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Contingent business interruption insurance

Contingent business interruption is a form of small business insurance that provides financial assistance when the loss of a primary supplier, partner, or customer affects your ability to do business.

What is contingent business interruption insurance?

Contingent business interruption coverage can help your business if you lose significant revenue and are unable to continue to do business after a key supplier, business partner, or customer shuts down.

It’s a form of small business insurance that is typically added as a rider to a business interruption insurance policy. It provides cash to help you cover payroll, rent, and other expenses necessary to keep your business open.

Examples of contingent business interruption insurance in action

Contingent business interruption insurance has wide applications in business. It’s not uncommon for a small business to rely heavily on a single or small number of suppliers, manufacturers, or customers. Consider the following examples of firms that could use this form of insurance:

  • An IT staffing agency that generates 80% of its revenue from one client that relocates to another city
  • A print media publisher that relies on a single print company that goes out of business
  • An accountant on retainer for a law firm that is acquired by a larger firm with internal financial services
  • A restaurant that relies almost exclusively on foot traffic from a neighboring shopping mall that closes permanently

In all of the above cases, the businesses were in the dangerous position of depending on a single manufacturer, supplier, customer, or business generator for their future survival. Each would benefit highly from purchasing contingent business interruption insurance.

Does contingent business interruption insurance cover losses related to the coronavirus (COVID-19)?

Contingent business interruption insurance protects your business from disruptions that affect your supply chain or other businesses you rely on. However, as with business interruption insurance, the disruption must typically be related to physical damage or another commercial property insurance claim.

That means this policy will likely not cover losses related to the coronavirus. We encourage you to check with your insurance provider if you think you might be eligible for a claim.

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Contingent vs. regular interruption insurance

Regular business interruption insurance coverage provides financial assistance for ongoing expenses when a fire, natural disaster, or other event disrupts your business. To qualify, the incident has to immediately affect your business.

Contingent business interruption kicks in when a supplier, business partner, or large customer has a problem. It pays for ongoing expenses while you search for a new supplier, partner, or major customer to restore lost sales.

In other words, it provides a stopgap while you look for a solution to keep your business open.

How do you know if you need this form of insurance?

The answer depends on how reliant your business is on key vendors, business partners, or customers. If losing one will slash your revenue and threaten your survival, consult with a licensed agent about adding this form of protection.

Common factors to consider

Consider contingent business interruption insurance if:

  • You depend on one or several manufacturers to provide the products you sell.
  • The main product you manufacture relies on only one or a few suppliers of raw materials.
  • One customer or a small number of customers account for the bulk of your sales.
  • Your company relies on traffic from a nearby retail business or attraction for the bulk of its sales.

In each of these examples, the future survival of your business is contingent on the continuing success of your suppliers, customers, or nearby business generators (also known as leader properties). Contingent business interruption insurance can provide funds to keep your business going in case any of these players run into trouble.

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