Insurance Coverage Litigation
Vol. 33 No. 3
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Published in Coverage Vol. 33 No. 3. Copyright © 2024, American Bar Association. All rights reserved. This information or any portion thereof
may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the
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Coverage for Supply Chain Disruptions
By Adrienne Kitchen, Lauren Gubricky, Amy Cho, Andrew P. Van Osselaer, and Joshua Weinberg
Supply Chain Insurance—When Is It Needed?
Supply chains are relationships between a seller or manufacturer of goods and the suppliers of
materials the manufacturer incorporates into its product; for example, raw materials and
component parts. Supply chains can suffer disruptions for numerous reasons, including weather
and climate-related risks, price changes, transportation and storage failures and shortages in
modes of transportation, labor shortages or disputes, political instability, financial or
management issues affecting a supplier or vendor, physical losses to plants and storage facilities,
or cyberattacks—all of which pose a significant risk to businesses. A disruption in one part of the
supply chain can cause losses in other parts. This article examines the types of insurance
coverage that make up “supply chain coverage” and common exclusions and pitfalls.
Contingent Business Interruption Insurance May Help
In general, commercial property insurance covers an insured’s business income losses only when
those losses result from physical loss or damage to its own property. This coverage, without
more, may not protect the business from disruptions in its supply chain. Often policies include
“contingent” business interruption (CBI) coverage, which may cover losses due to supply chain
disruptions. However, this coverage requires physical loss or damage, and coverage may be
limited for certain suppliers listed on a schedule. See the following sample provisions:
This policy is extended to cover the actual loss sustained by the Insured due to the
necessary interruption of business as the result of direct physical loss or damage
of the type insured against to properties not operated by the Insured which wholly
or partially prevents any direct supplier of goods and/or services to the Insured
from rendering their goods and/or services, or property that wholly or partially
prevents any direct receiver of goods and/or services from the Insured from
accepting the Insured’s goods and/or services. ISO Form CP 00 30 10 91 (1990).
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Contingent Time Element. This Policy covers the Actual Loss Sustained and
Extra Expense incurred by the Insured at an Insured Location during the
PERIOD OF LIABILITY directly resulting from physical loss or damage of the
type insured to property of the type insured at Contingent Time Element
Locations located within the Coverage Territory: ISO Form PF-28906 (04/19).
CBI coverage is sometimes called “dependent properties” coverage. These provisions cover
enumerated dependent properties, such as “those who supply materials for the insured, purchase
