Understanding Contingent Coverage and Extra Expense

Have you ever thought about what would happen if a link in the supply chain of your business suddenly became undone, through a natural disaster-related event, closure or other delay? While business interruption coverage protects your business in the event of stalled operations, contingent business interruption and contingent extra expense assist you when a supplier or direct partner have a stoppage in operations.
Generally, contingent business interruption serves as an extension of your standard business interruption insurance, reimbursing you for lost profit and extra expenses related to your direct supplier. Here’s what you should know.
Who’s Covered?
While your business gets reimbursed, your policy typically lists a contingent property – a direct supplier or customer. Depending on your business model, this could encompass all related suppliers. Your policy kicks in when one of them experiences an interruption that impacts your profits. For instance, damage or destruction to their property or any other factor cutting off their operations for a significant – if not indefinite – time period.
When Is It Used?
However, your policy is not applicable in all interruption scenarios. Generally, you’ll be reimbursed:

• After any damage to the customer’s or supplier’s property.
• If you depend on a single supplier for materials or merchandise and they’re completely cut off, directly affecting your operations.
• If you depend on a few customers – individuals or businesses – to purchase your products. Losing their business directly impacts your profits.
• If something happens to your partner’s property or a key neighboring business.

What Your Policy Won’t Cover
In certain scenarios, your policy won’t cover the third-party’s damage if:

• The damage is self-inflicted, either to its own or its third-party facilities.
• It’s related to utility or off-premises power interruptions.
• It involves civil or military authority interruptions.
• It involves any damage related to heating or cooling equipment.
• The damage at one owned location causes a loss of revenue at another owned property.

Should You Take Out a Policy?
Not all businesses need contingent and extra expense coverage. You may want to consider a policy if:

• One of your suppliers, following a loss, would take a long time to get back up and running.
• You only have one supplier.
• A temporary shutdown would affect your market share.
• There aren’t many alternative suppliers available.
• Using an alternative supplier wouldn’t meet your current needs.
• Your customers would experience a loss by not purchasing your goods or services.

If you answered “yes” to most of these questions, your business may want to consider contingent coverage. To learn more or explore your options, give Ion Insurance a call at 203.439.2815.