BILA Seminar
The Tohoku Earthquake &
Tsunami – Legal Issues
Daniel Saville
20 May 2011
Overview
 Japanese Insurance Act
 Adjustment issues
 Coverage and exclusions
 Business interruption
 Aggregation
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Insurance claims in Japan
 Insurance litigation unusual - few reported cases
 ADR clauses are common: claims referred to ADR
Centres prior to litigation
 New Insurance Act: Law Number 56, 6th June 2008
保険法 - (平成二十年六月六日法律第五十六号)
Chapter 2 - Damage Insurance Contract
第二章 損害保険
 Applies to (re)insurance policies subject to Japanese law
 Exemptions for marine, aviation, cargo & nuclear
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第一節 成立
Section 1 Establishment
Article 4: Obligation to notify the Insurer
“When entering into a damage insurance contract, the
insurance policy holder … must notify the truth to the
insurer of material information relating to the likelihood of
damage arising, of which the insurer requests notification...”
Article 28: Insurance can be cancelled due to non
disclosure for bad faith or gross negligence
Article 31: Cancellation not retroactive unless damage
relates to non-disclosure
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第三節 保険給付
Section 3 Insurance Payment
Article 13: Occurrence of damage and prevention of the
magnification of damage
Article 14: Obligation to give notice of damage “without delay”
Article 15: Destruction of insured items after insured
damage
“Where damage to an insured item has occurred that is
covered by the insurance contract, and the insured item is
destroyed by an occurrence which is not covered by the
insurer thereafter, the insurer is liable to pay …
for the damage.”
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第三節 保険給付
Section 3 Insurance Payment
Article 18: Calculation of damage (over-insurance)
 Where agreed value significantly exceeds insurable
value, insurable value will apply
Article 19: Partial insurance (under-insurance)
 Recognises proportionate insurance
Article 23: Responsibility for costs
 Insurer to pay for costs of loss calculation and mitigation
Article 26: Mandatory provisions
 “A special agreement which is disadvantageous to
insurance policy holder … is invalid.”
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Adjustment issues
 General Insurance Association of Japan (GIAJ) certifying
losses under homeowner policies in certain regions from
satellite and aerial photographs
 Life Insurance Association of Japan announced that
indemnification provisions will not be applied;
established database of missing persons
 Proper and businesslike adjustment procedures required
for reinsurers to follow the settlements
 No official requirement for Japanese registered loss
adjusters, although expected to use GIAJ “Registered
Property Loss Appraisers” unless reason otherwise
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Coverage - Earthquake &
Tsunami
 Property all risks policies will cover losses subject to
exclusions
 Policies covering specific insured perils (eg. fire,
explosion, landslip) more likely to exclude earthquake
 Various terms could encompass damage by water:
'tsunami', 'tidal wave', 'inundation from the sea', 'flood’
 Sher v Lafayette - Louisiana Supreme Court decision on
‘flood’ exclusion following Hurricane Katrina losses
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Nuclear & Pollution Exclusions
 Nuclear exclusions drafted broadly - refer to effect rather
than source eg. ‘ionising radiation or contamination'
 Check application of exclusion where concurrent causes:
Wayne Tank & Pump Co v Employers’ Liability
Assurance
 Pollution is generally excluded but:
– may write back cover eg. for clean-up costs where
pollution caused by an otherwise insured peril, or
– can extension of cover for pollution/ contamination
override nuclear exclusion?
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Business Interruption
 Overall losses to Japanese economy ~ USD 300 bn
Orient Express Hotels v Assicurazioni Generale
 Policy covered: "loss due to interruption or interference
with the Business directly arising from Damage"
 BI losses shall be adjusted: "to provide for the trend of
the Business and for variations in or special
circumstances affecting the Business which would have
affected the Business… had the Damage not occurred”
 Insurers entitled to exclude losses which would have
been suffered but for damage to hotel
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Contingent Business
Interruption
 Covers loss sustained to Insured's business by reason of
one of its suppliers or customers suffering damage at
their own premises
 How remote? – ‘direct supplier’ or ‘any supplier’
 Extension of cover for supply chain
 Physical damage of type insured by policy
 Territorial limits in direct policy and reinsurances
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Aggregation and Hours clauses

Property policies - direct and reinsurance, commonly
provide cover per event

May be limited by an hours clause eg. LPO98a:
“The words ‘loss occurrence’ shall mean all individual losses arising
out of and directly occasioned by one catastrophe. However, the
duration and extent of any ‘loss occurrence’ so defined shall be
limited to: ...
(b) 72 consecutive hours as regards earthquake, seaquake, tidal
wave and/or volcanic eruption…”

Intervening causes such as power rationing

Aggregation problematic for CBI losses
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Conclusion
(Re)insurers should be proactive:
 understand claim handling procedures and where Act will
apply
 bring in loss adjusters where appropriate
 keep retrocessionaires in the loop to avoid later disputes
 investigate far reaching CBI exposures
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