Contingent business interruption insurance and supply chain risk

Contingent business interruption (CBI), also sold as dependent properties coverage, pays the income you lose when a covered cause of loss physically damages property you do not own or control, such as a supplier's plant, a customer's warehouse or an anchor store, and that damage stops your own operations. It does not respond to supply chain problems that leave the other party's property undamaged, and in most policies it only reaches the suppliers and customers you have named on a schedule.

How dependent property coverage works

Your own business income coverage (business interruption insurance: how business income coverage works) is triggered by direct physical loss at your premises. Dependent properties coverage moves the trigger off-site. Under the ISO commercial property forms it is an endorsement to the Business Income (and Extra Expense) Coverage Form, CP 00 30, and it pays the actual loss of business income you sustain because of a necessary suspension of your operations, caused by direct physical loss or damage at a dependent property, from a cause of loss the policy would have covered at your own location.

Three conditions must line up:

1. Physical damage at the dependent property. An Adjusters International explainer on the form, citing case law, puts it plainly: physical loss or damage to the dependent property is a necessary component of coverage. A supplier that shuts down for a strike, a bankruptcy or a regulatory order, with no damage to its property, does not trigger it.
2. A covered cause of loss. If a flood is excluded on your policy, a flood at your supplier's plant is excluded too.
3. The right property. The damaged location has to fit the policy's definition of a dependent property and, usually, be on the schedule.

The same period of restoration logic applies. In the standard ISO form the period begins 72 hours after the physical loss, and it ends when the dependent property should be repaired or when your business resumes at a new location. Extra expense for dependent properties is often added separately (see extra expense coverage explained), and the loss is measured by what you actually lose, not by what the supplier loses.

The four kinds of dependent property

ISO's Broad Form (CP 15 08) and Limited Form (CP 15 09) ask you to schedule the name, occupancy and address of each location in one or more of these categories:

The Broad Form uses the business income limit already on your policy, applied separately to each scheduled location. The Limited Form needs a stated limit for each scheduled property and is used when you carry no business income coverage of your own or want different limits for the dependent exposure. Both forms exclude loss caused only by damage to electronic data, and they do not treat water, power or communication providers as dependent properties; utilities are handled by a separate utility services endorsement (utility service interruption coverage: when an outage is insured).

The ISO businessowners form (BP 00 03) lists business income from dependent properties among its additional coverages, so many small BOP buyers have some version of it. Manuscript and carrier-specific forms differ from ISO in the details, and for larger accounts the wording is often negotiated line by line.

Named locations, unnamed locations and the "direct" problem

The most common coverage gap is the schedule. Some policies pay only for scheduled locations. Others give two sublimits, a higher one for named dependent properties and a lower one for unnamed ones. In practice, a supplier you did not list is either not covered or covered at a fraction of the limit.

The case that taught the market to read this wording is Millennium Inorganic Chemicals Ltd. v. National Union Fire Insurance Co., decided by the Fourth Circuit on February 20, 2014 (No. 13-1194). Millennium's Western Australia plant ran on natural gas it bought from a retail gas company, which in turn bought from a producer. When an explosion at the producer's facility cut off the gas in June 2008, Millennium shut down for months. Its policies paid up to $25 million for named "direct" contributing properties and $10 million for unnamed ones, but Millennium had listed none. A 2-1 panel held that "direct" was unambiguous and that a producer selling through an intermediary was at most an indirect supplier, so the claim failed. A district court had earlier sided with the policyholder, and one judge dissented. The lesson survives the facts: a word like "direct" can decide a multimillion-dollar claim, and tier-two suppliers are usually outside the coverage unless someone negotiated them in.

Marsh makes the same point from the buyer's side: coverage keyed to named suppliers leaves unscheduled but essential suppliers uncovered, and a smaller sublimit for second-tier suppliers may be negotiable.

What contingent business interruption does not cover

• Non-physical disruptions. Labor disputes, political instability, a supplier's insolvency, port congestion, a blocked shipping lane and disease outbreaks generally fall outside a property-damage trigger. Courts also split on whether COVID-19 closures amounted to physical loss; see What the COVID-19 business interruption lawsuits decided.
• Cyber events. A ransomware attack on a vendor's systems is not physical damage. Dependent system failure is handled by cyber policies, which come with their own sublimits and waiting periods (cyber business interruption and dependent system failure).
• Utility failures. A regional blackout is a utility services question, not a dependent properties one.
• Government orders. Closures that follow damage near your premises may be picked up under civil authority coverage: when an order closes your doors, but an order against your supplier is not the same thing.
• Unscheduled or overseas locations. Check the policy territory. The standard ISO coverage territory is the United States, Puerto Rico and Canada, so a supplier in another country needs specific wording.

Allianz's 2026 Risk Barometer, a survey of 3,338 risk experts in 97 countries, ranked business interruption (including supply chain disruption) third among global business risks at 29% of responses, and reported that only 3% of respondents called their supply chains very resilient (Insurance Journal, January 2026). Exposure is widespread; the insurance responds to a narrow slice of it.

Worked example (hypothetical)

Say a 40-employee furniture maker in North Carolina buys all of its upholstery foam from one plant in Georgia. A fire shuts the foam plant for ten weeks. The furniture maker's own plant is untouched, but it cannot finish most orders and loses its product line's income, which averages $150,000 a month in net income plus continuing expenses.

• If the foam plant is scheduled as a contributing location and the dependent properties limit is $1,000,000, the policy looks at the actual loss after the waiting period, so roughly the ten weeks less the first 72 hours.
• If the plant is unscheduled and the policy gives $100,000 for unnamed locations, recovery stops at $100,000 even though the loss is several times larger.
• If a second foam vendor in Tennessee could have supplied the company within three weeks, the insurer will argue that the loss beyond three weeks was avoidable, because the standard form reduces the loss to the extent you can resume operations by using other property or sources.

None of these numbers are market figures; they only show how the schedule, the sublimit and mitigation interact.

What to ask before you buy or renew

1. Which suppliers and customers would stop us within 30 days if they were out of action? List them by location, not just by company name.
2. Does the policy cover only named locations, or do unnamed ones get a sublimit? How large?
3. Is the coverage limited to direct suppliers, and how does the policy define "direct"? Does it reach second-tier suppliers or intermediaries?
4. What are the waiting period and any monthly payout cap? Insurance Journal's 2019 explainer gives a 48-hour waiting period and a 25% monthly cap as examples of terms found in the market, so ask rather than assume.
5. What causes of loss are excluded, and is flood, earthquake or windstorm sublimited at the dependent property?
6. Does the policy include extra expense and expediting costs for dependent properties?
7. Does the limit stack on top of your own business income limit or erode it?

Ask your broker to run this against your supplier list as part of the the annual business insurance review: what to update. The business income (interruption) limit calculator helps you size the loss if a major input disappears, and supply chain risk and insurance: what is covered and what is not covers the non-insurance side: second sources, safety stock and mapping.

Key takeaways

• Contingent business interruption pays only when a covered cause of loss physically damages a supplier's, customer's or leader property, not when it merely stops operating for other reasons.
• ISO's Broad and Limited dependent property forms work from a schedule of named locations; unnamed suppliers are often limited or excluded.
• Words such as "direct supplier" matter: in Millennium Inorganic Chemicals the Fourth Circuit denied a claim because the producer sold through an intermediary.
• Cyber outages, utility failures, strikes and pandemics usually need different coverage, or none.
• Map your critical suppliers by location, then compare that map to the policy's schedule, sublimits and waiting period at every renewal.