Business interruption claims a key exposure in ammonia contamination incidents

Underwriters need to be careful about writing insurance policy sublimits for food contaminated by ammonia, as the door can be opened for business interruption claims and other physical damage related to ammonia contamination.
Larry Gordon of Travelers in the United States made the point while giving a presentation, Ammonia Contamination: Where Does it End?, at the 38th Annual Engineering Insurance Conference on Oct. 13 in Toronto.
“Don’t get trapped by thinking ‘I have a lower sublimit, because that’s the underwriting control and the policy is capped in exposures,'” Gordon cautioned. “Business interruption is a different world when it comes to lost income to the insured, who can’t truck his stuff because it’s gone, creating lost income that is outside the ammonia sublimit for property damage.
“Business income limits can be available for that loss.”
Gordon presented several examples of ammonia contamination claims based on failed or malfunctioning equipment. While some underwriters may be able to sublimit policy coverage for “direct physical loss” arising from ammonia contamination, some indirect, consequential (spoilage) and other non-food-related forms of damage can lead to very expensive business interruption claims, Gordon observed.
For example, in one warehouse in which ice cream was stored, a failed piece of equipment resulted in the release of liquid ammonia. The plastic containers of ice cream prevented the ammonia from contaminating the ice cream, but the ammonia caused the ink on the ice cream containers to run. The normal procedure is to re-package the product, but ice cream cannot be re-packaged. Since it couldn’t be sold without re-packaging it into new containers, the whole shipment of ice cream was lost and sent to a pig farm.