However, there are steps a company can take to minimize the disruption caused when a supplier or customer sustains a loss that affects its business. A good solution is a form of insurance known as contingent business income coverage.
Insurance for dependent properties exposures varies, but its primary function is to put the policyholder back in the same financial position it was in before its operations were disrupted by the supplier’s or buyer’s loss.
This insurance has three components. When a business depends on others to supply its products or services, it falls within the category of a “contributing or manufacturing location.” If a business relies on others to purchase its goods or services, it is referred to as a “recipient location.”
Finally, there is the “leader location,” which is a business that attracts customers. Many shopping centers, for example, would not attract as many customers if it did not include highly regarded anchor tenants. If, through damage or destruction, an anchor tenant was unable to operate, many customers might patronize other shopping centers.
The Insurance Services Office (ISO) offers two dependent properties forms: Business Income From Dependent Properties — Broad Form CP 15 08; and Limited Form CP 15 09. In addition, ISO offers an Extra Expense for Dependent Properties Form CP 15 34. It is not the purpose of this article to discuss these forms in depth. However, it is important to have a basic understanding of what they offer.
This endorsement includes a schedule which requires the name and description of the occupancy and location in the following categories: Contributing Locations; Recipient Locations; Manufacturing Locations; and Leader Locations. This Broad Form endorsement’s advantage is that it provides the same business income limits that apply to loss from damage to the named insured’s own covered property. However, the loss of business income limit(s) applicable to the named insured’s described premises applies separately to each of the dependent properties listed in the schedule.
It is important to note that this Broad Form...