The news media have been covering the devastation caused by Japan’s “triple whammy” – earthquake, tsunami and nuclear radiation exposure. In addition to the loss of life, injuries including radiation sickness, and property damage estimated at over $300 billion, there have been supply disruptions worldwide as Japanese businesses have closed or reduced operations.
Businesses which depend on products, supplies or equipment from Japan will either need alternate sources of supply or face reduced income and possible shutdown. There is a way to minimize loss from events that don’t affect you directly – Contingent Business Income insurance.
Business Income (sometimes known by its older name, business interruption) covers loss of income and continuing expenses to a business due to a loss affecting its premises. Contingent Business Income coverage (sometimes called Dependent Business Income) takes this one step further by covering loss due to a covered peril suffered by four types of entities:
-Manufacturers of products for you.
-Suppliers (“contributing locations”).
-Major customers (“recipient locations”).
-Places that attract customers to you, e.g. anchor stores in a mall (“leader locations”).
Contingent Business Income coverage may be included as additional coverage in Business Income insurance, with a pre-set limit or sub-limit. Businesses that depend to a large extent on one or more of the entity types mentioned should calculate their possible loss in the event of a covered loss by the outside entity, and purchase limits accordingly.
In purchasing Contingent Business Income coverage, keep three things in mind:
- Coverage only applies to perils covered by your policy. If you want to cover flood (including tsunami) or earthquake loss your policy must be endorsed. Nuclear accident loss is almost always excluded.
- If you import or export, coverage must be worldwide or at least cover all countries you trade with.
-Beware of “concurrent causation” exclusions which apply even if a loss is partially caused by a covered peril.
Contact Beacon Insurance Services if you are interested in purchasing coverage.
