Contingent Business Interruption Insurance
|Business interruption insurance is a form of property insurance that reimburses a business for losses that arise due to damage to the property of the business that reduces the ability of the business to continue its operations. Contingent business interruption insurance is also available to provide coverage for business continuation losses occurring to a business when property of another business is damaged or destroyed.
Contingent business interruption insurance is contingent on property loss of a customer or supplier of the insured rather than on a property loss of the insured. Thus, the insured's loss of earnings upon suspension of its operations is covered if property damage from listed perils is suffered by customers or suppliers of the insured and disrupts the business of the insured.
Clauses providing business interruption coverage contingent upon property damage suffered by suppliers or customers of the insured may be given broad interpretations under traditional insurance contract principles for resolution of insurance policy ambiguities in favor of the insured and in favor of finding coverage. For example, a global supplier of food products was successful in its action against insurers alleging that property losses of farmers resulting from the flooding of a river resulted in reimbursable lost income for the supplier even though it obtained its materials from middlemen rather than directly from the farmers. The policy clauses at issue covered loss of earnings arising from damage to property of any supplier of goods or services.
The global supplier's policy also contained a clause providing for reimbursement of "'Extra Expense' sustained by the insured as a result of direct physical damage caused by the perils insured against..." The court held that the supplier was entitled to payment of over $40 million in extra expenses even though the property suffering flood damage was not owned by the supplier. The court agreed that the policy language only required that direct physical damage to property occurred and that the damage was caused by a covered peril such as flooding. The contingent business interruption coverage did not require that the damaged property had to be owned by the insured global supplier.
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