Interdependency Clause

Purpose

Vertically integrated companies and groups often operate several closely interlinked locations: one site’s intermediate products may be processed further at the next, or several plants may jointly supply one end customer. The interdependency clause clarifies that a loss of income at one location, caused by an insured physical damage event at another, related location, is covered even though no physical damage occurs at the first location itself.

Effect and limits

The clause differs from the CBI extension in that it only concerns locations of the same insured or the same corporate group, whereas CBI covers damage at independent third parties (suppliers, customers) – the two covers are complementary and together close the gap arising from complex, multi-tier value chains. Applying the clause generally requires that the trading results of the affected locations be separately ascertainable. It is not automatically part of a standard business interruption policy but must be expressly agreed, often subject to its own sub-limit.

Negotiation and practice

For groups with a high degree of internal value-chain integration, the clause is particularly important where individual locations are insured separately or under different local policies, since a coverage gap can otherwise arise between the individual policies. Internal financial reporting for individual locations often does not adequately reflect the group-wide exposure, which is why close coordination between insured, broker and insurer is needed for both risk assessment and loss estimation.