A company stopped by a flood loses two things: property and time. The natural catastrophe regime answers for direct physical damage, and the word direct carries a consequence here that many insureds discover at the moment they most need not to. Lost time does not enter the regime by itself. It enters only through the contract's business interruption cover, where one exists, and it does not enter at all where one does not. A company whose walls are indemnified and whose order book is ignored is an ordinary situation, not a malfunction.
The first consequence is therefore a placement question, to be asked before all others. A property contract compulsorily includes natural catastrophe cover, that is the law. It does not compulsorily include business interruption cover, which is a separate section, taken or not. An operator that chose not to take it has no access to indemnity for its stoppage, and the natural catastrophe regime does not reopen it. The compulsory cover bears on the peril, it does not create a cover the contract does not contain.
The second consequence lies in business interruption's dependence on physical damage, and it is subtler. The cover operates where the stoppage results from insured physical damage striking the insured company. It therefore does not operate by itself where the company stops without having suffered anything physically: where the road serving the site is cut, where the sole supplier is under water, where the area's electricity network is out. Those situations exist, they are frequent in floods, and they are covered by named extensions, which have to have been taken.
Those extensions deserve to be known for what they are, because their headings reassure more than their wording covers. Denial of access generally bears on a prohibition on reaching the site, with a radius and a duration. Supplier failure bears on a named supplier or on a list, and it almost always subordinates indemnity to the supplier having suffered damage that would be covered by the insured's own contract, which in natural catastrophe means damage covered by an order naming the supplier's commune. The insured's cover then depends on an administrative decision made about a commune where it owns nothing.
The third consequence is one of timing, and it belongs to this field in particular. Business interruption cover operates over an indemnity period, chosen at placement, during which the consequences of the stoppage are borne. That period is sized on an ordinary reconstruction time. Yet a climate loss adds delays depending neither on the insured nor on the insurer: waiting for the order before the file opens at all, adjusters and reinstatement contractors saturated because three hundred companies in the same catchment call them in the same week, and sometimes planning constraints on rebuilding in an exposed zone. An indemnity period calibrated on an isolated fire proves short on a collective flood.
What adds to those delays and weighs on cash must be stated. The regime's business interruption deductible is expressed in working days, it comes on top of the deductible bearing on property, and both are borne at the same moment. Protective expenditure, for its part, is incurred before anyone knows whether an order will be issued. That is why useful support bears less on the promise of an indemnity than on the order in which claims are released: the share falling under ordinary-law covers first, then payments on account, then the balance.
The lesson comes to one sentence to be spoken at placement. What decides a company's survival after a flood is not the compulsory cover, which is the same for everyone, but three choices belonging to it: whether or not it holds business interruption cover, whether or not it holds the extensions covering a stoppage with no damage of its own, and whether it chose an indemnity period compatible with a loss striking a whole catchment at once. Those three choices cannot be caught up after the loss, and they appear nowhere in the regime.
A food processing company is not flooded: its site is on high ground and suffered no physical damage. But the flood of November 3 cuts the only heavy goods access road for eleven days, and it drowns the sole raw material supplier, located in a neighboring commune which is recognized by the order of December 20. The company stops for nine weeks and loses 640,000 euros of gross margin. Its contract includes business interruption cover with a twelve-month indemnity period, and a supplier failure extension naming that supplier. The insured site's commune is not recognized. What opens, and what does not?
One must begin by ruling out the door the insured will push first, because it is shut and for a reason that cannot be argued: business interruption cover operates where the stoppage results from insured physical damage striking the insured company, and this company suffered no physical damage. That its own commune is not recognized carries no additional weight here, since there was nothing to recognize. The main route is therefore the supplier failure extension, and it is open: the supplier is named, its commune is recognized by the December 20 order, and the condition those extensions almost always impose, namely that the supplier suffered damage that would be covered by the insured's own contract, is met. Three points of wording must nonetheless be checked before announcing anything, because they decide the amount: the maximum indemnity duration specific to the extension, often far shorter than the main cover's twelve-month period; the existence of a sub-limit in amount; and the starting point, which generally runs from the supplier's damage and not from the insured's stoppage. The eleven-day cut of the access road falls under a different extension, denial of access, whose presence in the contract must be checked, then the radius and duration it requires, those eleven days possibly falling within a waiting period. Two timing points complete the analysis. The order naming the supplier is dated December 20 whereas the flood is dated November 3: the company bore those seven weeks alone, and the order in which claims will be released is the most useful information it can be given. And the business interruption deductible, expressed in working days, will apply to the nine weeks of stoppage with no property deductible added, since there is no physical damage of its own.
- 01The regime answers for direct physical damage: lost time enters only through business interruption cover, which is not compulsory.
- 02Business interruption presupposes insured physical damage striking the insured: a company stopped with no damage of its own opens nothing by that route.
- 03A cut road and a drowned supplier are covered by named extensions, often sub-limited and time-bounded, which have to have been taken.
- 04Supplier failure in natural catastrophe depends on an order made about a commune where the insured owns nothing.
- 05An indemnity period calibrated on an isolated loss proves short when three hundred companies in one catchment call the same adjusters in the same week.