Contingent Business Interruption.

# Contingent Business Interruption Insurance

Contingent business interruption insurance — CBI — covers the loss of earnings and extra expense an insured suffers when physical damage occurs not at its own premises, but at a third party's premises on which it depends. A failure at a Taiwanese fabricator, a flood at a Tier-2 supplier in Bangkok, a fire at an inbound logistics hub, a power station outage that severs utility service to an industrial estate — each can shut down a downstream business that suffered no physical damage of its own. Standard business interruption does not respond. CBI does, but on terms that are typically narrower, more conditional, and more sub-limited than middle-market buyers expect.

This page sets out how CBI is structured, where it differs from base BI and trade disruption insurance (TDI), the triggers that govern whether a claim is paid, and the supply-chain events that have reshaped the underwriting environment.

What CBI Is — And What It Is Not

A standard BI policy covers loss of gross profit and increased cost of working following physical damage at the insured's own premises caused by a peril covered under the underlying property policy. CBI extends that mechanism off-site: the triggering event is still physical damage by a covered peril — but the damage occurs at a third-party location whose continued operation is necessary to the insured's revenue. The four conventional categories of third-party dependency are:

• Contributing properties — direct suppliers (Tier-1, and sometimes Tier-2 or deeper) whose product or service is required by the insured's production.
• Recipient properties — direct customers whose ability to receive and pay for the insured's output is required for revenue recognition.
• Manufacturing properties — facilities that finish, assemble, or otherwise add value to goods that flow back to or through the insured.
• Leader properties — locations that attract customers to the insured's premises (relevant for retail and hospitality).

A separate but adjacent grant — service interruption or off-premises utility — covers loss of earnings caused by physical damage to a utility whose service to the insured is interrupted. Ingress/egress coverage responds where physical damage prevents access to the insured's own premises. Both are commonly bundled with CBI in policy language and are often confused with it.

CBI is not trade disruption insurance. TDI responds to losses caused by political events, port closures, embargoes, sanctions, and other interruptions to trade where there may be no physical damage anywhere in the chain. The 2021 Ever Given grounding in the Suez Canal is the canonical TDI scenario: a single vessel blocked the canal for six days, producing downstream revenue losses for shippers, charterers, and cargo interests — but no covered physical damage in most cases. A CBI policy keyed to a "physical damage by a covered peril" trigger would not respond. A properly structured TDI policy would. The two products complement each other; they do not substitute.

CBI is also not supplier insolvency insurance. The failure of a supplier through bankruptcy, financial collapse, or loss of a critical license is a credit and operational risk, not a physical damage event. Trade credit insurance addresses that exposure separately.

The Trigger Requirements That Govern Every CBI Claim

A CBI policy responds only if every element of the trigger is met. The elements are typically:

1. A physical damage event at the third-party location, of a kind that would itself be insured under the underlying property policy form (or a defined equivalent).
2. Caused by a peril covered under the CBI section — which may be narrower than the perils covered at the insured's own premises (named-perils CBI vs. all-risks CBI).
3. At a location that qualifies under the policy — designated (named) suppliers only, or any unnamed supplier on a sub-limited basis, depending on the wording.
4. Resulting in an interruption of the insured's operations — typically measured against a defined period of indemnity.

The first three are where most disputes arise.

Named-perils CBI vs. all-risks CBI. The narrower form covers only the perils listed — frequently fire, lightning, explosion, and limited other categories. Earth movement, flood, and named windstorm are commonly excluded or sub-limited. The broader form mirrors the all-risks language of a modern property policy and excludes only what the wording specifically carves out. The pricing differential is significant, and the gap is rarely apparent from a summary of insurance.

Designated location vs. unnamed suppliers. Most CBI policies provide the highest sub-limit for a defined schedule of named suppliers and a meaningfully lower sub-limit for any unnamed supplier. The named schedule is only as good as the dependency analysis behind it. Insureds who name three Tier-1 suppliers but in fact depend on a single Tier-2 component supplier two levels down the chain will find the named-schedule limit irrelevant when that Tier-2 supplier is the location that suffers damage.

Pandemics and communicable disease. Following the 2020–2022 disputes over BI coverage for COVID-19 losses, most major property and CBI placements now contain explicit communicable disease and pandemic exclusions. Pandemic-related supply chain disruption is not a covered CBI peril.

Limits and Sub-Limits: How CBI Is Actually Sized

CBI is almost never written at the full BI limit. A typical mid-market property/BI program with a USD 100 million BI limit may carry a CBI sub-limit of USD 5–25 million, with the unnamed-supplier limit at a fraction of the named-supplier limit. Large industrial programs placed in the London market or with FM Global, Zurich, AIG, Chubb, Allianz, and the Lloyd's syndicates can extend CBI sub-limits into the USD 50 million range and occasionally higher — but only on the basis of a documented supplier audit and dependency analysis the carrier accepts.

The sub-limit structure is not a clerical detail. A manufacturer whose contingent dependency on a single foreign supplier represents USD 80 million of annual gross profit, and whose CBI sub-limit is USD 10 million, is uninsured for the bulk of the exposure. Capacity for unnamed-supplier CBI is constrained across the market, and underwriters require evidence that the insured has identified the dependency before they will write meaningful limits against it.

