‘All risks’ claims: A manufacturer’s defence playbook

So-called “all risks” property insurance carries defined exclusions. When rainstorms hit rolling stock manufacturers, claims often stall over proportionate payouts and delayed assessments. This article examines loss valuation, limitation periods and litigation tactics to help businesses navigate coverage disputes at every stage.

Underinsurance

Property all risks policies apply a pro-rata reduction where cover amount is lower than insurable value. In the rolling stock sector, establishing that value is challenging, as exchange rate volatility, order volume spikes and plant modernisation all pull the replacement cost of plant and the value of inventory away from the declared insured amount.

Insurers tend to rely on the loss-date value to assert a shortfall and limit their payout, while manufacturers argue for assessment based on replacement cost or the original acquisition price.

Three measures can mitigate this risk:

1. 1. On placement, agree a replacement-cost or declared-value basis for loss quantification, with critical assets specifically written on replacement-cost terms;
   2. In the policy period, maintain a quarterly revaluation discipline and endorse the sum insured upward without delay when production scales up or order volumes rise; and
   3. Following a loss, retain an independent valuation expert to produce an authoritative assessment, equipping the insured to contest the insurer’s pro-rata contentions.

Time bar

A two-year prescription period applies to non-life insurance claims, commencing when the insured knew or should have known the insured peril occurred. Separate claims notification conditions such as 48-hour reporting and 30-day documentation requirements are typically incorporated into the policy, and insurers often invoke non-compliance as a ground for declinature.

This creates vulnerability for rolling stock manufacturers. Post-flood operations demand focus on recovery, yet loss adjustment is a drawn-out affair. Insurers exploit this window, withholding a formal refusal until the limitation period expires.

The key to an effective response lies in promptly securing evidence that interrupts the limitation period. Immediately after a loss event, the insured should serve a written notice of claim on the insurer, retaining proof of dispatch – whether courier receipt or email acknowledgment – and, within the contractually stipulated time, submit a preliminary statement of claim with supporting materials, expressly noting that detailed documentation will follow once loss quantification is complete.

This step interrupts the contractual claims time bar. At the same time, policyholders should monitor the statutory deadline for the insurer’s determination.

Under article 23 of the Insurance Law, the insurer must complete its adjustment within 30 days. If that period elapses without a decision, the insured should serve a formal written reminder, with a view to commencing proceedings if necessary.

Delivery loss, evidence preservation

Standard property all risks policies only indemnify direct physical loss; indirect consequences are excluded. The rolling stock sector is time-sensitive. Flooding that soaks equipment is liable to cause delivery overruns, attracting heavy contractual penalties. Even though indirect losses fall outside the scope of primary cover, supporting evidence must be compiled to assist any claim under an optional business interruption extension. This can be approached on three fronts.

1. 1. Immediately after the loss, preserve on-site evidence, engage a notary public for formal evidence preservation, and obtain an official rainfall intensity certificate from the meteorological authority;
   2. Document a causal chain of evidence, covering repair quotations with lead-time estimates, rescheduled production logs, supply contracts with liquidated damages provisions, and penalty payment records; and
   3. Retain documentation for mitigation expenses, including contracts, invoices and payment receipts for emergency equipment relocation, temporary factory leasing, airfreight of replacement parts, and overtime labour costs. Also negotiate the addition of business interruption or supply chain disruption extensions and seek to agree specific limits of indemnity for delay-related losses on contracts with defined delivery milestones.

Tackling “soft” delay

Insurers often avoid a denial of liability while protracting the adjustment process over an extended period, offering verbal comfort that payment will be made while taking no tangible action in writing. They make serial requests for more material, invoking internal procedures to defer decisions, or resort to “negotiation” for a discounted compromise.

The leaves the policyholder trapped without a formal declinature while facing erosion of the limitation period, ultimately at risk of forfeiting the right to legal action.

Policyholders confronted with such “soft” delay can take several active steps.

1. 1. Serve the insurer with periodic reminders of claims determination, retaining dispatch records, and demand a written decision within 15 days – any failure by the insurer to respond becomes a material indicator of unreasonable delay;
   2. Escalate the matter to the National Financial Regulatory Administration or relevant supervision bureau. The resulting administrative scrutiny often prompts movement, and the file of the regulator’s handling is admissible as evidence;
   3. Where appropriate, invoke “deemed declinature” litigation: if 30 days pass without the insurer determining the claim, the insured may plead that the insurer has “failed properly to perform its adjustment obligation” and bring proceedings directly;
   4. Apply for court protective preservation orders and disclosure orders for the insurer’s claims approval records. If the insurer refuses to disclose, refusal may support the insured’s case; and
   5. Advance a claim for delayed payment interest and damages for breach, seeking interest on the indemnity from expiry of the statutory adjustment deadline, together with compensation for any additional finance costs incurred by the delay.

As an example, in one reported case a rolling stock manufacturer proceeded directly to litigation after the insurer failed to issue a written determination for eight months, despite three formal reminders. The court found against the insurer for failure to “expressly decline indemnity” and “perform its adjustment obligation” – awarding full indemnity with interest.

This illustrates that, when facing “soft” delay, policyholders should proactively preserve evidence through written reminders, apply regulatory pressure through official complaints, and break the deadlock through litigation where necessary.

Cheng Xue and Yang Bo are partners at Anli Partners