One of the greatest disruptions caused by COVID-19 is to the global supply chain. From food to healthcare, all segments of the supply chain have suffered to some degree as a result of the virus. Delivery of food, pharmaceuticals, and medical equipment, to name but a few, has been slowed or altogether halted due to the virus. In short, if any business is reliant upon deliverables from another business, it has likely been adversely affected by these supply chain disruptions.
For businesses that have suffered losses due to cessation or delays by suppliers and distributors, a specific type of coverage called contingent business interruption insurance may provide help.
Focus On “Dependent Location”
Broadly speaking, contingent business interruption coverage protects against loss of revenue a business suffers when the business’s third-party supplier, distributor, or other key business it relies upon to produce a product or service first suffers a loss. Coverage is thus “contingent” upon a loss suffered by a different business.
For example, a distributor of N-95 masks takes out a contingent business interruption policy, listing the mask manufacturer as a “Covered Location.” (Usually, this language will be broad, referring to a “manufacturer” and not the actual name of the manufacturer). The manufacturer suffers a fire, and its building – and all the masks in it – burns down. Unfortunately for the mask distributor, the masks have been reduced to dust and the business cannot generate any revenue without them.
Since the forward-thinking distributor insured against this type of loss with contingent business interruption coverage, even though the distributor itself did not suffer physical damage, the manufacturer of the masks – a “Covered Location” under the policy – did. And this may trigger coverage.
Physical loss or damage requirement
As we covered at length in a previous post, most standard “all risks” property insurance policies require physical loss or damage in order to trigger coverage at a given property. This applies in the event of a “civil authority” claim, and also to most contingent business interruption coverages.
A common requirement under those coverage extensions is a showing of direct physical loss or damage “other than at a covered location.” Contingent business interruption coverage provides a twist to the physical damage requirement: the physical damage must occur specifically at what the policy defines as a “Dependent Location.” A Dependent Location is not the actual location or premises of the covered business, but can refer to the covered business’s suppliers, manufacturers, recipients of products — any location referenced in the policy upon which the covered business “depends” for its success.
As with civil authority coverage, contingent business interruption coverage requires the policyholder to show physical loss or damage somewhere other than the business location itself. But where contingent business interruption coverage differs is that the location must be a specifically defined “Dependent Location.”
The fire example above is a clear example of “direct physical loss or damage” to a “Dependent Location.” As we explained previously, showing direct physical loss or damage to the mask manufacturer may prove more difficult in the COVID-19 context. But under most contingent business interruption endorsements, this is still required.
Types of financial compensation recoverable
A typical contingent business interruption coverage extension will cover the same types of losses as any other business interruption coverage, including business income and extra expense incurred during the period of restoration.
COVID-19 Insurance Claims Attorneys
As always, it is important to review the terms of your policy. But the overview above provides a solid outline of coverage potentially available to you when a supplier, manufacturer, or other business you rely on causes your business to suffer damage.
During the ongoing coronavirus pandemic, we understand the frustrations many business owners feel as revenue is lost and insurance companies deny or delay the payment of valid business interruption insurance claims. At Raizner Law, our experienced attorneys have successfully handled complex cases against many of the world’s top insurance carriers. Our team will help your business get back on its feet. Contact us today to see how we can help you with your COVID-19 insurance claims.