Recently, many industries have faced global and domestic supply chain disruptions. From natural disasters to geopolitical tensions, California-based businesses have faced unexpected challenges that have strained operations and finances. Supply chain interruptions can lead to delays, increased costs and business losses that companies must recover through their insurance policies.
For many businesses, insurance is a safety net when unforeseen events disrupt their operations. However, securing a fair recovery often requires an understanding of how supply chain issues are covered under specific insurance policies. Proactive planning is important, as companies must confirm that their policies provide adequate coverage for supply chain-related risks.
Key Challenges in Insurance Recovery for Supply Chain Disruptions
In supply chain disruptions, several challenges can affect a company’s ability to recover damages through insurance claims. The following factors are important to consider:
- Business interruption coverage limitations: Many business interruption policies only cover losses caused by specific, enumerated events such as fire, theft or natural disasters. Supply chain disruptions caused by external factors, like delays in raw materials or transportation, may not always be covered unless the policy explicitly includes these risks.
- Force majeure clauses: Some supply chain disruptions may fall under force majeure clauses, which exempts parties from liability due to extraordinary events. However, force majeure clauses can vary, and businesses should understand whether their policies cover supply chain delays as a force majeure event.
- Causation and documentation: Insurance companies require detailed documentation of the disruption’s cause and its financial impact on the business. Without proper evidence and clear causality, claims may be denied or reduced. It’s important to keep thorough records and understand how to demonstrate the link between the disruption and the financial loss.
- Supply chain insurance riders: In some cases, companies may need to add riders to their insurance policies to help ensure adequate protection against disruptions. These riders can help cover losses caused by key suppliers’ failure or supply chain disruptions.
California-based companies should proactively review and adjust their insurance policies to address supply chain risks and help ensure adequate protection when disruptions occur. Legal feedback can help businesses fully prepare to pursue insurance claims and recover the maximum benefits available to them. Our team can provide you the necessary guidance you need to stay protected, contact us today.