Insurance that protects a company against financial losses caused by disruptions at supplier facilities is called what?

• A. Contingent Business Interruption Insurance
• B. Property Insurance
• C. Cyber Insurance
• D. Commercial General Liability Insurance

Answer: (A)

This question tests how a business insures itself against revenue losses when an external partner’s operation disrupts the supply chain. Contingent Business Interruption Insurance covers the income that a company would have earned if a key supplier, manufacturer, or other external facility experiences a covered disruption (such as a fire or other insured peril) that interrupts the insured’s own operations. It also can cover extra expenses to mitigate the impact, like finding alternative suppliers or expediting orders.

This is different from property insurance, which protects only the insured’s own physical assets; cyber insurance, which covers losses from cyber events; and commercial general liability, which deals with legal liabilities to others arising from injuries or property damage. Those policies don’t primarily focus on income loss due to a supplier outage, which is why contingent business interruption is the best fit for this scenario. For example, if a key parts supplier is shut down by a fire, contingent business interruption would help compensate for the resulting drop in sales and any additional costs to adjust operations.