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.

As with business interruption insurance, the closure typically must be related to a commercial property insurance claim.

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
• A print media publisher that relies on a single print company
• An accountant on retainer for a law firm
• A restaurant that relies almost exclusively on foot traffic from a neighboring shopping mall

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

Regular business interruption insurance coverage provides financial assistance for ongoing expenses when a fire, burglary, or other covered 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 similar 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.

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.

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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