Life science companies face a unique and significant property loss potential that is not covered by a traditional property insurance policy.
A fire (or other covered loss) may cause direct physical damage to inventory in a warehouse or distribution center. The damaged property is clearly insured.
But, what if a government authority condemns the remainder of the inventory in the warehouse that has not sustained any visible “direct physical damage” as required in the property policy insuring agreement. The products may be pristine, but the FDA may feel uncertain about their safety. Even a whiff of doubt might make those products a liability should they later turn up in court for unrelated reasons.
The result: Your company may have pallets of seemingly undamaged inventory ready for distribution that now cannot be sold and, in fact, must be quarantined and destroyed.
How to Cover Non-Damage Loss
To have this type of loss covered, make sure to ask your underwriter to modify the policy to include a definition of “damage” that includes a government authority’s condemnation of undamaged property caused by an insured peril. Some insurers offer this coverage enhancement, but the wording must be crafted carefully to assure that no confusion exits at the time of a loss.
You can find more detail about this in our June LifeLines newsletter.