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What Is Contingent Business Interruption Insurance?

Contingent Business Interruption Insurance

Contingent Business Interruption Insurance covers you when a partner or supplier suffers an event that directly impacts your business revenue.

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In the modern world, it’s rare for a business to be completely self-sufficient. Most companies rely on one another to make, sell, and create their products. A car manufacturer in the United States might import metal scraps from China. A home security business may outsource their calls to an unaffiliated call center in India. A surfwear shop in Malibu could rely on local hotels and resorts to attract a steady stream of novice surfers. These businesses are dependent on one another, and when one faces trouble, so does the other.

When a key supporting business undergoes a loss or event that negatively impacts your company, how can you protect yourself and keep your business firing on all cylinders? Contingent Business Interruption (CBI) Insurance may be your best bet.

What is Contingent Business Interruption Insurance?

Contingent Business Interruption Insurance, also known as Contingent Business Income Insurance or Contingent Dependent Properties Insurance, provides financial assistance when a key partner, supplier, or supporting business suffers an event that directly impacts your ability to earn revenue. If one of your suppliers is unable to fulfill their obligations due to physical damage or loss, Contingent Business Interruption Insurance can cover your lost income and ongoing expenses.

Small businesses are especially vulnerable to economic damages from problems at partners or suppliers, as they tend to rely on fewer suppliers and partners and don’t usually have extra capital to burn. Contingent Business Interruption Insurance can protect you from having to absorb the financial fallout of any physical loss or damage to your suppliers or customers.


CBI Insurance is usually purchased as an add-on to business income insurance through your property insurance. It is important to note that CBI Insurance only covers business interruption that is a result of damage or loss to a third-party business, like a customer or supplier, and is commonly used to cover four key circumstances:

Who needs Contingent Business Interruption Insurance?

Any business can benefit from CBI Insurance, but those who rely on a limited number of suppliers or customers stand to benefit the most. Companies with multiple supply sources can count on an unaffected business partner if another is forced to halt production, but businesses that rely on only one or two suppliers will be vulnerable. Even for businesses with multiple suppliers, it can take days to reroute orders to these other companies These dependent companies can lose income and business as they scramble to secure a new manufacturer.


Just as companies may be dependent on a few key suppliers, they may also be dependent on a select group of customers. Companies that sell to other companies may target their business towards and obtain the majority of their revenue from one or two buyers. Businesses that sell niche or customized products will be in peril if their usual partners are unable to buy their inventory.


Some companies may also rely on leader locations to sustain their business. These companies do not always exchange goods or services with their contingent partner but depend on the customers they attract. Problems at a leader location can create problems for the dependent business. Examples of this include:

If your business is located in a major metropolitan area, you are less likely to depend on another business for your customer base. However, for companies in remote areas, the failure of their leader location can cause significant problems.


What does Contingent Business Interruption Insurance cover?

CBI Insurance covers many of the same costs that regular business income insurance covers. Its primary benefit is that it replaces the income that you lost as a result of the damage to or loss of your supplier or customer’s property. In addition to subsidizing your lost income, CBI Insurance can also cover any ongoing or extra expenses that you incur while your business is interrupted, including employee salaries, rent, utilities, and any other expenses necessary to keep your business running or stymie additional losses.

Just like regular business interruption insurance, there must be physical damage or loss to the contingent property in order to receive a payout for the interruption. Not every type of damage or loss is covered, and acceptable damage types are usually listed by your insurance provider. You must be able to prove that damage to the contingent property is the direct cause of your business’s interruption.

While covered perils vary from insurer to insurer, your CBI Insurance will usually provide coverage for the same perils that your property insurance policy covers. Examples of common perils that Contingent Business Interruption Insurance will cover include:

There are many unforeseen events that can halt your supplier’s production of essential goods, but not all are covered by Contingent Business Interruption Insurance. Because CBI Insurance is closely tied to property insurance, loss or damage to the contingent business’s property is key in triggering your policy. Damage to water supply services, power services, or communication services are generally not eligible for CBI Insurance. Both floods and earthquakes are commonly excluded from property insurance policies and may be excluded in CBI Insurance. That said, coverage can vary based on your individual insurance plan.

What are the limits of Contingent Business Interruption Insurance?

Following a triggering event, there is generally a waiting period, usually 48 to 72 hours, before CBI Insurance is activated. This is often called a “time deductible” and is the minimum period of time your business must demonstrate an interruption of your business operations.

CBI Insurance is also usually limited to a set period of time (e.g. 30 to 60 days) and often has a maximum reimbursement limit (e.g. $10 million). A typical provision is that your business will only receive reimbursement for the number of days it would reasonably take your supplier to repair or replace any relevant damage. This is often called a “period of restoration.” If your supplier fails to address the damage within the designated period of restoration, say 12 months, you will no longer receive payment even if your business remains impacted.

There are also a few common events that CBI Insurance generally excludes:

Contingent Business Interruption Insurance vs Business Income Insurance

Business income insurance, or business interruption insurance, protects you financially in the case of direct injury or loss to your own property or business. However, Contingent Business Interruption Insurance is often added to business income insurance to further mitigate risk. CBI Insurance expands your coverage to include both your property as well as the property of your customers, suppliers, and any “leader” locations. This means that if you rely on a dairy farm for your milk supply, and their facilities are destroyed in a fire, you will be covered for the income that you lose as a result.

Direct vs Indirect Contingent Business Interruption

A contingent business interruption can be either direct or indirect. In a direct business interruption, your immediate supplier or customer experiences property damage or loss. In indirect business interruption, the supplier or customer to your supplier or customer experiences the loss. Many insurance policies limit themselves to only cover direct contingent business interruptions as part of their policy.


Named vs Unnamed Suppliers

Depending on your policy, you may be required to name every contingent customer or supplier you intend to be insured for. Due to the nature of modern business, this may be challenging. Most companies rely on an interdependent chain of business partners, many of whom are several steps removed from the direct supplier. These unknown contributors can be difficult to track and officially name. Other policies cover all contingent partners whether they are named or not.


Final Word

In a world where businesses must rely on one another, and supply chains grow ever larger, Contingent Business Interruption Insurance is the best way to protect your bottom line. CBI Insurance can protect small businesses from the financial fallout that can occur when accidents and mishaps lead to physical damage or loss to their partners.

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