Contingent Business Interruption (CBI) Insurance: When Winter Storms Impact Your Suppliers or Customers

Robyn L. Michaelson

Michaelson, Robyn L.The National Oceanographic and Atmospheric Administration recently released its early forecast for this winter, predicting below-normal temperatures in the southern states and more snow and ice in the Southeast.[1] As we learned in winters past, the South can quickly grind to a halt after just a few inches of snow. If you or a business you rely on operates in the Northeast, you likely have your insurance squared away in case of storms. But you may not have considered similar problems with a southern supplier.

Contingent business interruption (CBI) insurance reimburses lost profits and added expenses resulting from interruption of a supplier’s or customer’s business. This insurance protects the policyholder against lost sales or higher production cost based on an inability to purchase from or sell to that third party. A CBI policy may target one supplier or customer, or broadly cover all of the insured’s customers and suppliers. CBI coverage is usually triggered by physical damage to the covered customer’s or supplier’s property.[2]

For example, if a snowstorm shuts down a bottling plant in Georgia, a Vermont brewery may have to suspend production or find another company to bottle its product. Conversely, the Idaho hops farmer may have a surplus going to waste in silos or have to sell to a lower-paying customer. Under a CBI policy, the brewery and farmer may recover the difference between the contract price and what they actually paid or received. The brewery may also recover for the lost profits and the farmer may recover destruction costs.

A CBI policy will cover losses during the “period of restoration,” or the time it “should” take to repair or restore the supplier’s or customer’s property and resume its normal operations. The policy usually specifies the length of time, or the “time deductible,” after the direct physical loss or damage occurs until the period of restoration begins.[3]

In the event of a CBI claim, keep in mind that an insurer will require documentation of all aspects of the loss impact and likely will require proof beyond what it would in a basic property claim. Planning for such contingencies may help minimize losses overall. And, as always, it is important to read the policy carefully to determine its terms and requirements.

[1] Dave Hennen, Winter Outlook: Big Snow for Northeast; Relief for Thirsty California, CNN (Oct. 16, 2015),

[2] Daniel Torpey, Contingent Business Interruption: Getting All the Facts, IRMI (May 2003),

[3] Id.