Contingent Business Interruption vs. Business Interruption Insurance

March 16, 2015

While many businesses are aware of the need for Business Interruption Insurance, what they don’t realize is that it is strictly limited to a loss that occurs to their property, not one experienced by their suppliers or customers. This is why certain businesses, especially manufacturers, need to consider Contingent Business Interruption Insurance.

Contingent Business Interruption Insurance vs. Business Interruption Insurance

What’s the difference between the two? Well, Business Interruption Insurance is property coverage that’s set up to protect your business when it’s directly impacted by a hazard or peril that causes you to cease operations and suffer a loss.

Contingent Business Interruption Insurance covers property losses that occur at a supplier or customer’s location. For example, if you have Contingent Business Interruption Insurance in place and one of your supplier’s facilities ceases activity because of a disaster of some kind and this adversely impacts your operations, your financial losses are covered.

When is Contingent Business Interruption Insurance Necessary?

While some manufacturers create a variety of products and the parts for these products can be easily obtained from multiple sources, what if this doesn’t describe your operation? What if your company creates a product and you rely on technology or parts that are exclusive to one specific supplier? If this supplier’s facility experiences a fire, flood, windstorm, or some other kind of disaster, they might have to temporarily shut down their facility, leaving your business without the key components it needs to manufacture your product. Not only could this incapacitate your operations for a period of time, it could put you out of business.

Rather than having the fate of your manufacturing business left to chance, you should seriously consider complimenting your Business Interruption Insurance with Contingent Business Interruption Insurance.

This also applies to your customers. Let’s say you’re a clothing manufacturer and 90% of your products are sold in one store and that store is flooded and has to shut down for a couple weeks. Without Contingent Business Interruption Insurance, you’d have to eat those losses. But if you have coverage in place, your lost income is protected.

Set Accurate Limits

While having Contingent Business Interruption Insurance is a smart move for manufacturers, you also need to make sure you have adequate limits in place. What is the maximum financial impact of one of your suppliers being shut down? Questions like this need to be answered to accurately set your limits. Knowing that each business’ situation is unique, it always makes sense to consult with an insurance broker when it comes to manufacturing insurance. He or she will help guide you through the process and ensure that your business has the coverage it needs to be ready for the unexpected.

Luke Atkinson Foley
The Graham Building
Philadelphia, PA, 19102



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