Hunton Insurance Recovery Blog

Supply chain disruptions caused by a number of unrelated events – the pandemic, ice storms, wildfires, and droughts – were commonplace in the retail industry in 2021.  Obtaining the correct insurance coverage can help mitigate present and future supply chain risks.  In the recently published Retail Industry 2021 Year In Review, we highlight some key concerns and coverages to look out for.  A copy of the full publication can be found here.

As governments lift COVID-19 lockdown restrictions and economies begin to reopen, consumer demand for products has skyrocketed. Amid the spike in demand, businesses are struggling to meet consumers’ needs due to ongoing global supply chain disruption. The disruption stems from many factors, including the lingering effects of COVID-19 mitigation strategies that slashed the production of goods, as well as a shortage of warehouse workers and truck drivers. Insurance is a key component of supply chain risk management. Policyholders who rely on a supply chain can use insurance to protect against supply chain risks. Here, we explore supply chain risks and how insurance can mitigate those risks.

In 2020, Americans faced a shortage of toilet paper. This year, companies face a shortage of microchips. Microchips are a crucial component in a growing number of electronic products, everything from smartphones to cars and household appliances. As the shortage trickles down the supply chain, downstream businesses are now unable to obtain the microchips or other components they need to make their products. This forced companies to slow or, in some cases, totally shut down their production lines until the supply of microchips can be restored. These slowdowns and closures have led to substantial losses of income for affected businesses. Fortunately, insurance coverage is likely available for these types of business income losses.

Earlier last week, Hunton insurance partner Michael Levine spoke with Business Insurance about the mounting concerns over insuring Coronavirus-related business income and supply chain losses.  As of today, almost 80,000 cases have been reported world-wide and more than 2,250 are confirmed to have died as a result of the disease.  Companies across the globe have been impacted, with loss of materials, markets and distribution representing a common thread among reported losses and disruptions.  But these “supply chain” losses may be compensable through insurance.  Policyholders will be forced to evaluate complex policy provisions and endorsements to ascertain whether their insurance program should respond.  In particular, policyholders must determine whether their policy wording requires some element of physical loss or damage to property to trigger business interruption or contingent business interruption coverage.  Even where such a requirement exists, however, some policies are written so that loss of use of property is sufficient to implicate coverage.  Likewise, questions exist concerning contamination to property, and whether that too may constitute physical loss, damage or loss of use.  For these reasons, among others, Levine explained to Business Insurance that “contingent business interruption . . . is going to be one of the battlegrounds, if not the main battleground, particularly in the supply chain area.” Levine further noted that claims could be complicated by the physical damage requirement.

With nearly 2000 locations, the recent outbreaks linked to Chipotle restaurants involving three strains of E. coli, norovirus and Salmonella, have had a substantial impact on the fast-food chain’s supply chain.  In a recent article appearing in Risk Management Magazine, The Chipotle Outbreaks Highlight the Risks of Supply Chain Failures, Syed comments on the insurance issues that are likely to arise, and the ways those issues might be affected by the post-event conduct of affected companies.