Tomorrow’s supply chain - Insurance Coverage for Supply Chain Disruptions Caused by Labor Issues

Reed Smith

Reed Smith

Labor shortages on the West Coast are causing supply chain disruptions and affected businesses may be seeking insurance coverage - the question is, is it covered?

Today, many businesses rely on overseas material and labor, making supply chain risk one of the six biggest risks businesses face today. Any disruption to the supply chain can be devastating, with consequences ranging from reduced market share and loss of customers/decreased sales and increased costs to reputational harm, breach of contract claims and failure to meet legal or regulatory requirements – and it can take years to fully recover.

Most commercial insurance policies require physical damage to specified locations so policies containing typical business interruption, contingent business interruption and extra expense coverage may not cover supply chain disruptions caused by labor issues.

However, specialized broad supply chain insurance policies may be triggered by several types of external events beyond the policyholder’s control, including labor or employment issues that do not involve physical loss or damage. (Though not pertinent to the labor shortage on the West Coast, supply chain insurance can also cover losses caused by natural disasters, industrial accidents, production issues, political or civil upheaval, infrastructure and transportation closures, public health emergencies and governmental regulatory actions.) Supply chain insurance can cover financial losses including revenue loss and other costs incurred due to the interruption. At the moment there exists no “standard” supply chain insurance form, but generally it provides all-risks coverage, and insurers are open to negotiation of many terms and conditions.

Companies should consult an experienced insurance coverage attorney to review their existing coverages and determine if adding supply chain and contingent coverages to their existing insurance makes sense.

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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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