Insurance Recovery for the Supply Chain Crunch

Kelley Drye Client Advisory

As the world economy continues its rapid but unpredictable rebound from the COVID-19 pandemic, record shortages and shipping delays due to global supply chain issues have become commonplace. If your business has experienced losses related to supply chain disruption, your current insurance program may provide coverage.

Contingent Business Interruption (CBI) Coverage

Contingent business interruption coverage (“CBI coverage”) protects your business from disruptions that directly affect your suppliers or other businesses you rely on. CBI coverage insures a policyholder’s business losses resulting from damage or disruption at the location of third-party suppliers or distributors that ultimately affects the policyholder’s ability to produce products or provide services. An important limitation to CBI coverage is that the disruption or damage generally must involve physical property damage—for example, if a supplier’s warehouse is closed or otherwise interrupted due to a fire or storm damage. Thus, pandemic-related supply chain issues may not be covered as insurers have uniformly taken the position that COVID-19 does not cause physical” loss or damage. Such causation questions are highly fact-dependent, however, and coverage will turn on the relevant policy language and the specific circumstances at issue.

Supply Chain Coverage

Supply chain insurance is a more specialized form of insurance that provides narrower coverage for business interruption caused by disruptions to your business’s supply chain. This can include loss resulting from delayed receipt of products or services from a supplier. Supply chain coverage can be triggered by several unexpected events, including, but not limited to, industrial accidents, labor issues, production process issues, public health emergencies, natural disasters, civil or military action, financial issues, and closure of roads or bridges. Unlike CBI coverage, supply chain insurance is not contingent on physical loss or damage. Accordingly, supply chain issues attributable to the pandemic may be covered under supply chain coverage.

How to Determine Your Protection

Policyholders who suffer losses attributable to supply chain disruption should review their coverage and, if questions arise as to the scope of coverage for loss, should seek advice of an insurance professional.

Kelley Drye’s Insurance Recovery and Counseling group is closely following developments in this area. Please click here if you would like to be kept abreast of current developments. Additionally, Kelley Drye actively tracks cases and developments related to supply chain disruptions and provides practical compliance and litigation counsel to help companies effectively mitigate business and liability risk.