Contingent Business Interruption
Coverage for income loss when a key supplier's or customer's operations are disrupted by a covered peril, even though the insured's own property is undamaged.
What It Is
Contingent Business Interruption (CBI) insurance covers lost income and extra expenses incurred by the insured when a key supplier or customer experiences a property loss that disrupts their operations, in turn affecting the insured's business. The insured's own property does not need to be damaged for CBI coverage to apply.
CBI coverage typically applies to two types of dependent properties: suppliers (who provide goods or services the insured depends on for their operations) and customers (who purchase the insured's goods or services). Some policies also cover 'leader properties' — businesses that attract customers to the insured's location (like an anchor store in a mall).
CBI is usually included as an extension of the business income coverage form, often with a sublimit. Broader stand-alone supply chain coverage is available from specialty markets for companies with complex global supply chains.
Why It Matters for Brokers
Supply chain disruptions have become one of the most significant business risks, as demonstrated by events ranging from natural disasters to pandemics. Brokers must assess their clients' supply chain dependencies and recommend appropriate CBI coverage. Many businesses have concentrated supplier relationships where a single supplier disruption could shut down the insured's operations entirely.
Real-World Example
An auto parts manufacturer depends on a single supplier in Japan for specialized electronic components. An earthquake damages the supplier's factory, halting production for four months. Even though the manufacturer's own facilities are undamaged, they cannot produce finished products without the components. The CBI coverage reimburses $2.1M in lost profits and $340K in extra expenses to source components from an alternative supplier at higher cost during the disruption.
Common Mistakes
- 1Not identifying all critical suppliers and customers during the coverage review — many businesses have hidden dependencies on single-source suppliers that aren't obvious until a disruption occurs.
- 2Relying on the standard CBI sublimit in the property policy without analyzing whether it's adequate for the actual exposure — supply chain disruptions from events like natural disasters can last months.
- 3Assuming CBI coverage applies to any supply chain disruption when most policies require physical damage to the supplier's or customer's property from a covered peril.
How brokerageaudit.com Handles This
Policy Checker extracts CBI coverage terms including sublimits, dependent property definitions, and covered perils. The system helps brokers document key supplier and customer dependencies during the coverage review process to ensure adequate CBI limits.