What is covered by the optional ‘Supplier/ Customers’ extension under the Business Interruption section of a policy?
The optional Supplier/ Customers extensions on a Business Interruption policy is intended to provide cover to a Business in the event that the Business has Suppliers or Customers which are critical to the continued operation of the Business.
If a key Customer or Supplier of the Business suffers damage (as a result of an insured peril) then the Business would experience loss of income as a result and would require cover under the optional extension on their Business Interruption policy.
An example – Business X purchases steel from Supplier Y. Supplier Y is able to provide Business X with a good-quality class of steel within a fast turnaround time. There are no other suppliers able to provide the steel to Business X within the required turnaround time. If Supplier Y suffers a business interruption due to a fire and is unable to provide Business X with the required steel in the necessary turnaround times, Business X will be unable to operate at required capacity and will experience a loss of turnover as a result. Business X will therefore elect to take the Specified Customers’ extension (noting Supplier Y as a specified customer) on its Business Interruption insurance to ensure that their loss of revenue will be covered in the event of an interruption in the business of Supplier Y due to an insured peril.
A Business Interruption policy can have Unspecified and Specified Suppliers or Customers as optional extensions however, the cover under these sections follows the definition of damage in the policy. As a result, the cover will only respond if the specified or unspecified supplier or customer has a loss which results from an insured peril (e.g. fire, water, etc.).
