Contingent Business Interruption Insurance: Coverage, Limits, and Supply Chain Risk

Contingent business interruption (CBI) insurance pays for lost income and continuing expenses when a business cannot operate because a supplier, customer, or other dependent property — not the insured's own premises — suffers a covered property loss. Standard business income coverage stops at the insured's own building; CBI extends that protection one step upstream or downstream. For most commercial accounts, CBI exposure is real and underinsured: ISO forms provide a mechanism for the coverage, but the default policy limits are often inadequate, and coverage triggers exclude the most common supply chain disruptions (shortages, price spikes, tariff-related delays). Identifying and correctly placing CBI coverage is one of the highest-value risk management conversations a broker can have with a commercial client in 2026.

What CBI Covers — and What It Doesn't

CBI coverage is typically written under ISO CP 15 08 (Business Income from Dependent Properties — Broad Form) or its more restrictive counterpart, ISO CP 15 09 (Business Income from Dependent Properties — Limited Form). The forms attach to and incorporate the underlying business income coverage under ISO CP 00 30, applying the same "period of restoration" mechanics and waiting period.

What triggers CBI coverage: The dependent property (supplier, customer, etc.) must suffer direct physical loss or damage from a covered cause of loss under the insured's own policy. The physical damage requirement is the same standard that applies to the insured's own premises. There is no separate cause-of-loss schedule for dependent properties — the same named perils or special form coverage that applies to the insured's building applies to the triggering event at the dependent property.

What does not trigger CBI: This is where most claims disputes arise.

• Supply shortages without physical damage: If a semiconductor manufacturer stops shipping because of a production slowdown, a geopolitical embargo, or a tariff-driven cost decision to halt exports, that is not a CBI trigger. There was no covered physical loss at the supplier's premises.
• Supplier financial failure: If a key supplier goes out of business because of insolvency, CBI does not respond. Financial failure is not a covered cause of loss.
• Tariff-related disruptions: Higher import duties that make a supplier's product uneconomical to purchase, or supply chain rerouting decisions driven by tariff increases, are not physical damage events. See the 2026 tariffs and commercial insurance guide for how tariff risk more broadly affects commercial accounts.
• Pandemic-related government orders: Courts have consistently held — in more than 1,000 COVID-related business income lawsuits — that government shutdown orders do not constitute direct physical loss under standard property forms (see e.g., Studio 417, Inc. v. Cincinnati Insurance Co., W.D. Mo. 2020, applying Missouri law; the federal circuit courts reached consistent results). CBI, which imports the same physical damage trigger, follows the same analysis.

The practical implication: CBI covers a supplier's factory fire, tornado, or pipe burst — not the broader category of supply chain risk that most clients actually fear. Brokers who present CBI as a solution to general supply chain disruption without clearly explaining the physical damage requirement are setting up a coverage dispute.

The Four Types of Dependent Properties

ISO CP 15 08 defines four categories of dependent property:

1. Contributing Locations (Suppliers): Premises owned or operated by suppliers from which the insured receives goods or services. A manufacturer whose primary raw material supplier's plant burns down is a textbook contributing location claim.

2. Recipient Locations (Customers): Premises owned or operated by customers to which the insured delivers goods or services. A distributor whose largest customer's warehouse is destroyed by a covered loss, eliminating the primary sales channel, falls here.

3. Manufacturing Locations (Contract Manufacturers): Premises owned or operated by entities that process or manufacture the insured's products under contract. Contract manufacturing has become a major CBI exposure as domestic manufacturers outsource production.

4. Leader Locations: Nearby premises (typically anchor stores) whose operations attract customers to the insured's premises. This is primarily relevant for retail tenants in shopping centers and malls where an anchor store's fire or permanent closure causes a measurable traffic decline.

Most commercial accounts have contributing location exposure (supplier dependency) and possibly recipient location exposure (customer concentration). Leader location coverage matters primarily for retail; manufacturing location coverage is relevant for companies using third-party contract manufacturers.

Named vs. Unnamed Supplier Coverage: The Sublimit Problem

The most consequential CBI placement decision is whether coverage is written on a named or unnamed basis.

Named CBI lists specific dependent properties by name and address in the policy. Coverage applies to those named locations. Limits can be set individually per location based on the actual exposure — revenue attributable to that supplier, estimated period of restoration, and continuing expenses during a shutdown.

Unnamed CBI covers any qualifying dependent property without individual scheduling. This is the form most policies default to when CBI appears as a property coverage extension rather than a separately placed endorsement. The sublimit on unnamed CBI is typically $500,000 to $2,500,000 regardless of the insured's revenue — a limit calibrated for small accounts that is often materially inadequate for mid-market or larger accounts.

