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Importance of Dependent Business Interruption Insurance
Property isn’t just something you buy in Monopoly. But as a temporary staffing business or PEO, it’s probably one of the last things you think of when it comes to insurance. As we look back on 2017 and the countless natural disasters, breaches, and negative unrest in the news, it forces us as executives to be more cognizant of contingent or dependent business interruption and the impact it has on business and profits.
For the most part, in the event your company sustains a property or business interruption loss, the ability to continue operations from another office location or temporary office would be easily managed. You can rent a temporary office space, purchase some new data equipment and ultimately continue to service your clients with little to no interruption. Business continues to operate as normal, right?
But, what if the business interruption loss occurs at a client location, and worse yet, your largest client? Now the client is shut down indefinitely and your largest source of revenue is no longer operating, but your physical locations are still operable and sustained no direct loss. This is where contingent or dependent business interruption coverage could come in.
What’s dependent business interruption insurance?
It’s an extension to property insurance that reimburses lost profits and extra expense resulting from an interruption of business at the premises of a key customer or supplier. So how do you determine if dependent business interruption coverage would apply? Consider the following chain of events:
- What was the cause of loss?
- Is the cause of loss considered a “covered cause of loss” under your property policy?
- Does the covered loss from a key supplier or client interrupt your daily business operations?
It’s not necessary for an entire shut down to cause a dependent business interruption loss. Coverage would apply if the dependent property suffers damage from a covered cause of loss as if it were the insured’s own property. Please be advised if there are certain exclusions under the property form and the cause of loss is determined to be from one of these exclusions, dependent business interruption wouldn’t apply. Insurance policies can, however, provide location specific or “blanket” limits depending on your need and exposure.
How does it work for staffing companies and PEOs?
For example, XYZ Staffing has an office in San Diego, CA and places temporary workers at their client, Made-Up Manufacturing located in San Francisco, CA. XYZ’s property insurance excludes earthquake coverage. San Francisco experiences a large earthquake causing major damage to the Made-Up Manufacturing facility which results in a two-month closure for repair. Since XYZ’s property policy excluded earthquake as a cause of loss, the dependent business interruption coverage can’t be triggered.
- When Natural Disasters Impact Your Staffing Clients
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- Liability E-Book
- Business Income Insurance Calculator
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