24 Aug Does Your Client Need This Coverage?
As virtually anyone involved in the insurance world knows, Business Interruption has been a very hot topic with the financial impact of the pandemic. The overall coverage form and the various exclusions are being debated and, in many cases, litigated to determine whether coverage is applicable.
While many businesses probably have Business Interruption coverage in some form, there is an exposure your clients may be facing that may not be properly covered. This deals with Contingent Business Interruption, also referred to as Dependent Properties coverage. Do you have clients that rely heavily on one or two major suppliers or business partners for their business to operate? If so, Contingent Business Interruption is a coverage you should be discussing with them.
It seems that with some degree of regularity, the news covers stories of various events that are having major impacts on a wide range of businesses. A couple of years ago, a study was published that detailed and listed the major insurance issues of concern by risk managers. The study indicated that Business Interruption, more specifically Contingent Business Interruption, was the #1 area of concern. So, it is definitely an issue your clients are concerned about. Contingent Business Interruption insurance (and contingent extra expense coverage) is an extension to other insurance that reimburses lost profits and extra expenses resulting from an interruption of business at the premises of a customer or supplier. The contingent property may be specifically named, or the coverage may blanket all customers and suppliers.
Is your agency addressing this exposure to identify some possible coverage gaps? A few good starter questions to ask your clients might include:
- How much of your business operations rely on another entity?
- What would happen to your business if one of your major suppliers suffered a loss that precluded their ability to generate specific products (raw material or component parts) or services you heavily rely on?
Probably more than ever before, today’s risk managers are faced with addressing many of these questions. It appears that Contingent Business Interruption is more heavily applicable when the following scenarios occur:
- When the insured depends on a single supplier or a few suppliers for materials
- When the insured depends on one or a few manufacturers or suppliers for most of its merchandise
- When the insured depends on one or a few recipient businesses to purchase the bulk of the insured’s products
- When the insured counts on a neighboring business to help attract customers, known as a leader property
Exactly what does Contingent Business Insurance provide? It is important to fully understand the applicable policy form as it may vary based on the carrier. It has been stated that many Contingent Business Insurance claims are so unique that insurers may not have contemplated such claims when writing the policy. Agencies should be careful to commit to exactly how the policy will respond as policy interpretation has been an issue. Based on my review of this subject, it was noted that the type of physical damage suffered by the third party must be the same as the type insured under the controlling party (your client’s policy).
The customer or supplier property doesn’t need to be totally shut down to cause a contingent business interruption loss to an insured.
Many agencies look to perform some “account rounding” with exposures such as Cyber, EPL, etc., and those are definite issues to address. Consider adding Contingent Business Interruption Insurance to the list to determine the financial impact your client could suffer if one of their suppliers were shut down.