February 22, 2012, will mark the one-year anniversary of the 6.3 magnitude earthquake that destroyed thousands of homes and businesses in Canterbury, New Zealand. The one-year anniversary mark is important because most business interruption policies have a 12-month period of coverage. New Zealand’s trade with Asia and Australia is three times larger (thus healthier) than its trade with Europe and the U.S. However, the country’s private lending and monetary fiscal policies are dependent on international markets, and according to the New Zealand Herald, the country will likely experience a spillover recession as Asian markets slow down in 2012 in reaction to last year’s European and U.S. political spectacles.

The catastrophe area experienced a series of earthquake aftershocks (one as recent as December of 2011) which inevitably delayed rebuilding projects. Mindful of the one-year coverage deadline, many businesses are feeling pressured to pay increased costs to speed up construction and resume normal operations.

The New Zealand Herald noted an example:

Louisa Cullen, of Beale and Cullen Dentists, said there had been pressure on her business to get up and running again before her insurance policy payments ran out. After the September [2010] earthquake, the business claimed a week of interruption insurance but realised that if it had been forced out of action for longer, it would not have been able to survive. The business’ cover was increased three-fold before the February earthquake, which Cullen said enabled it to retain all its staff while its doors were shut for 10 months. Cullen had to find new premises for her business and said she was conscious of the February deadline.

"The builder’s timeline initially had it finished in February but we said it had to be done before Christmas, come hell or high water," Cullen said.

The dentists are now operating again and the government is providing marketing assistance to rebuild its customer base, but not all Canterbury businesses have been as successful.

Canterbury’s Governor, Alan Bollard, addressed the Canterbury Board of Employers on the issue of delays recently and stated, “[w]ith the risk of ongoing damage from aftershocks and still high levels of uncertainty, insurers are not currently increasing their overall exposure to Canterbury and some insurance holders are having difficulties getting cover for new risks or increased limits”

A spokesperson for Vero Insurance stated that the company had paid out over NZ $800 million across their group towards claims in Christchurch, Canterbury, but the reality is that, unlike the dentists, many businesses did not have adequate insurance. The earthquake killed 181 people, and it has been estimated to be the world’s third costliest earthquake ($20 billion dollars).

Brett Solvander, of the Insurance Council of New Zealand, said the quake highlighted the fact that a lot of businesses did not have adequate insurance.

We know, anecdotally, that some small- to medium-sized businesses did not have sufficient business cover when the first earthquake happened in September 2010 … The big February 2011 earthquake compounded the issue.

Notwithstanding the panoply of pressures, Christchurch policyholders should not cave to the insurance and reinsurance market. In fact, the U.S. has had numerous experiences with catastrophic claims handling and, under similar contruactual agreements, policyholders have been successful in extending the period of restoration beyond the theoretical period of coverage, which is calculated by insurers and rarely considers real world circumstances like aftershock delays. Christchurch policyholders can also benefit from the newest business interruption claims handling trends, where some courts have agreed that post-loss market conditions (i.e., recessions and downturns) should benefit policyholders. For a brief outlook on these issues, readers can follow this blog at Can "Real World Circumstances" Be Considered To Establish a Theoretical Period of Restoration? – Understanding Business Interruption Claims, Part 26 and To Consider the Economy, or Not To? ‘That is the Question’ — Understanding Business Interruption Claims, Part 9.