Valuing Business Income Exposures: A Case for Blanket Business Income Insurance

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A good example of this potential exposure would be a retail business with five separate and distinct locations from which retail sales are made. All five locations are constantly supplied with inventory that is stored by the business initially in a warehouse at a sixth location at which no retail sales are generated. If the business should sustain a property damage loss at the warehouse — reducing or eliminating the company’s ability to provide inventory to their retail outlets — sales would be drastically reduced at the five retail locations. If specific insurance were provided at each location, the insured might not collect for their business interruption losses at the retail locations resulting from the physical damage at the warehouse — particularly if the warehouse operates as the parent company, with the retail stores as subsidiaries not named as additional insureds on the parent’s insurance policy. This is a common scenario.

If instead, a blanket business interruption insurance policy was purchased, indemnification for the retail locations would be provided because blanket insurance responds as if the entire company, regardless of the number of locations, was under one roof. The physical damage sustained at the warehouse would be the trigger for the insured to make claim for business interruption/ extra expense losses sustained at all five retail locations. Again, this assumes commonality of insurable interest between the stores and the warehouse.

It is sometimes incorrectly assumed that the warehouse need not be named as one of the blanket locations since sales are not generated directly from the warehouse. I have seen instances where coverage was provided on a blanket basis for the five retail locations, without including the warehouse location. This mistake can be as costly as not providing any blanket coverage at all.

There are additional benefits available to the insured if blanket...

"Caution must be taken in establishing the blanket limit of liability. The limit should be established by computing the total values for the entire operation at all locations, not by using the highest value at any one location."


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