In addition to human loss, the tragedies in Japan have severely impacted
manufacturing – reports warn of rolling blackouts to conserve power, and several
Japanese corporations have announced indefinite closure. Closures are having
ripple effects across the world, as many companies rely on a “just-in-time”
supply chain. If you have suffered losses due to a supply chain disruption,
examine your commercial property insurance policy for business interruption and
contingent business interruption coverage. These coverages may help to mitigate
your losses when your suppliers cannot deliver because they have suffered a
casualty from a risk covered under your policy.
Although just-in-time deliveries permit businesses to maintain minimal
inventories, the lack of inventory may cause a shutdown in production when the
supply chain is disrupted. Factories outside of Japan that rely on Japanese-made
components are already feeling the impact. For example, Toyota has announced it
will slow production at some U.S. plants to conserve parts due to the inability
of its suppliers to make or ship product.
Businesses looking to mitigate their losses should examine their commercial
property policies for business interruption and contingent business interruption
coverage. This coverage is sometimes referred to as “business income from
dependent properties” coverage. Contingent business interruption pays for
covered losses caused by the inability of a supplier to deliver supplies or
products. Typically, contingent business interruption coverage only insures
against losses if a risk insured under the insured’s policy causes the
disruption to the supplier.
If the crisis in Japan has disrupted your company’s operations, review your
commercial property policy for contingent business interruption coverage. Even
if earthquakes and/or flooding may be excluded causes of loss under your policy,
coverage may exist if other covered causes of loss have contributed to the
disruption. For example, many policies afford coverage for disruptions caused by
the orders of civil authorities in reacting to a disaster.
If you have suffered losses due to a disruption in your supply chain, pay
close attention to the notice provisions in your policy. Carefully review the
documentation required by the insurer to prove your claim. Of course, if you
have questions about your policy or contingent business interruption coverage in
general, you should consult a lawyer who specializes in these issues.
McGuireWoods LLP Insurance Recovery Practice
Our insurance coverage team represents policyholders in insurance disputes
across the country.
We also advise clients on risk management and insurance strategies. For more
information on how we work with policyholders to protect their rights and
Please note that to help ease the human suffering, McGuireWoods LLP is
matching partner and employee contributions to the Red Cross.