COVID exposed this gap dramatically: Businesses with unnamed CBI coverage discovered that their $500,000 sublimit bore no relationship to months of lost income. The same problem applies to any major dependent-property loss — a fire at an insured's only material supplier that causes a six-month shutdown of a $20 million revenue business produces a BI loss that dwarfs a generic sublimit.

The correct approach for accounts with identifiable, material dependent-property exposures is named CBI with limits calculated the same way as the insured's own BI limits — net income plus continuing expenses for the expected period of restoration. See the business income limit-setting guide for the calculation methodology, which applies equally to the CBI analysis.

Identifying CBI Exposures in a Commercial Account

CBI exposure is present whenever a business's revenue depends materially on a third party's operations continuing without interruption. The following account characteristics signal a CBI exposure worth analyzing:

Single-source or sole-source suppliers: If the client buys a critical input from one supplier — not because of preference but because no reasonable alternative exists — the elimination of that supplier's production capacity would cause a business income loss. Common in specialized manufacturing, food processing, medical device production, and professional services with proprietary platform dependencies.

Geographic concentration at a supplier: A client whose primary supplier operates in a single facility in a flood zone, hurricane corridor, or wildfire-risk area has concentrated physical-damage CBI exposure. Tariff-era supply chain relocations have created new geographic concentrations as manufacturers re-shored to Mexico, Vietnam, and India — regions with different natural catastrophe profiles than China.

Customer concentration: A business that derives 30% or more of revenue from one or two customers has a recipient-location CBI exposure if those customers' premises suffer a covered loss. Distribution businesses and B2B service firms are frequently in this position.

Just-in-time inventory models: Lean inventory practices eliminate the buffer that might allow a business to absorb a short supplier disruption. A manufacturer with two weeks of raw material on hand faces a different CBI exposure than one with three months of inventory.

Contract manufacturing dependency: Any business that has outsourced production to a contract manufacturer has a manufacturing-location exposure. The contract manufacturer's facility is not covered by the insured's property policy, but it is potentially covered under CBI.

The discovery workflow: during the annual review or renewal interview, ask three questions — (1) who supplies your most critical inputs and could you source them elsewhere if their facility were destroyed; (2) what percentage of revenue comes from your top three customers; and (3) do you use any contract manufacturers or third-party processors? Affirmative answers to any of these warrant a CBI analysis. See the commercial property underwriting submission guide for how dependent property information integrates into the overall property schedule.

Valuing the CBI Exposure

CBI limit adequacy requires the same inputs as the insured's own BI limit, applied to the dependent-property relationship:

1. Revenue attributable to the dependent property: For a supplier, estimate the revenue generated by products that use that supplier's input. For a customer, use actual sales data.

2. Period of restoration at the dependent property: How long would it take the supplier (or customer) to restore operations after a major loss? A supplier operating a specialized manufacturing process in a single facility may have a restoration period of 18 to 36 months, far exceeding the 12-month default restoration period most BI forms apply.

3. Alternative sourcing costs and delays: Even if an alternative supplier exists, there may be a lead time of six to nine months to qualify the supplier, retool, or address minimum order requirements. The CBI limit must cover income and continuing expenses during that transition period.

4. Continuing expenses of the insured: If the insured cannot operate because a critical supplier is offline, fixed costs — rent, loan payments, key employee salaries — continue. These are the same continuing expenses captured in the insured's own BI limit calculation.

Because underinsurance at the CBI level is structurally similar to underinsurance at the direct BI level, brokers advising clients on CBI limits should review the same financial documentation — recent profit-and-loss statements and fixed-cost schedules — that informs the direct BI analysis. The commercial property underinsurance article addresses how to document the limit-setting process in a way that protects the broker if coverage adequacy is later challenged.

Placing CBI in the Current Market

Standard commercial package policies and BOPs typically include some CBI coverage as an extension with a modest sublimit. For accounts with material CBI exposure, the placement strategy depends on the carrier market and the account size:

Primary market (admitted carriers): ISO-form CBI is available from most standard commercial property carriers as an endorsement. Named-supplier CBI with higher limits is available from excess and specialty property markets. Domestic carriers with strong middle-market commercial property books — Travelers, Hartford, Cincinnati, Chubb — can typically accommodate named CBI up to $5–10 million per occurrence for qualified accounts.

