the Insured, such as a freight contractor or only to transport facilities as opposed to routes.  These policy extensions would also usually be subject to a coverage sub limit and subject to an initial deferment period

Claimants Beyond the Earthquake Zone

Notwithstanding these limitations, the pool of potential claimants could be far reaching well beyond the immediate locale of the earthquakes.  The types of issue that could emerge from such claims may include:

  • Identification of what the normal transport costs would have been
  • Identification of any saved costs
  • Identification of the ability for claimants to recover additional logistics costs from clients and customers
  • Exclusion of normal freight cost increases
  • Increase in volume freighted as a result of the event
  • Verification of actual additional costs where an Insured runs its own vehicles

MDD’s Kaikoura Earthquake Team

MDD has already been appointed to a number of assignments emanating from the earthquake events including claims relating to additional transportation costs.  Our local presence and ability to seamlessly draw upon our international resources means that we are always able to assist our clients in a highly efficient and cost-effective manner.

The statements or comments contained within this article are based on the author’s own knowledge and experience and do not necessarily represent those of the firm, other partners, our clients, or other business partners.