CONTINGENT BUSINESS INTERRUPTION
Contingent Business Interruption (CBI) intends to indemnify the insured for the loss of Gross Profit (loss of business income in some wordings) and Increased Cost of Working (ICOW) (Extra Expenses in some wordings) incurred because of an insured peril causing loss or damage at an outside premises which is not owned by the insured or under insured’s control or operation.
Fundamentally, the following are the key features:
a) The outside premises should be a dependent property for the insured.
b) One of the perils insured under the policy covering the insured’s locations should occur in the outside premises, which should result in a direct physical loss or damage.
c) This loss or damage in the Outside premises should lead to suspension of insureds operations.
d) This should lead to actual loss of business income and the resultant impact on gross profit.
e) The indemnity period is defined in the policy schedule.
f) The loss of gross profit will be calculated for the restoration period as long as the restoration period is less than or equal to the indemnity period. Otherwise, the loss of gross profit will be calculated for the indemnity period.
g) The restoration period relates to period for repair, rebuilt or replacement. The recovery under CBI is restricted to the time period for replacement or repair or rebuilt damaged property with reasonable speed and similar quality. The fact that the insured has no control on the speed at which the third party will restore their operations will have no bearing. However, in some wordings, restoration period extends till the financial results are impacted due to the loss or damage.
h) Many times, CBI carries sub-limits and these sub-limits apply.
i) The terms, conditions, exclusions of the policy for the insured premises shall also be applicable for the outside premises too.
Examples of these outside premises could be Insured’s suppliers or Customer’s or Public Utilities like gas, electricity, telecommunication or water providers. In many instances, the loss of Gross profit arising out of Contingent Business Interruption could be as large as(and sometime larger than) a loss arising out of an event at the insured’s premises. The most critical difference between management of the aftermath of a large event at the insured’s premises versus an event at an outside premises, is that the insured has far greater control on decision making in the former case while in the latter case, he has to depend on the action of a third party.
