Contingent Business Interruption
Contingent business interruption (CBI) insurance is a coverage extension that pays for a policyholder's lost income and extra expenses when a key supplier, customer, or business partner suffers a covered property loss that disrupts the policyholder's own operations. Unlike standard business interruption insurance, which responds only when the insured's own premises are damaged, CBI responds when someone else's property loss creates a ripple effect that reduces the policyholder's revenue.
Why Contingent Business Interruption Matters for Independent Agents
Most commercial insurance clients depend on external parties to operate. A restaurant depends on its food distributor. A manufacturer depends on a single-source component supplier. A retailer depends on its primary shipping carrier's sorting facility. If any of these external parties suffers a fire, tornado, or other covered property loss, the policyholder's revenue drops — even though the policyholder's own building and equipment are untouched.
Standard business interruption coverage does not respond in these situations because no loss occurred at the policyholder's property. Without CBI coverage, the insured absorbs the income loss with no insurance recovery. This makes CBI one of the most significant coverage gaps in commercial insurance — and one that agents can proactively address during the placement or renewal process.
Agents who ask targeted questions about supply chain dependencies during the application process demonstrate expertise and uncover coverage needs that competitors often miss. A simple question — "If your primary supplier's facility burned down, how long would it take to find an alternative, and what would the revenue impact be?" — often prompts clients to recognize an exposure they had not considered.
How Contingent Business Interruption Works
CBI coverage is typically added to a commercial property policy or commercial package policy through an endorsement. The coverage responds when four conditions are met:
- A covered peril (fire, windstorm, equipment breakdown, etc.) causes property damage at a dependent location.
- The dependent location is a supplier, customer, manufacturer, or other party the insured relies on for revenue.
- The policyholder's operations are disrupted — revenue decreases or extra expenses are incurred as a direct result.
- The loss falls within the policy's covered causes of loss — the peril that damaged the dependent property must be one covered by the policyholder's own policy.
Types of Dependent Properties
CBI coverage typically applies to four categories of dependent properties:
| Category | Example | Exposure |
|---|---|---|
| Contributing locations | A sole-source parts supplier | If the supplier's factory is destroyed, the insured cannot manufacture its product |
| Recipient locations | A major customer's distribution center | If the customer cannot receive goods, the insured loses that revenue stream |
| Manufacturing locations | A contract manufacturer | If the manufacturer's plant is damaged, the insured has no product to sell |
| Leader locations | An anchor tenant in a shopping center | If the anchor store closes due to fire damage, foot traffic drops and the insured's sales decline |
CBI vs. Standard Business Interruption
| Feature | Business Interruption | Contingent Business Interruption |
|---|---|---|
| Trigger | Physical loss at the insured's premises | Physical loss at a dependent property |
| Whose property is damaged? | The policyholder's | A supplier's, customer's, or partner's |
| Revenue impact | Direct — the insured cannot operate | Indirect — the insured's supply chain is disrupted |
| Typical sublimit | Full policy limits | Often sublimited (e.g., $250,000 or $500,000) |
Setting CBI Limits
One of the challenges with CBI coverage is determining the appropriate limit. Agents should work with the client to identify:
- Key suppliers and customers — Which relationships would cause the most revenue impact if disrupted?
- Alternative sources — Can the insured switch to a backup supplier quickly, or is there a single-source dependency?
- Recovery timeline — How long would it take for the dependent property to rebuild and resume operations?
- Revenue at risk — What percentage of the insured's revenue flows through the dependent relationship?
For a manufacturer that sources 60% of its components from a single supplier, a CBI limit equal to six months of that revenue stream might be appropriate. For a retailer with dozens of interchangeable suppliers, a smaller sublimit may suffice.
Many standard property forms include a modest CBI sublimit — often $25,000 to $100,000 — that is inadequate for most commercial risks. Agents should review the existing sublimit and recommend increasing it based on the client's actual supply chain exposure.
Connection to Commercial Insurance Quoting
When quoting commercial property or package policies, agents should ask about supply chain dependencies as part of the risk assessment. Including CBI requirements in the submission ensures carriers return quotes with appropriate sublimits and endorsements. Without this information in the initial submission, CBI coverage may default to an inadequate sublimit or be excluded entirely.
Carriers vary widely in how they handle CBI. Some include broad CBI coverage in their standard property forms. Others require a separate endorsement with named dependent locations. When comparing quotes across carriers, agents should verify the CBI sublimit, whether dependent locations must be scheduled by name, and whether the coverage extends to indirect (tier-two) suppliers.
Frequently Asked Questions
Does CBI cover supply chain disruptions caused by pandemics or government shutdowns?
No. CBI requires a direct physical loss at the dependent property. Supply chain disruptions caused by government orders, pandemics, labor shortages, or logistics bottlenecks — where no physical property damage occurred — are not covered. This distinction was widely tested during COVID-19, and courts consistently upheld that CBI requires physical damage to trigger.
Is CBI included automatically in a commercial property policy?
It depends on the carrier and form. Some carriers include a base CBI sublimit in their standard property or BOP forms, but the sublimit is often low. Other carriers require a separate endorsement. Agents should never assume CBI is included — reviewing the policy form for contingent or dependent property language is essential.
What is the difference between CBI and supply chain insurance?
CBI is a standard property coverage extension that requires a covered physical loss at a dependent property. Supply chain insurance (sometimes called trade disruption insurance) is a broader standalone product that can cover non-physical disruptions like port closures, political instability, and transportation failures. Supply chain insurance is typically placed in the surplus lines market and is more expensive.
How do agents identify CBI exposures during the application process?
Three questions reveal most CBI exposures: (1) Does the business rely on any single-source suppliers? (2) Does more than 25% of revenue come from a single customer? (3) If a key supplier's facility were destroyed, how long would it take to source from an alternative? The answers guide both the coverage recommendation and the limit selection.