As a part of our Risks of 2013 coverage, we asked some industry experts their thoughts on emerging issues. This was the response from Bill Krekstein is partner at Nelson Levine de Luca & Hamilton.
RM: How can risk managers protect themselves given the lack of legal authority that exists to interpret CBI coverage?
Bill Krekstein: Globalization and free markets have made business operations more complex and expansive, requiring carriers offering contingent business interruption (CBI) coverage to gain a thorough understanding of their policyholders’ processes, suppliers and service providers before evaluating potential exposures.
The dearth of case law interpreting CBI coverage ensures that courts will closely scrutinize relevant policy language.
Adding to this uncertainty is the fact that CBI endorsements are a relatively new type of business interruption coverage. What makes the loss totals so murky is that policies are intended to protect businesses that do not suffer direct damage but are impacted in the sense that their income is dependent on another entity suffering what would otherwise be a covered cause of loss.
The losses from Superstorm Sandy are already projected to be in the tens of billions, and the CBI claims are likely to be significant. The difficulty that insurers and policyholders will face in disputed claims is the scarcity of legal authority to interpret CBI endorsements.