Loss of Profits Insurance: Port Blockage

Port Blockage –

Arising out of the Baltimore Bridge Collapse due to the impact by vessel MV Dali, there is complete shutdown of the port of Baltimore, one of the busiest ports in the United States. All inbound and outbound traffic of the port remains suspended, adversely impacting supply chains. The collapsed bridge needs to be removed and the shipping channel cleared for shipping to resume. This is likely to take time.

Coverage under LOP policy is possible with port blockage coverage for businesses impacted by this incident:

“Loss resulting from interruption of or interference with the Business in consequence of blockage of the port or harbour which causes disruption to shipping and is caused by stranding, grounding, sinking or capsize and/or through collision or contact of any vessel or craft with any other vessel, craft, structure or other object of any kind shall be deemed to be loss resulting from damage to property used by the Insured at the Premises.”

The effect of the above clause is to modify the material damage provision of the LOP policy which says that an indemnifiable loss under MD policy needs to happen at the insured premises.

The port blockage clause says the vessel grounding, sinking, capsizing, collision (impact with other vessels) or allision (impact with other objects), resulting in blockage and shipping disruption will satisfy the MD proviso.

Port blockage cover is different from denial of access/egress coverage, which is suitable only for land-based blockages.

“Subject to the terms and conditions of the Policy, loss as insured by this Policy resulting from interruption of or interference with the Business in consequence of Damage (as within defined) to property in the vicinity (Maximum within 5 kms radius from the Insured’s premises and inland) of the Premises destruction of or damage to which shall prevent or hinder the use of the Premises or access thereto whether the Premises or property of the Insured shall be damaged or not shall be deemed to be loss resulting from Damage to property used by the Insured at the Premises. Prevention of access is limited to a maximum of 4 weeks over and above the time excess mentioned in the schedule.”

The denial of access clause limits the operation of insured peril to within 5 km and inland. Navigational blockage of port is not a subject matter addressed by denial of access clauses.

But merely having a port blockage clause is not sufficient to collect the claim under the policy. The insured will have to demonstrate that alternative logistic routes do not exist or are impractical or are uneconomical. The insured needs to establish that had it not been for the port blockage, the reduction in turnover would not have happened.

While buying an LOP policy it is important to have a Business Continuity Plan (BCP) f. If there is high dependency on a public infrastructure facility like a seaport is involved, the port blockage extension should form part of the policy.