Contingent Business Interruption Insurance: When Your Single-Source Supplier or CMO Fails

Tuesday morning email from your antibody supplier in Germany: “Fire in manufacturing facility. Production suspended minimum 12 weeks pending facility restoration.” This antibody is essential for every patient sample analysis in your Phase II trial. No alternative global source exists. Qualifying a substitute would take 4-6 months and require MHRA protocol amendment approval.

Your trial budget: £2.3 million. Current status: 10 months into 18-month timeline, 60% patient enrollment complete. Impact of supplier failure: trial halt indefinitely, enrolled patients may withdraw, staff must be retained or expertise is lost, patient monitoring costs continue without active work.

You have business interruption insurance. You file a claim. Denial letter arrives within a week: “This policy covers business interruption arising from physical damage to insured premises. Your supplier’s facility is not your insured premises. Third party failures are excluded.”

This guide explains what contingent business interruption insurance actually covers, why named supplier wording is critical, what it costs, and the mistakes that leave you unprotected.

What Is Contingent Business Interruption Insurance?

Contingent BI covers financial losses when your suppliers or contract manufacturers fail, even though your own property wasn’t damaged. It’s distinct from standard business interruption (which only covers YOUR property damage) and fills the critical gap for life science companies with catastrophic single-source dependencies.

Why Life Science Companies Have Unique Supplier Risk

Single-source suppliers are unavoidable: One global supplier for your specialized antibody. One CMO qualified for your GMP manufacturing process. One reagent supplier with regulatory approval for your specific application. These aren’t poor planning – they’re operational realities in specialized life science supply chains.

Supply chain fragility is structural: Unlike retail or manufacturing with multiple substitute suppliers, life science depends on: regulatory-approved suppliers (can’t substitute without MHRA/FDA approval), GMP-certified CMOs (limited capacity, long qualification timelines), specialized reagents (no alternatives exist), validated analytical methods (changing suppliers requires revalidation).

Failure impact cascades exponentially: Supplier fails → trial halts → enrolled patients withdraw → staff expertise disperses → investor confidence evaporates → Series B delayed or cancelled. The £180,000 direct cost of supplier failure becomes £2 million+ company valuation impact.

What Standard Business Interruption Doesn’t Cover

Standard BI policies state: “This policy covers business interruption arising from physical damage to your insured premises and equipment.” Translation: only YOUR property damage triggers coverage.

Scenarios standard BI excludes:

• Your reagent supplier’s facility burns down: Not your property, not covered
• Your CMO loses GMP certification due to quality issues: Not your property, not covered
• Your equipment supplier has manufacturing delays: Not your property, not covered
• Your logistics provider loses your shipment in customs: Not your property, not covered

Standard BI explicitly excludes “third party failures,” “supplier disruptions,” and “losses arising from events at uninsured locations.”

What Contingent BI Actually Covers (And Critical Named Supplier Wording)

Core Coverage: What’s Included

Supplier facility damage: Fire, flood, equipment failure at supplier facility stopping production of materials you depend on.

CMO quality failures: Loss of GMP certification, contamination events, regulatory warnings suspending your CMO’s operations.

Supplier insolvency: Supplier goes into administration, ceases operations, files bankruptcy.

Supply chain disruptions: Equipment failures, staffing issues, raw material shortages preventing supplier from fulfilling your orders.

Financial losses covered: Staff retention costs (keeping your team employed during delay rather than laying off and losing expertise), alternative supplier qualification costs (testing, validation, regulatory approval for substitute materials), expedited processing and shipping (premium costs for rushed replacement), ongoing operational costs (facilities, patient monitoring) during disruption, lost revenue if you’re commercial-stage.

The Named Supplier Wording Requirement (Critical)

Here’s where most contingent BI coverage fails. Policies contain critical clause: “This policy covers business interruption arising from suppliers specifically named in the Policy Schedule. Losses arising from unnamed suppliers are excluded as unforeseeable third party events.”

Your policy schedule must list: Supplier legal name, supplier location, what they provide, your dependency level. Example: “Antibody Supplier GmbH, Frankfurt, Germany – sole source for Product X critical reagent used in clinical trial sample analysis.”

If supplier isn’t named in schedule: Their failure isn’t covered. Period. Doesn’t matter that you have contingent BI coverage. Unnamed suppliers are explicitly excluded.

Why insurers require this: They need to assess specific supplier risks individually. Unnamed suppliers could be anyone – financially unstable companies, suppliers in high-risk countries, suppliers with poor quality histories. Insurers won’t provide open-ended coverage for unknown risks.

Indemnity Period Selection

Indemnity period is how long policy pays for ongoing losses after supplier failure. Life science typically needs 90-180 days minimum.