Period of indemnity. CBI is typically capped at the same period of indemnity as the underlying BI section — commonly 12, 18, or 24 months. For long-cycle industries — semiconductors, specialty chemicals, aerospace — a 12-month period of indemnity may not extend long enough to cover the actual recovery curve. Negotiating the period of indemnity on CBI is one of the higher-leverage adjustments a buyer can make at renewal.

The Supply Chain Events That Have Moved the Market

CBI is a product whose pricing and capacity respond directly to the catastrophe history. The events that have most materially affected the underwriting environment over the last fifteen years are:

2011 Tohoku earthquake and tsunami (Japan). Damage to automotive and semiconductor supply chains — specialty pigments, microcontrollers, and electronic components produced by a small number of Japanese facilities — produced billions of dollars of downstream CBI claims for automakers, electronics manufacturers, and industrial equipment producers globally. Carriers tightened wordings, reduced sub-limits, and began requiring documented Tier-2 supplier analysis as a condition of CBI cover.

2011 Thailand floods. Concentrated hard-drive manufacturing capacity in the flooded Bangkok industrial estates produced a global shortage that propagated through every storage manufacturer dependent on Thai-fabricated drives. Downstream insureds with no direct Thai presence sustained CBI losses that in aggregate were comparable to the direct property loss. The event reset the market's appetite for unnamed-supplier cover.

2017 NotPetya cyber event. While framed as a cyber event rather than physical damage, NotPetya demonstrated that downstream supply chain interruption could be triggered by a peril that traditional CBI policies were not designed to cover. The market response has been the development of contingent cyber business interruption as a separate product line — and explicit cyber exclusions in property/CBI wordings.

2021 Suez Canal blockage (Ever Given). A six-day blockage of one of the world's primary trade chokepoints produced downstream revenue losses for thousands of shippers and importers. Because the canal blockage was not a "physical damage event at a contingent supplier location" in the conventional CBI sense, most CBI policies did not respond — even where the buyer expected they would. The episode highlighted the gap between CBI and TDI.

2024 Red Sea diversion. The sustained Houthi campaign in the southern Red Sea forced extensive re-routing of Asia–Europe traffic around the Cape of Good Hope, adding ten to fourteen days to voyage times. Whether CBI responds depends almost entirely on whether the underlying loss arises from physical damage at a designated location — a missile strike on a supplier's port facility — or from delay alone. In most placements, delay alone does not trigger CBI; it triggers TDI, if TDI is in force.

Why CBI Is Under-Bought

In middle-market manufacturers, importers, and distributors, CBI is one of the most consistently under-purchased coverages relative to the underlying exposure. The pattern is recognizable:

• The buyer assumes that supplier disruption is covered "somewhere" in the property program, without testing the assumption against the wording.
• The summary of insurance shows a CBI sub-limit, and the buyer treats the number as adequate without modelling it against actual contingent revenue exposure.
• Geopolitical disruption is mentally categorized as "what trade credit covers" or "what political risk covers" — neither of which addresses physical damage at a supplier's premises.
• The supplier dependency analysis required to justify higher CBI limits has never been performed, or has not been refreshed since a major sourcing change.

The result is that the first serious test of the CBI program is a claim — and the claim reveals that the wording, the sub-limit, the period of indemnity, or the supplier schedule does not match the exposure as it actually exists.

Documentation Requirements: What CBI Claims Actually Require

A CBI claim is more documentation-intensive than a standard BI claim, because the insured must prove:

• The fact of physical damage at the third-party location, by a covered peril, within the policy period.
• The insured's dependency on the damaged third party — through purchase orders, contracts, historical sourcing data, and evidence that no commercially reasonable substitute supplier was available within the period of indemnity.
• The quantum of lost revenue and increased cost of working attributable to the third-party event, separated from other contemporaneous BI causes.
• Mitigation efforts undertaken to reduce the loss — alternative sourcing, expedited freight, overtime production — and the cost of those efforts where reimbursement is sought as extra expense.

The underwriting submission for CBI placement and the proof-of-loss documentation for CBI claims overlap substantially. Buyers who do the work at placement reduce the friction at claim.

Markets, Carriers, and Where CBI Is Placed

CBI is written by the major property carriers as part of the property/BI program, not as a standalone product in the conventional case. The principal markets writing meaningful CBI capacity for industrial and commercial risks include:

• FM Global — property and CBI on its proprietary forms, with a long-standing position in the loss-engineered industrial space.
• Zurich, AIG, Chubb, Allianz — major commercial property carriers writing CBI as part of integrated property programs.
• Lloyd's syndicates — capacity for higher-limit, complex, or distressed risks, placed through the London company market.
• Specialist supply chain markets — niche carriers writing non-damage BI and supply chain disruption products that complement, rather than replace, traditional CBI.

Request a CBI Program Review

If you have not validated your CBI sub-limit against your actual contingent revenue exposure, or if your supplier base has changed materially since your last renewal — through reshoring, dual-sourcing, or the addition or loss of major customers — the CBI section of your property program may not respond as expected at claim.

CBI is one of the few coverages where the difference between a workable program and a failed one is built almost entirely into the wording — the peril definitions, the supplier schedule, the sub-limit structure, the period of indemnity, and the exclusions for pandemic, cyber, and indirect causes. Reviewing those clauses against the supply chain as it exists today is the foundation of an adequate program.