Blog Question on some Business Interruption issues

bigstock-Business-Interruption-Sign-39078256Hi Allan

We have been appointed on this account and the latest information we have is that the client designs  outdoor furniture etc and provides a quote to the client to supply (but not install). 

When they secure the order, they engage a manufacturer to produce the goods at the manufacturer’s premises.  When the goods are ready, they are transported by carrier to the location selected by the Insured’s client, for installation by another party not engaged by our client. 

The Insured invoices the client for the goods incorporating a profit margin mark – up onto the invoice cost from the manufacturer.  

Is my thinking correct that this is really no different to a retailer who purchases goods which are then on – sold to their clients.  I.E We ask the client for the amount paid or payable to the Insured business for goods sold or services rendered during the last financial year = turnover. 

Then obtain the total amount of all purchases of stock and consumables during the last financial year.  Leaving aside other items such as freight paid not already included in the cost of purchases (cost of sales) for simplification of the question, wouldn’t we then just deduct cost of sales from the turnover to arrive at a gross profit figure?

 We look forward to receiving your valuable advice, so that we can finalise amendment to the BI cover.

Thanks and regards

Paul [surname and email provided]


Yes Paul you are certainly on the right track. Whether it is a retailer or in the case of your client where it is a measure, quote, order and deliver, the formula is still the same. The Insured’s margin is made on the goods manufactured for them and if you treat the cost of this, plus the transport/delivery as the only uninsured working expense then all other costs to the insured, including their advertising and sales staff salaries, wages etc will be insured and in my view ought to be.

If the Insured is not making the sale as a result of an insured peril (or any other reason) then they are not incurring the cost of the manufacturer or delivery. There is therefore no benefit in insuring them.

The only other thing to consider is if the Insured is reliant upon just one or two manufacturing plants, then I suggest you review the policy you select provides adequate coverage for customers’ and suppliers’ premises (the later being the important one). I am not sure if the manufacture(s) is local or overseas suppliers’ premises needs to be added.

As the Insured is out and about getting the orders at client sites, it really is the manufacturing plant that is with what I have before me the greatest exposure.

If the risk is being underwritten under an ISR,  I would also recommend the Reduced Margin Endorsement. What every policy you use, I would also ask you to check the adequacy of the Additional Increase in Cost of Working coverage.

I hope all this helps put your mind at rest that you were on the correct path.




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