Staying Afloat Through the Flood: Contingent Business Interruption Insurance May Pay for Losses Caused by Supply-Chain Disruptions


Originally published in The Corporate Counselor - July 20, 2011.

The Mississippi River floods in Spring 2011 proved to be among the largest and most damaging along the U.S. waterway in the past century, rivaling the major floods of 1927 and 1993. In addition to the massive property damage that the floods have caused, the floods also threatened to cause immense disruptions along one of the country’s most important trade routes. In one instance, the Coast Guard temporarily closed a large section of the Mississippi River to both northbound and southbound traffic, and more closures might be on the horizon.

In past major Mississippi River floods, these types of trade disruptions resulted in companies incurring very large losses as they lost access to suppliers and could not get their products to market. Companies in virtually every industry can be affected. For example, the Mississippi River is the key waterway for U.S. grain exports, and multiple food companies rely on the Mississippi River as a relatively inexpensive transportation throughway. The Coast Guard’s closing of 15 miles of the Mississippi River at the port of Natchez, MS, reportedly meant that several barges already were idled at Natchez, and many more ships might be stopped cold if more closures occur. Flooding also could shut down railways and highways, further disrupting distribution chains.

In addition to the potential insurance coverage companies may have for property damage that the floods have caused, companies also may have insurance that can pay for the losses that they incur from the flood-related transportation disruptions, even if the companies themselves have not sustained any damage to their own facilities. Specifically, most companies have, as part of their firstparty property insurance policies, “contingent business interruption” coverage.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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