By 2020, Americans were facing a shortage of toilet paper. This year, companies are facing a shortage of microchips. Microchips are an important component in a growing number of electronic products, ranging from smartphones to cars and household appliances. As shortages seep into the supply chain, downstream companies can now not obtain microchips or other components they need to manufacture their products. This forced companies to slow down or in some cases completely shut down their production lines until the supply of microchips could be restored. These slowdowns and closures have led to significant loss of revenue for the companies concerned. Fortunately, insurance coverage is likely to be available for these types of income losses.
Most commercial property insurances include supply chain or conditional time element coverage. This coverage applies when a company maintains a loss of business revenue due to disruptions in the supply chain, including unavailability of key components or products. As with most commercial property policy coverages, supply chain disruptions must typically be due to physical loss or property damage, but when this threshold is met, supply chain coverage or any business interruption may be publicly available. While some insurances may limit this coverage to interruptions due to direct suppliers, others may not, and may provide coverage where any player in the policyholder's supply chain (upstream or downstream) is disrupted by a cause of loss of a type that would have been covered by the loss. or the damage caused to insured property.
This is probably the case with the microchip shortage: several microchip manufacturers often suffered physical damage to their property. It was not until February that the freeze in Texas forced several microchip manufacturers in the state to shut down their facilities. In March, a fire destroyed a microchip factory in Japan. Meanwhile, a drought in Taiwan – home to two-thirds of the world's microchip manufacturing capacity – disrupted service for chipmakers and manufacturers denied water necessary for microchip production. Each of these three events should easily meet the threshold for physical loss or damage of the type insured under most commercial property insurances and should therefore be sufficient to trigger the supply chain and conditional time element coverage for customers from affected companies.
In addition, the COVID-19 pandemic has caused some manufacturers to slow down or stop production. Although insurers have consistently denied that COVID-19 causes property damage, some policyholders have been successful in court and have been covered for resulting business interruptions and many others are prepared to undo invalid initial decisions at the Court of Appeal level. As a result, there may also be coverage available to customers from manufacturers who are forced to close due to the pandemic.
As with all commercial insurance losses, policyholders will benefit most from consulting experienced coverage advice to help review all applicable insurances, including those from third parties under which a company may qualify as an additional insured to ensure recovery of all. available insurance benefits.