Why 30-day periods don’t work: Qualifying alternative suppliers takes months. Identify alternatives (2-4 weeks) + qualify as GMP suppliers (4-8 weeks) + validate their product in your process (4-6 weeks) + obtain regulatory approval for supplier change (4-8 weeks) = 14-26 weeks minimum.

Standard vs. life science needs:

• Standard commercial policy: 30-60 day indemnity periods
• Life science requirement: 90-180 days minimum
• Cost impact: 180-day period costs 40-60% more than 30-day, but 30-day is useless for life science recovery timelines

What’s Excluded

Suppliers not named in schedule: Already covered, but bears repeating – this is the #1 claim denial reason.

Your own poor supplier management: You knew supplier was financially unstable, didn’t diversify despite obvious risk, insurer may argue you contributed to loss.

Losses exceeding indemnity period: Supplier failure takes 8 months to recover from, you have 90-day indemnity period, you’re only covered for first 90 days.

Pre-existing supply issues: Supplier was already failing when you purchased coverage, then fully collapses during policy period. Pre-existing issues excluded.

What Contingent BI Claims Actually Cost (Real Scenarios)

Scenario 1: Reagent Supplier Fire – Phase II Trial

Event: German antibody supplier facility fire. Production suspended 12 weeks. No alternative global source exists for this specialized antibody.

Trial impact: Phase II trial enrollment 60% complete. Trial must halt until reagent available. 90 enrolled patients require ongoing monitoring without active sample analysis.

Costs covered by contingent BI:

• Staff retention: £60,000 (keeping clinical team employed at full salary for 14 weeks rather than laying off and losing expertise)
• Alternative supplier qualification: £85,000 (identifying academic research group producing similar antibody, validating in analytical method, MHRA protocol amendment approval)
• Expedited shipping and testing: £35,000 (fast-tracked validation, priority shipping)
• Patient cohort retention: £15,000 (additional patient visits and communication maintaining engagement during pause)

Total claim: £195,000. Trial completes with 14-week delay versus original schedule. Series B proceeds on revised timeline.

Without contingent BI: Company pays £195,000 from reserves (3-4 months runway burned), or lays off staff (expertise lost, trial fails to complete), or abandons trial entirely.

Scenario 2: CMO GMP Certification Suspension – Pre-Commercial Stage

Event: CMO loses GMP certification due to quality system failures discovered during regulatory inspection. Suspension: 16 weeks pending corrective actions and re-inspection.

Impact: Your investigational product manufacturing halted. You have 8 weeks of finished product inventory. Market authorization application planned in 6 months requires ongoing supply demonstration.

Costs covered by contingent BI:

• Alternative CMO qualification: £120,000 (tech transfer, validation batches, GMP compliance verification)
• Regulatory consulting: £45,000 (managing MHRA communication about CMO change, supply chain continuity documentation)
• Expedited production: £65,000 (premium pricing for rush manufacturing at alternative CMO)
• Storage and logistics: £25,000 (maintaining product stability during transition)

Total claim: £255,000. Market authorization timeline delays 4 months but application proceeds. Commercial launch delayed but company survives.

Without contingent BI: Company pays £255,000 from reserves or delays market authorization application 12+ months until original CMO recertified, losing competitive positioning.

Scenario 3: Equipment Supplier Manufacturing Delays – Lab Operations

Event: Specialized HPLC column supplier experiences manufacturing equipment failure. Delivery delayed 8 weeks. You need these columns for ongoing analytical testing supporting multiple projects.

Impact: Analytical work halts for 3 projects. Client deliverables delayed. Revenue recognition pushed.

Costs covered by contingent BI:

• Alternative supplier qualification: £35,000 (validating substitute columns in established methods)
• Client contract penalties: £45,000 (late delivery penalties to clients)
• Staff redeployment: £20,000 (moving staff to other projects, overtime when columns arrive to catch up)

Total claim: £100,000. Projects complete with delays but client relationships maintained.

Without contingent BI: Company absorbs costs, client relationships damaged, potential contract cancellations.

The 3 Most Expensive Contingent BI Mistakes

Mistake 1: Having Contingent BI but No Named Suppliers in Schedule

What founders buy: “Contingent business interruption coverage” through comparison site or non-specialist broker.

What policy actually says: “This policy covers business interruption arising from suppliers specifically named in the Policy Schedule.”

What policy schedule shows: Zero suppliers listed. Blank schedule. Or generic language like “suppliers to be notified” without actual names.

Cost of mistake: Critical reagent supplier fails. File £180,000 claim. Denial: supplier not named in schedule, therefore excluded as “unforeseeable third party event.”

Solution: When purchasing contingent BI, identify every single-source supplier. Provide list to broker: names, locations, what they provide, your dependency. Verify final policy documents list your suppliers by name in schedule. Review annually – update when suppliers change.

