Surprisingly often, insurance claims fail not because the loss or damage suffered is outside of the scope of the policy, but due to technical or administrative errors by the insured at the time of placing, administering or claiming under the policy.
During periods of significant supply chain or trade disruption, this risk may be increased, because the way in which companies do business is forced to change dramatically and may no longer be consistent or compatible with existing coverage. Equally, for businesses renewing or replacing coverage, the information which has traditionally been provided to insurers, and the coverage which has previously been purchased, may no longer be appropriate.
This article sets out some key considerations for businesses which are placing, administering, renewing, or claiming under a physical commodities insurance policy during, and in the immediate aftermath of, periods of significant supply chain or trade disruption.
From time to time, the production, trading, transportation, and consumption of commodities is severely disrupted by an unanticipated event which has far-reaching implications. In recent years, for example, the commodity supply chain has been disrupted by events including major economic crashes, war, politically motivated trade embargoes, widespread export bans, and environmental disasters.
What these events have in common is their ability to disrupt, with immediate effect, previously stable markets and supply chain infrastructures. During these periods of major disruption, many businesses will be looking to their cargo, storage, and other physical commodity insurances to provide protection against loss and damage which occurs as a result. Equally, businesses will be expecting their insurance to provide cover in respect of unrelated loss and damage which happen to occur during these unusual periods.
However, in an environment where many businesses are facing unprecedented challenges as a result of the disruption, including in the case of the present pandemic staff shortages and mandatory work-from-home measures, the proper placement and operation of insurance policies may be more challenging than ever.
This is important because many insurance claims fail not due to the nature of the loss asserted being outside the scope of the coverage, but due to ‘technical’ failures at either the time of placement, during the day-to-day administration of the policy, or during the claim process itself.
These types of issue apply equally to all English law-governed commodities insurance policies regardless of the commodity insured, and are as applicable to energy commodities such as liquefied natural gas (LNG), crude oil and petroleum products, and ‘hard’ commodities such as metals, minerals, and ores, as they are to ‘soft’ commodities such as grains, oil seeds, food oils, and sugars.
Considering the enormous pressure the insurance market comes under as a result of these types of major events, insurers can be expected to scrutinise potential technical and administrative defences more closely than ever.
This article focuses on the ways in which major disruptions to the commodity supply chain could indirectly trigger common barriers to recovery under physical commodity insurance policies, and provides a ‘checklist’ of points to consider when placing, administering, renewing, or claiming under a policy during, and in the immediate aftermath of, such events.