Excess and surplus lines: Accounts with unusual dependent-property concentrations, large limits, or complex supply chain structures may require E&S placement. Lloyd's syndicates and surplus lines carriers (including specialty markets at Markel and Berkley) have more flexibility on limit structure, cause-of-loss triggers, and waiting periods.

Key policy terms to negotiate:

• Waiting period: Standard CBI forms include a 72-hour waiting period. For accounts with lean inventory, a 0-hour or 24-hour waiting period better matches the exposure.
• Period of restoration extension: Negotiate an extended restoration period of 18 or 24 months for accounts with single-source suppliers in industries where facility reconstruction takes time.
• Named-location scheduling: Resist defaulting to the unnamed sublimit. Named scheduling creates better coverage and forces the underwriting conversation that results in accurate limits.
• Civil authority trigger: Confirm whether the policy extends CBI coverage when access to the dependent property — not just the insured's own premises — is prevented by a civil authority order following a covered loss.

The Tariff Era and Supply Chain CBI in 2026

The 2025–2026 tariff regime has generated significant client interest in supply chain coverage, but brokers must be precise about what CBI does and does not address. CBI covers physical damage events at dependent properties — it is not a trade policy hedge. As noted in the trade credit insurance in a tariff era article, trade credit insurance (which covers buyer non-payment) and CBI serve different purposes and address different risks.

That said, the tariff environment has created two legitimate CBI implications: First, it has driven supply chain concentration in new geographies that have different physical hazard profiles. A client who sourced from a single facility in Vietnam or Mexico now has CBI exposure to flood, earthquake, and other natural catastrophe risks in those locations. Second, tariff-driven inventory stocking decisions have changed the picture for some clients — businesses that increased safety stock to hedge tariff-related delays may have reduced their CBI vulnerability to short supplier outages.

The discovery question in 2026: has your supply chain changed in the past 18 months? If clients have shifted sourcing, added new suppliers, or consolidated down to fewer suppliers to manage tariff costs, the CBI schedule needs to be updated at renewal.

FAQ

What is contingent business interruption (CBI) insurance?

CBI insurance pays for lost net income and continuing operating expenses when a third party — typically a supplier, customer, or contract manufacturer — suffers a covered property loss that prevents the insured from operating. It extends business income protection beyond the insured's own premises to the dependent properties that the business relies on.

How does CBI differ from standard business interruption coverage?

Standard business income coverage (ISO CP 00 30) applies only when the insured's own premises suffer a covered property loss. CBI extends that protection to losses triggered by covered property damage at a qualifying dependent property — a supplier's factory fire, for example, rather than the insured's own building.

Does CBI cover supply chain disruptions caused by tariffs or shortages?

No. CBI requires direct physical loss or damage at the dependent property. Tariff-related price increases, government embargoes, supplier financial failure, or production slowdowns without physical damage are not covered triggers. CBI responds to physical damage events — fires, storms, floods — not economic or regulatory disruptions.

What are the most common CBI claims disputes?

The two most common disputes involve (1) whether a covered cause of loss produced direct physical damage at the dependent property — frequently litigated in the context of losses where damage is partial or operational rather than structural — and (2) whether a specific property qualifies as a "dependent property" under the policy definition. Properties must fall within one of the ISO-defined categories (contributing, recipient, manufacturing, or leader locations) to trigger coverage.

How should CBI limits be set?

CBI limits should reflect the net income plus continuing expenses that would be lost during the expected period of restoration at the dependent property — the same methodology used for direct BI limits. For most accounts, the relevant limit is the revenue attributable to the specific dependent property, divided by the business's overall revenue, multiplied by annual net income plus continuing expenses, adjusted for the expected restoration period at that location.

Is CBI available for accounts with overseas suppliers?

Yes, but placement requires attention to geographic scope. Standard admitted-market CBI forms typically cover dependent properties worldwide (subject to sanctions exclusions and war exclusions). For accounts with significant overseas supplier concentrations — particularly in regions with elevated natural catastrophe risk — the broker should confirm that the policy's territorial scope and cause-of-loss form cover the relevant geography.

Should every commercial account have CBI coverage?

Not necessarily. CBI is most valuable for accounts with material revenue dependency on specific third parties that cannot quickly substitute alternatives. Accounts with diversified supplier bases, ample inventory buffers, or operations that could continue without any single third party may have minimal CBI exposure. The discovery interview should establish whether meaningful dependency exists before recommending the coverage.

Arvori helps insurance brokers identify and address complex commercial coverage gaps — including contingent business interruption, excess casualty, and supply chain risk exposures. Connect with us to explore how we support broker-client conversations on hard-to-place risks.