The Quest
January 2011 - Issue 70
Inside this issue:
ISF enforcement:
Where we are now

Disaster in Japan: Avalon assists in aid, BCP reminder

CBP updates: Bond insufficiency, new address for mailing checks

FMCSA elimination of Cargo Insurance, BMC-32 takes effect March 21
CSA motor carrier
ratings now in force

New ACORD form changes how logistics providers
verify insurance

Revised Incoterm rules
take effect

UAE joins ATA
Carnet system

Claims corner:
Worldwide Coverage



Disaster in Japan: Avalon assists in aid, reminder for business continuity planning
Japanís landscape of debris and destruction reminds us that a disaster can happen at any time. The countryís record-high magnitude earthquake triggered tsunami warnings for Japanís Pacific coast and at least 20 countries, including the entire Pacific coast of North and South America, from Alaska to Chile.

Damage was mostly confined to Japanís northern islands and a state of emergency was declared after heavy destruction crushed buildings, roads and railways. Several nuclear reactors have experienced dangerous malfunctions and around 4.4 million households have been left without electricity and 1.4 million without water.

Like the rest of the world, Avalonís employees are grieving the tremendous losses in Japan. The Avalon Compassion Team (ACT) is supporting relief efforts by making a donation to the American Red Cross. As we did following the Haitian earthquake, Avalon is matching contributions, subject to our corporate charitable guidelines. We will provide the Red Cross with one contribution amount on behalf of our employees and customers. Please contact avaloncompassionteam@avalonrisk.com with any questions or to make a donation.

Reminders to keep your business prepared
According to the American Red Cross, 40% of small businesses wonít re-open after a disaster. Of the 60% that do, one-third will close within two years, often because of a lack of planning and preparedness.

Staying successful after a catastrophe often relies on business continuity planning Ė the set processes that help companies prepare for and respond to disruptive events, whether itís an earthquake or power outage. These procedures detail how companies can continue their operations. Maintaining the proper Business Insurance is an integral piece of this process, as estimates for insured property damage in Japan could reach $35 million. Policies differ, so in the event of a disaster, itís important to understand your coverage.

Cargo Insurance
Japan's main international airport at Narita has resumed some outbound flights, but many inbound flights were diverted to other airports. Work crews have begun the huge job of clearing mud that the tsunami dumped on the runway at Sendai airport, and until it is cleared, officials will not know if the earthquake damaged the runway beyond repair. In addition, some ports in northern Japan including Kushiro, Hachinohe, Ishinomaki and Kashima were struck. The port of Sendai has also been severely damaged. Some ocean carriers have also suspended bookings to Sendai until further notice. Review your Cargo Insurance policy to make sure it includes a deviation clause. This provides coverage in case cargo needs to be rerouted once it is already in transit.

Difference in Conditions (DIC)
Catastrophic perils such as flood and earthquake are generally excluded from most standard property coverage forms. To protect yourself from risks associated with these types of events, you should consider purchasing a special type of policy called Difference in Conditions (DIC). Some insurers may offer catastrophic perils coverage, but usually coverage is only available in areas that are less prone to these losses. DIC policies are available from specialty insurers and typically provide coverage subject to specific limits, percentages and/or duration of time deductibles. Since coverage capacity is limited in certain areas for flood and/or earthquake, expect higher premiums and deductibles for higher risk geographic locations. Also consider the following:

Replacement Cost vs. Actual Cash Value
Even with all of the necessary coverage, assets can be insured differently. Although there are other methods of valuation, the most common are Replacement Cost and Actual Cash Value. Replacement cost is simply the cost to replace lost or damaged property with similar property. Actual Cash Value is more complicated, as deductions are made for depreciation. Consider a computer insured as actual cash value which becomes damaged. The insurance company would take the replacement cost of the computer, and subtract the years of wear and tear the computer endured before it was damaged to determine the amount of reimbursement to the insured.

Coinsurance is a penalty imposed if an insured under-reports or under-declares the value of his or her property. Coinsurance will be expressed on a policy as a percentage Ė usually, 80%, 90% or 100%. If coinsurance on your policy is 80%, the property will need to be insured for at least 80% of its value to avoid a penalty at the time of loss. Keep in mind that while insuring to 80% of propertyís value would avoid the coinsurance penalty, it would still result in a 20% underinsurance situation. To be insured properly, consider insuring your propertyís full value. Property must always be accurately reported and updated to reflect inflation and other increases in cost.

Extra Expense Coverage
Problems in shipping related to the disaster in Japan would likely not be considered the fault of an NVOCC, as this would fall under force majeure. If an NVOCC is held liable, Avalonís Combined Transit Liability (CTL) program would typically provide defense. It is possible, however, that because of any natural disaster, consignees could become unable to accept and pay for shipments consigned to them. If a consignee fails to collect or remove cargo from port warehouses or container yards, the company named on the master bill of lading will be responsible for demurrage, storage, port or forwarding charges. As a result, the NVOCC could experience financial distress after being forced to pay these additional charges. While some insurance companies do not provide coverage for this type of claim, Avalonís CTL program automatically provides for Extra Expense coverage to protect an NVOCC, should a consignee fail to collect or remove cargo.

A catastrophe can occur at any moment, and itís important to always work with strong, financially secure insurers. Businesses whose insurance is dictated primarily by premium costs will find that cheaper policies will often lead to cheaper protection when disaster strikes. Avalonís comprehensive programs protect the full scope of your operations. We stay current on industry trends to keep you informed and protected. Your business protection matters.

For more information, please contact your local Avalon office or Andriana Davis at (847) 700-8087 or at adavis@avalonrisk.com. A list of our offices may be found at www.avalonrisk.com.

Avalon Risk Management
150 Northwest Point Boulevard | 4th Floor | Elk Grove Village, IL 60007
Phone: (847) 700-8100 | Fax: (847) 700-8116



The Quest newsletter is published quarterly and is designed to provide critical information to the transportation and logistics industry. Subscribers to The Quest also benefit by receiving policy change notifications, special industry information bulletins, and notifications of upcoming conferences. Avalon Risk Management is not responsible for the accuracy or reliability of information contained herein. The reader/user assumes all risk in the use of such information. Privacy Policy

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