Oh My Cheese! What Can Dairy Farmers Teach Us About Contingent Business Coverage? — Understanding Business Interruption Claims, Part 7

(Note: This Guest Blog is by Michelle Claverol, an attorney with Merlin Law Group in the Coral Gables, Florida, office. This is the seventh part in a series she is writing on business interruption claims).

The Saputo Cheese USA Plant in Hinesburg, Vermont, was a successful mozzarella cheese enterprise until a catastrophic fire destroyed its facility. According to claimsjournal.com, Saputo Cheese was receiving about a million pounds of milk a day from 88 dairy farmers in Vermont and New York, which totaled 10-12 percent of Vermont’s entire milk production. Each of the 88 dairy farmers, on average, supplied Saputo Cheese with more than 11,300 pounds of milk every day. Saputo Cheese announced its closure about a month after the fire; the 88 dairy farmers were frantic to say the least. Unless alternate buyers could be found, the dairy farmers would lose a major source of income for months. The dairy farmers were at a loss.

Every day, businesses develop and thrive on symbiotic relationships, where the entities rely on the continued operational viability of each other (or even exclusively beneficial relationships). Few businesses, however, consider the risk and exposure of losing that relationship due to an unexpected calamity. Businesses that are dependent on a non-related entity’s operations should talk to their agents about attaching “dependent business interruption” endorsements to avoid suffering the dairy famers’ fate.

Contingent business coverage is a type of business interruption coverage will protect the “dependent business” from the external business income exposure. There are four (4) types of dependent business ISO endorsements: 1) contributing premises, such as the businesses that deliver materials to the insured, 2) recipient premises, such as the businesses that receive the insured’s products, 3) manufacturing premises (businesses that make products for delivery to the insured and 4) leader premises, such as businesses that bring the customers to the insured. In lay terms, 1) suppliers, 2) buyers, 3) providers, and 4) drivers.

Depending on the relationship the dairy famers had with Saputo Cheese, the dairy farmers could have purchased coverage to pay for the loss of income resulting from Saputo Cheese’s suspension of operation until its closure, since most endorsements provide coverage until the dependent business resumes operations or alternate sources are found.