Most of us know it is important to make sure we have adequate coverage for things like property we own and liability exposures. There is however another coverage that should be considered by business owners and it is contingent business interruption insurance. This is just one of the types of business interruption insurance available and I have given a brief explanation of the coverage below and some examples of who may benefit:
Contingent Business Interruption insurance reimburses an insured for lost net profit and continuing expenses resulting from an insured loss to the property of one of its suppliers or customers. The contingent property may be specifically named on the policy or the coverage may be blanketed to customers and suppliers. A standard 12 month indemnity period applies but can be extended to 18, 24 and sometimes 36 months.
In general there are 3 types of properties / risks which purchase this coverage:
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A contributing property may be a supplier of a material that you depend upon almost exclusively for you to build your product. Example – You manufacture rubber mats for restaurants to use in their kitchens which help prevent slipping. If there was a fire at the rubber plant that supplies you with the rubber to make the mats you could suffer financially. This coverage could help cover the loss of income while the factory is repaired or you find a new supplier.
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A recipient property is one of a few businesses that purchase a majority of your products. Example – You are a chocolate manufacturer who sells 75% of their chocolates to a single retailer in Vancouver. If the retailer suffered a fire at their location and were unable to sell and therefore purchase your product there is a good chance it will affect your business income. You could purchase this coverage to cover the loss of income while the retailer was under repair.
- A leader property is a business that is a close neighbour of the insured which helps bring in customers to the insured (anchor tenant or mall location.) Example – You are a restaurant in a strip mall that has a Walmart. The Walmart suffers a fire and shuts down for repairs which last 12 months. Walmart is a huge “anchor store” for many small businesses and attracts a lot of customers. It is possible that while the repairs are being done at Walmart the mall traffic could drop drastically. You can purchase coverage to help cover the lost revenue while the “anchor” is closed for repairs.
To learn more about this coverage and other kinds of business interruption exposures please contact us at Fraser Heights Insurance Services.
