Businesses that manufacture, distribute, buy, and sell products depend on an operable supply chain to market their goods. The supply chain is the network between the business and its suppliers which enables the goods to be produced and distributed.
Supply chains often involve multiple entities from parts manufacturers to businesses that assemble products to warehouses and shipping companies. Any break in the supply chain can cause a business to have to interrupt/delay its operations until replacement vendors and entities can be found or until the break is fixed. Supply chains are now at increased risk of being broken due to safety and essential operation concerns caused by the novel coronavirus.
According to Insurance Journal, insurers are offering contingent business interruption policies as a supplement to their standard business interruption policies. Most standard BI policies cover climatic and fire risks and damage to the physical structures of the policy holder. Contingent BI polices should cover:
- Lost income – the money the company would have earned if the triggering event hadn’t occurred
- Extra expenses such as replacement costs which are the cost to obtain the necessary goods from other suppliers
- Expenses incurred to mitigate/prevent additional losses
Contingent BI policies should cover supply chain risks and other risks due to events away from the insured premises.
Contingent BI coverage
According to the Insurance Information Institute (III), “it can take two years or more for a company to recover from a supply chain failure.” Small businesses and large corporations should both consider buying contingent business interruption insurance.
The III sates that supply chain insurance can cover:
- Production process difficulties
- Political upheavals and war
- Labor issues such as strikes or shortages
- Industrial accidents
- “Public health emergencies; e.g., pandemics requiring quarantine”
- Regulatory actions
The Insurance Journal adds that contingent business interruption polices should cover the following risks too:
- Delays in shipment
- Delays due to customs problems if goods are coming from overseas
- Government shutdowns
- The filing of bankruptcy from a supplier
- Roadway or bridge closures
As with all contracts, the wording of the contingent BI policy determines what’s covered and what damages are authorized. Some policies may require, according to Insurance Journal, that the suppliers and related entities be specifically listed in the policy declarations page. Coverage may not apply until a specific amount of time such as 48 hours has elapsed. Coverage could be limited to specific locations. Policies could also cap or limit the losses. Policies should be clear as to whether just first-tier suppliers are covered or whether other tiers are also covered.
Companies should anticipate some of these supply chain problems and have alternatives in place before suppliant chain problems arise to ensure their polices identify all the appropriate suppliers and so that the company can quickly find replacements and alternate shipping methods.
At Warhurst Law, our supply chain business interruption insurance lawyers have a unique dual experience. We’ve worked as claims adjusters where we’ve achieved numerous honors. We also have a strong track record of success negotiating and litigating insurance claims. To discuss any business interruption losses, including supply chain losses, and your insurance policies, call Warhurst Law at 251.207.1296 or fill out our contact form to schedule an appointment. Our business interruption attorneys advocate for business owners throughout the Southeast including Alabama, the Florida panhandle, and Louisiana.
* Warhurst Law cannot and does not guarantee an outcome to any case.