ENERGY MATTERS own separate insurance arrangements, each owned by the same parent company( indeed, some Middle Eastern jurisdictions require this for fiscal and regulatory reasons). If all four companies( the refinery, the original downstream plant and the two new plants) took out insurance on identical terms as the single company had obtained previously, then the parent company may find that the policies respond rather differently. BI cover will generally only be triggered where there is a corresponding PD( or machinery breakdown) loss which covered by that policy. If the refinery( in this example) sustains a major PD loss which means it cannot refine any crude for a period of six months, the practical effect is that the three downstream plants can either not produce( because they rely on the refinery for feedstock) or they must source alternative feedstock urgently which may not be possible or could be very costly. Therefore, the refinery sustains a PD and BI loss which its policy would be expected to respond to. However, the other three plants have each suffered a BI loss but no corresponding PD loss. Whilst the policies may contain a Contingent Business Interruption(“ CBI”) clause providing cover for a PD loss at a supplier or customer which leads to consequential BI, this CBI cover is likely to be subject to a modest sub-limit unless the specific interdependencies within this company organisation have properly been considered and catered for. It is feasible to draft suitable wording to respond in these circumstances but this will only occur where it is appreciated that there is a need to amend the wording to reflect a change in the business.
In an industry in which there is rapid change, those purchasing, selling or arranging insurance should be cautious of adopting a“ one size fits all” approach.
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