Manufacturers of goods and service providers rely on the vendors/suppliers in their supply chain to provide them with the goods and materials they need to make their products and/or provide their services.
For example, a manufacturer might rely on a particular part to make their own product, and if the vendor from whom it buys the part is no longer able to provide and supply that key (and possibly difficult to source) part, this could have a significant impact on the manufacturer’s ability to carry on its own business.
If a supply chain Vendor ceases its own operations and this results in financial loss to their Buyer, can those Buyers be compensated for their losses? For example, will compensation be available if the break in supply causes a Buyer to halt its own production lines, or if their business is no longer able to open as it cannot provide a particular service without deliveries from the Vendor?
To insure against such losses, Buyers may have purchased a separate “Leader Property” or “Contingent Business Interruption” endorsement under their commercial policy. If their Vendor experiences an event which forces them to close down or halt production, the Buyer’s insurance may provide coverage for losses the Buyer experiences as a result of the interruption to their business caused by their Vendor’s situation.
Insurance coverage for these losses depends on what happened at the Vendor’s business or property: What caused the interruption? What physical damage was there to the vendor/supplier’s business? Was the cause of the damage something that was covered by the commercial policy itself?
So what does this mean for you, as a Buyer or Vendor?
If COVID-19 has affected your business’ supply chain and has caused your business to temporarily close, you should first check your policy to see if it includes a contingent insurance endorsement. If so, a further review will be required to see what specific acts or perils are covered.
Do note that the Vendor does not necessarily have to operate in British Columbia for coverage to kick in. Separate orders in another jurisdiction or country which shut down the Vendor due to pandemic could trigger the Buyer’s business interruption insurance policy.
If your operations have been interrupted because a reliant business has been forced to close, and you have questions about your coverage or are having issues with your insurer, please feel free to contact one of our insurance lawyers to assist.
Written by: Douglas Chiu