Business Income Insurance Could Aid Dairy Farms Caught in Cheese Squeeze

Who would have thought that a cheese factory's inability to make mozzarella cheese would cost so many dairy farmers their livelihood? Eighty-eight dairy farmers in western Vermont and New York have taken an economic hit from a Sept. 29 fire at the Saputo Cheese USA plant in Hinesburg, Vt. (about 12 miles southeast of Burlington).

News reports quote Vermont's Department of Agriculture Food and Markets as saying that this cheese plant purchased nearly 1 million pounds of milk per day totaling 10 to 12 percent of the state's entire milk production. Each of the 88 dairy farmers, on average, supplied the plant with more than 11,300 pounds of milk every day. Unless alternate buyers can be found, these farmers will lose this major source of income for at least another two months, according to company officials.

The dairy farmer's loss of income arising out of the fire damage to Saputo could have been covered under the dairy's business income policy, if there was one. Attaching one of the two "dependent properties" endorsements would have provided the necessary protection against this loss of income:
• Business Income From Dependent Properties - Broad Form (CP 15 08); or
• Business Income From Dependent Properties - Limited Form (CP 15 09).

These two forms offer the same breadth of coverage; the limit of business income coverage is the only difference. The Broad Form (CP 15 08) makes the entire business income limit available to cover a dependant property loss; whereas the Limited Form (CP 15 09) allows the insured to choose lower coverage limits applicable to dependant property loses. (There are two international dependent property forms not discussed in this short article).

Four classes of dependent properties are extended coverage under these endorsements:
• Contributing locations - Those that supply the insured with materials and products;
• Recipient locations - Those the buy from the insured;
• Manufacturing locations - Those that are within the insured's manufacturing chain (also an insured); and
• Leader locations - Those that draw customers to the location of the insured. Such as a leader store (Sears, Belk, Hechts, etc) at a mall.

Saputo Cheese is a recipient location for each of these dairy farmers and likely accounted for a large percentage of these farmers annual income. Losing a large part of its income for three months could be devastating for any insured; however, there is an insurance solution to this exposure.

Few businesses fail following a major loss due to the lack of property coverage; most business that don't reopen or that close shortly after reopening do so due to the devastating loss of income. Insuring the possibility of business income loss arising out of direct damage and the loss of income resulting from damage to or destruction of a dependent property can save the insured from financial ruin.

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