Does Business Interruption Insurance Cover Supply Chain Disruptions?

Generally speaking, business interruption (BI) insurance should cover supply chain disruptions.

Back when the policies were written, no one could have imagined the full scope of losses we see now with the coronavirus pandemic. Even so, the validity of a claim is based on the exact policy language, not the intent.

A New York business interruption insurance attorney at Douglas and London can assist you in pursuing supply chain disruption coverage arising as a result of the COVID-19 pandemic. Businesses that focus on establishing the extent and scope of their insurance coverage early on will have the strongest claim to recovery for coronavirus losses.

Is coronavirus an insured event?

Business interruption insurance coverage is typically triggered when the business is physically damaged by a natural disaster, like a hurricane, or when authorities quarantine an area off that prevents the business owners, workers, and customers from getting to it. This type of insurance only applies to the damaged or affected business itself.

However, in “all-risk” policies that include contingent business interruption insurance (CBI), coverage extends to losses arising from disruptions in the supply chain. This includes a supplier, key logistics provider, or a customer who is forced to quarantine and cannot deliver crucial supplies to the company. CBI insurance is designed to cover economic losses, increased costs, lost revenue, and reduced operations resulting from physical damage to third-party partners providing essential raw materials, parts, or supplies.

Contingent business insurance is an optional extension, but if you have it, you may be eligible for reimbursement when you suffer a loss from interruption on your customer or suppliers’ end.

There may be caveats in your Contingent Business Insurance coverage.

Your claim to recovery hinges upon the language in your policy. Coverage may apply only to specifically named third-party properties, or it may cover all customers and suppliers generally. Some policies require a form of physical property damage before coverage is triggered, while others may allow “contamination” to constitute “damage.”

Questions to ask about business interruption insurance policies

In reviewing existing coverage, business owners might try to answer:

  • What trigger is specified for business insurance, contingent business insurance, or supply chain coverage? The argument that coronavirus caused structural, physical damage is up for debate.
  • Does the policy contain a virus exclusion? If the policy language is vague and does not expressly prohibit coverage related to infectious bacteria or virus, you may have a strong case.
  • Does the policy include civil authority coverage terms? Businesses closed due to government mandate may have a stronger claim than companies who chose to close down or who remained open in a limited capacity—like a restaurant with curbside pickup.
  • When is the policy set to expire or renew? Insurers will almost certainly create new exclusions based on global pandemic and viruses for the future. Getting a claim in early can help refute their denials.

Policies are written in notoriously complex terms. We have read through hundreds of them, know what to look for, and will pick out the most applicable clauses to argue in court.

Gathering supply chain information

Whether an insured business owner is dealing with a flood, an earthquake, or an infectious disease outbreak, collecting information from the supply chain can be challenging. Companies in the supply chain may be unwilling or unable to supply the information needed to submit a valid insurance claim for the following reasons:

  • They do not value the requesting business as a strategic partner.
  • The information requested is disputed within the organization.
  • They do not want to assume liability that could expose them to lawsuits.
  • They are still in the process of collecting information for their claims.
  • They shy away from conflict and transparent discussion of problems.
  • The staff is not adequately trained to handle such requests.

Contact us for a free consultation

Whatever the case may be, it helps to have a legal advocate in processing BI insurance claims. Contact Douglas and London for a free consultation.