Contingent Business Interruption (CBI) Insurance Explained

CBI Insurance for Canadian Companies

How much of your company’s operations rely on another entity?

What if you lost a key source of raw material or component parts from a supplier?

Businesses today are faced with many of these questions and will often look to contingent business interruption (CBI) insurance to soften the financial impact of these events. Contingent business interruption insurance, on its surface, may appear straightforward; however, the documentation and analysis needed to validate an insurance claim can be quite challenging. Relying solely on the concept of contingent business interruption insurance and not understanding what is needed to document and collect a claim could create a false sense of security when buying contingent business interruption coverage. Why? Because oddly enough, many contingent business interruption losses are so unique that insurers may not have contemplated such claims when writing the policy. The complexity of policy interpretation remains a problem as the claim profession is only now addressing some of the unique losses arising from September 11, 2001.

What is Contingent Business Interruption Insurance?

Contingent business interruption insurance and contingent extra expense coverage is an extension to other insurance that reimburses lost profits and extra expenses resulting from an interruption of business at the premises of a customer or supplier. The contingent property may be specifically named, or the coverage may blanket all customers and suppliers. Contingent business interruption insurance can also contain contingent business income insurance or dependent properties insurance. Sometimes the term “contingent time element” is used when discussing both CBI and contingent extra expense. Time element simply refers to either business interruption or extra expense coverage. Companies purchase this type of insurance as an extension of their standard property insurance. Coverage is usually triggered by physical damage to customers’ or suppliers’ property or to property on which the insured company depends to attract customers. The type of physical damage must be the same as insured under the controlling insurance policies.

There are four situations in which this coverage is widely used:

1. When the insured depends on a single supplier or a few suppliers for materials.
2. When the insured depends on one or a few manufacturers or suppliers for most of its merchandise.
3. When the insured depends on one or a few recipient businesses to purchase the bulk of the insured’s products.
4. When the insured counts on a neighbouring business to help attract customers, known as a leader property.