Beware of breach of contract
Breach of contract, known under a variety of terms (stop deliveries, terminate coverage …) functions very differently from one company to the next but has the same consequences: lack of knowledge of the rules may lead an insurer to refuse indemnification despite the insured continuing to believe himself still covered and continuing to make deliveries to his client. It is therefore very important for those in charge of monitoring the risk and its recovery to know up until what point deliveries are still covered. Not to mention the date at which the insured company must halt deliveries, unless they consent to do so without the guarantee of the insurer.
As far as recoveries are concerned the default date is also particularly important as according to insurers, it is the starting point to calculate the portion distributed between the insured and the insurer.
To avoid any misunderstandings or tensions due to the significant sums involved when an insurer refuses in his own right to indemnify despite an approved endorsement, here follows a small reminder.
Excluding collective proceedings or the advent of a political risk, breach of contract generally occurs due to:
- Unpaid receivables (bank refusal): as soon as you become aware of it.
- Late payment exceeding X days (depending on the contract and the insurer)
In these cases, deliveries to your customer must be stopped immediately unless you want to run the risk of seeing these invoices excluded from the insurers guarantee when evaluating the loss.
If deliveries have been made after these events, the buyer’s regularization of the delay or unpaid bill will allow these invoices to qualify for reimbursed again, provided you have not already sent a request for recovery to the insurer, even for information purposes!
Unfortunately most recovery software does not include alerts for stopping deliveries whereas it seems to us to be a key factor in risk management.
Beware of any unpleasant surprises!