- Businesses should review their current insurance cover for business interruption losses.
The Varanus Island gas plant explosion in Western Australia on 3 June serves as a timely reminder to businesses to check what risks they are insured against - or risk being out of pocket unnecessarily.
The explosion at Apache Energy's gas plant on Varanus Island off Karratha in Western Australia is reported to have cut the state's energy supplies by 30 percent, affecting businesses across a wide range of industries including building, manufacturing and tourism.
It serves as a reminder that all businesses, particularly power generation companies and manufacturers that rely on gas supply, should review their Industrial Special Risks (ISR) or Business Property insurance policies for possible business interruption cover - which may extend to circumstances where a supplier to the business sustains damage.
Most forms of Fire and Perils and Industrial Special Risks insurance policies in Australia provide cover for business interruption losses where they result in material damage as the result of an "Insured Peril", which can include:
- Increased production costs due to the need to obtain and retool for alternative sources of gas or other energy supply
- Loss of turnover/output
- Increased cost of sales due to the need to buy in finished product.
However, some companies may not be aware that such policies can also contain optional or automatic extensions of cover, known as the 'Utility Supply Interruption endorsement' and 'Specified and Unspecified Suppliers/Customers endorsement'. These "endorsements" can provide cover for business interruption losses where an event has caused material damage to a supplier of the business - rather than the business itself.
In similar previous cases, many of the claims for consequential losses were, in fact, brought by subrogating insurers who had paid substantial claims under these extensions to their policies.
It is important that businesses review the extent of cover provided by these endorsements, as they may be subject to different sub-limits of cover. There may also be other relevant exclusions and limitations which require analysis depending on the specific terms of the policy.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.