Dependent properties is a term used on a Business Interruption Policy to describe businesses on which your firm depends for the purchase or sales of goods and services. Consider how a building materials manufacturer relies on a large home improvement store or building materials wholesaler. If the store or wholesaler suffered damage that prevented them from doing business, the manufacturer would likely suffer lost income.
It’s important for your firm to consider those companies on whom you depend to operate at your normal capacity. This is the first step to securing adequate coverage. Ask yourself these questions:
- How long could I tolerate that company’s inability to supply things to or purchase things from me?
- Is a contingency plan, such as an agreement with an alternative supplier, in place?
- Are there contractual obligations, such as a purchase agreement, that I could violate if that company is shut down indefinitely due to the loss?
Most business interruption policies can be modified by endorsement to cover damage to a dependent business. Some companies may ask for a separate limit of your insurance applicable to the dependent business.
Others will pay the loss out of your business interruption limit. Some insurance companies will offer coverage if the dependent business’s operations are reduced due to the loss. Others may require a complete cessation.
A typical business interruption policy will require that the dependent business be located within the policy’s coverage territory. Traditionally, this territory includes the United States, its territories and possessions, Canada and Puerto Rico. If the dependent business is located outside the coverage territory, such as in Japan, a different version of the dependent business endorsement may be required.
Period of Restoration refers to the time between the date the loss that interrupts the business occurs and the date by when the damaged property should be repaired or reopened elsewhere.
It represents the amount of time you are usually able to receive payment from your business interruption policy. If you are adding coverage for dependent businesses, consider potential differences in this time frame.
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