Many businesses experience losses when inventory is damaged, delayed or undelivered due to external events, such as natural disasters, fires, supplier shutdowns or shipping disruptions. These issues can lead to substantial revenue loss. Unfortunately, commercial property and business interruption insurance policies often contain gaps that leave businesses unprotected from revenue loss due to inventory and supply chain issues.
Commercial Property and Business Interruption Insurance
Commercial property insurance provides protection for direct physical loss or damage to your company’s physical assets, including inventory, that results from a covered peril. Policies typically cover loss or damage to property due to fire, theft, vandalism, burst pipes and leaks, and certain weather events.
Often bundled into a commercial property policy, business interruption insurance covers business interruption losses resulting from direct physical loss or damage to insured property caused by a covered peril. As a policyholder, you are generally entitled to reimbursement for lost profits, as well as reasonable expenses that you incur, in order to continue operating during the period of interruption.
Which Inventory and Supply Chain Issues Are Covered?
If your inventory is damaged due to a covered peril, such as a fire, your commercial property and/or business interruption policy would typically cover your losses, up to the policy limits. But income losses due to delayed delivery of products or supplier product shortages would typically not be covered, because these types of events do not constitute direct physical damage to insured property. To safeguard your business against a broader array of supply chain issues, you would need a special extension or endorsement, such as contingent business interruption insurance or supply chain coverage.
Contingent Business Interruption (CBI) Insurance
In today’s interconnected world, your business’s operations and revenue may depend heavily on particular suppliers, manufacturers, partners or customers. Contingent business interruption (CBI) insurance provides protection if one of these key entities suffers a physical loss severe enough to negatively affect your business income. For instance, if a hurricane disrupts a major supplier, delaying the shipment of products you need to stock your shelves or components essential for manufacturing, the resulting loss of income can be significant. In such cases, Contingent Business Interruption (CBI) insurance may offer valuable financial relief. However, the entity you depend on must suffer physical damage from a covered event to trigger CBI coverage.
It’s important to note that the insurer will likely require you to list key entities as “dependent properties” when purchasing your policy, and will likely deny coverage if the entity is not on the list. CBI insurance is generally purchased as an endorsement on a commercial property or business interruption insurance policy.
Supply Chain Coverage
Much broader than CBI insurance, supply chain coverage protects you from a wide range of risks affecting suppliers, manufacturers and logistics providers. These may include natural disasters, supplier insolvency or bankruptcy, political instability, port closures or transportation shutdowns, labor shortages or strikes, pandemics, cyber attacks, power outages and other events.
Keep in mind that depending on your relationship with these key entities, you may also be listed as an additional insured on their insurance policies.
How an Insurance Law Firm Can Help
Many businesses that suffer losses due to inventory or supply chain issues assume they have coverage under their policies, only to face denial or underpayment from their insurance company. If your business suffers economic harm due to inventory damage or supply chain woes, a law firm with experience in insurance law may be able to assist you with insurance recovery. An experienced law firm can evaluate the fine print in policies to identify coverage opportunities and push back against the common tactics insurers employ to unfairly deny or limit coverage to protect their bottom lines.
If your business insurance company has denied or is challenging your claim, contact Schwartz, Conroy and Hack, PC for assistance. We have the expertise and tenacity to make insurance companies keep the promises they make to you and your business.
