The Hours clause – Any time, any place any where?

Hurricane Harvey 3
Hurricane Harvey and its aftermath continue to wreak havoc in Texas and Louisiana more than a week after it first hit the Texas coast.  At the moment, insurers’ principal concern will be to respond to the needs of insureds as quickly as possible. In the circumstances, it may seem premature to be thinking about reinsurance issues – not least because full details of the losses and the metrological events which gave rise to the them are still being established.  There are, however, some general observations which might be made.

Given the length of the disaster, the hours clause may well be a factor in deciding how some reinsurances should respond to the loss.  There are many variations on this well-known clause, some of which seek to distinguish between different types of flood and carefully analysis of the circumstances of the losses will be necessary to determine how reinsurances should respond.

The events in Texas also, however, highlight another issue which has begun to emerge in some recent versions of the hours clause and that is the removal of any requirement for geographical proximity of the losses to be aggregated.  This means, for example, that losses in America can be aggregated with losses in Asia as long as they arise from the same peril and occur during the same period of time.  An illustration of how this might work arises from the fact that Harvey coincided with a period of intense flooding in the Indian sub-continent.  These were said to be the worst floods in the region for 40 years – Mumbai came to a halt, 1,200 people were killed and more than 40million affected.  At the present time, insured values in India are relatively low and so the combination of these losses with the Harvey losses would be unlikely to have a significant impact.  That will not always be the case, however, and there is a warning here for reinsurers of the perils of allowing the aggregation of losses occurring at the same time but at unrelated locations.

Simon Cooper