Contingent business interruption insurance claims

Contingent Business Interruption (CBI) insurance protects a business from financial losses caused by disruptions to its suppliers, customers, or other third parties. CBI is also known as Dependent Business Interruption Insurance.

CBI can be an extension of a business’s property insurance policy. It can help protect against Loss of net income, Continuing expenses, and Extra expenses resulting from a key supplier or customer shutdown.

CBI can be used to protect against cyber failures or attacks that interrupt a business’s computer systems and service providers.

CBI has some limitations, including:

• It only covers physical property damage to suppliers or customers.
• It doesn’t protect against all perils.
• It doesn’t protect against road closures that prevent employees from getting to work.
• It doesn’t protect against other suppliers being affected.
• If a business changes suppliers without updating its policy, it won’t be covered by the policy if a disruption occurs.

To get the most out of CBI, businesses can discuss and agree on claims handling protocols and communication channels at the outset of the policy.

What is Contingent Business Interruption Insurance?

Contingent Business Interruption (CBI) Insurance is a specialised form of business interruption (BI) that protects a business from income loss caused by disruptions in a third party’s operations. Unlike standard BI insurance, which covers losses from direct damage to the insured’s property, CBI coverage extends to losses caused by events affecting key suppliers, customers, or other dependent business relationships.

Key Components of CBI Insurance

1. Triggering Event

CBI is triggered when a supplier, customer, or other dependent business suffers physical damage to their property due to a peril (like fire, flood, or natural disaster) that would be covered if it happened at the insured’s own premises. For example, if a key supplier’s factory is damaged by fire, causing a halt in the supply chain, CBI would cover the insured’s loss of income resulting from this supply chain disruption.

2. Covered Relationships

• Suppliers: Businesses that provide materials, components, or services to the insured. Disruptions at these suppliers affect the insured’s ability to produce and sell goods or services.
• Customers: Businesses or entities that purchase the insured’s products or services. If a major customer cannot operate, the insured may experience reduced sales.
• Other Dependencies: This could include manufacturers, logistics providers, utility providers, and even ‘attraction properties’ like nearby shopping centres, entertainment venues, or tourism hubs.

3. Perils Covered

CBI insurance typically covers physical loss or damage caused by specified perils, similar to those in the insured’s property policy (e.g., fire, flood, windstorm). Some policies may cover broader risks like pandemics, but this is less common.

4. Policy Limits and Waiting Period

• Limits: CBI insurance has a set limit on the amount the insurer will pay for the loss of income.
• Waiting Period: Similar to standard BI coverage, there is often a waiting period (e.g., 24 to 72 hours) before coverage kicks in.

5. Exclusions

Unless explicitly included in the policy, common exclusions include pandemics, cyber incidents, and government-mandated shutdowns.

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Example of How CBI Works

• Scenario: A car manufacturer relies on a parts supplier for essential components. The manufacturer cannot complete production if a flood damages the supplier’s factory.
• Impact: The manufacturer experiences reduced turnover since it cannot deliver cars on schedule.
• Claim: CBI insurance would cover the loss of income until the supplier resumes production or an alternative supplier is found.

Why CBI Insurance is Important

• Supply Chain Risk: Modern businesses rely on global supply chains, increasing exposure to disruptions from third parties.
• Customer Dependence: Companies that rely on a few key clients (e.g., large retailers) may suffer severe financial losses if one of those clients experiences a shutdown.
• Revenue Protection: CBI provides a financial safety net that allows businesses to maintain operations, pay staff, and recover lost income.

CBI vs. Standard Business Interruption (BI)

Conclusion: Contingent Business Interruption Insurance Claims

Contingent Business Interruption (CBI) insurance is essential for companies that are highly dependent on third-party suppliers, manufacturers, customers, or service providers. It provides financial protection for revenue loss caused by supply chain disruptions or other dependent relationships. CBI coverage is an important risk management tool in a world of globalised supply chains.

In today’s interconnected business environment, contingent business interruption insurance claims provide a vital safety net when disruptions to suppliers, customers or other third parties ripple through your operations. CBI coverage can be the difference between recovery and collapse when your revenue is threatened by events outside your control. To maximise your chances of a successful claim, ensure your policy language is clear, your dependent relationships are well documented, and your claims evidence is robust and timely.

If you’re facing a contested claim or uncertainty around your coverage, Oakleafe Claims stands ready to help. With deep experience in handling complex BI and CBI claims, we support businesses through each step from pre-claim preparation to settlement negotiation to help you realise the full value of your contingent business interruption insurance claim.

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Oakleafe Claims have represented policyholders and managed their insurance claims since before the First World War. We have vast expertise and experience in both domestic and commercial insurance claims with thousands of satisfied policyholders who have received their deserved insurance settlement.

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