What Is Contingent Business Interruption Coverage?
Imagine you're a purveyor of exotic plants. You're not just a florist – you're the owner of Fanatical about Flora. Outlandish ferns, peculiar cacti, and striking succulents are your bestsellers. Your unique sprouts and seedlings arrive weekly from a top-notch supplier in California. Until one day, your shipment doesn't arrive and you receive the bad news: a fire devastated your primary supplier, destroying their entire inventory.
Without your exotic flora supply, you're forced to rely on dime-a-dozen house plants and uninspiring arrangements to get by. It could be months or even a year before your supplier manages to rebuild their crop.
What's your contingency plan in this unpleasant scenario?
How Contingent Business Insurance Keeps Business Blooming
If you've invested in Business Interruption Insurance, your coverage may help you pay for ongoing expenses (e.g., loan payments, employee wages, and rent) when your business suffers a disruption.
If your Business Interruption policy includes a rider for Contingent Business Insurance, you’ll also receive coverage when an interruption shuts down one of your primary suppliers or partners. Here’s how it works:
- A covered Property Insurance event (the fire) hit your primary flora supplier and interrupted your supply chain.
- Your Contingent Business Insurance pays for continuing expenses while you search for a replacement supplier.
This coverage spares you some financial worry while you search for a new supplier. However, err on the side of caution and make finding a replacement supplier a priority. You may be able to receive compensation for a limited time, but it won't last forever.
For more details on Contingent Business coverage, read "The Tornado Ate My Insurance Policy."
A Contingency Plan for Business Interruption Scenarios
The one-two punch of Business Income Insurance and Contingent Business Insurance can help your business push through more than just a temporary supply chain disruption. You may want to explore the option of Contingent Business coverage if your business depends on:
- A single manufacturer or a few manufacturers for most of its merchandise. As in our example, you have a primary plant supplier that's out of commission with no immediate alternative. No plant shipments, no sales.
- A single supplier or a few suppliers for materials. Let's say you also sell handmade flower boxes crafted from special lumber. A fire (pesky fires!) ravages your supplier's saplings, causing a lumber shortage that halts your production.
- A single business or a few recipient businesses to purchase the bulk of your products. Perhaps you cater to botanical gardens or a wedding florist who makes special requests. If they make up a large portion of your sales and are unable to buy your inventory, your business may flounder.
- A neighboring business to help attract customers. Say your business is located next to a large department store that draws in a steady supply of patrons. If that big retailer (known as a “leader property”) goes out of business or experiences a temporary closure, your business could wilt.
Whether your Contingent Business Insurance covers these scenarios depends on the actual policy. When it comes down to it, you should pay careful attention to the wording of your Business Interruption Insurance policy to determine what is and isn't covered. To learn more about that, read "What Business Interruption Insurance Can and Can't Cover" and "How to Get Income Protection with Business Interruption Insurance."