Mistake 2: Inadequate Indemnity Periods for Life Science Recovery Timelines

What founders buy: Contingent BI with 30-60 day indemnity period (standard commercial coverage, lower premium).

What actually happens: Supplier fails. Qualifying alternative takes 20 weeks (identify + qualify + validate + regulatory approval). Your 60-day indemnity covers first 8 weeks. You’re self-funding weeks 9-20 (£150,000+ in uncovered costs).

Cost of mistake: Partial coverage that runs out before you recover from disruption. You have insurance but still burn reserves during extended recovery.

Solution: Life science contingent BI needs 90-180 day indemnity periods minimum. Yes, it costs 40-60% more in premium. But 30-day coverage is structurally useless for supplier recovery timelines. Match indemnity period to realistic supplier replacement timeframes, not premium optimization.

Mistake 3: Not Updating Named Supplier Schedule When Supply Chain Changes

What founders do: Policy purchased in 2023 lists “Original CMO Ltd” as named supplier. 2024, you switch to “New CMO Ltd” for better pricing. Don’t notify insurer. Policy schedule still lists Original CMO.

What happens: New CMO experiences quality failure, suspends operations. File contingent BI claim. Denial: New CMO not listed in policy schedule. Only Original CMO (no longer your supplier) is covered.

Cost of mistake: £250,000 claim denied because failed supplier isn’t the covered supplier. You have contingent BI coverage but for wrong supplier.

Solution: Notify contingent BI insurer within 30 days of supplier changes: new suppliers added, suppliers changed, suppliers removed. Insurer updates schedule. May adjust premium based on new supplier risk assessment. Most insurers handle mid-term schedule updates at no administrative fee.

The 3 Most Expensive Contingent BI Mistakes

Mistake 1: Having Contingent BI but No Named Suppliers in Schedule

What founders buy: “Contingent business interruption coverage” through comparison site or non-specialist broker.

What policy actually says: “This policy covers business interruption arising from suppliers specifically named in the Policy Schedule.”

What policy schedule shows: Zero suppliers listed. Blank schedule. Or generic language like “suppliers to be notified” without actual names.

Cost of mistake: Critical reagent supplier fails. File £180,000 claim. Denial: supplier not named in schedule, therefore excluded as “unforeseeable third party event.”

Solution: When purchasing contingent BI, identify every single-source supplier. Provide list to broker: names, locations, what they provide, your dependency. Verify final policy documents list your suppliers by name in schedule. Review annually – update when suppliers change.

Mistake 2: Inadequate Indemnity Periods for Life Science Recovery Timelines

What founders buy: Contingent BI with 30-60 day indemnity period (standard commercial coverage, lower premium).

What actually happens: Supplier fails. Qualifying alternative takes 20 weeks (identify + qualify + validate + regulatory approval). Your 60-day indemnity covers first 8 weeks. You’re self-funding weeks 9-20 (£150,000+ in uncovered costs).

Cost of mistake: Partial coverage that runs out before you recover from disruption. You have insurance but still burn reserves during extended recovery.

Solution: Life science contingent BI needs 90-180 day indemnity periods minimum. Yes, it costs 40-60% more in premium. But 30-day coverage is structurally useless for supplier recovery timelines. Match indemnity period to realistic supplier replacement timeframes, not premium optimization.

Mistake 3: Not Updating Named Supplier Schedule When Supply Chain Changes

What founders do: Policy purchased in 2023 lists “Original CMO Ltd” as named supplier. 2024, you switch to “New CMO Ltd” for better pricing. Don’t notify insurer. Policy schedule still lists Original CMO.

What happens: New CMO experiences quality failure, suspends operations. File contingent BI claim. Denial: New CMO not listed in policy schedule. Only Original CMO (no longer your supplier) is covered.

Cost of mistake: £250,000 claim denied because failed supplier isn’t the covered supplier. You have contingent BI coverage but for wrong supplier.

Solution: Notify contingent BI insurer within 30 days of supplier changes: new suppliers added, suppliers changed, suppliers removed. Insurer updates schedule. May adjust premium based on new supplier risk assessment. Most insurers handle mid-term schedule updates at no administrative fee.

What Contingent BI Costs and When You Need It

Costs by Coverage Structure

Basic coverage (2-4 named suppliers, 90-day indemnity): £1,500-£2,500 annually. Suitable for early-stage companies with limited supply chain complexity.

Standard coverage (5-8 named suppliers, 180-day indemnity): £2,500-£4,000 annually. Suitable for Series A/B companies with established supplier dependencies.

Comprehensive coverage (10+ named suppliers, 180-day indemnity, higher limits): £4,000-£6,000 annually. Suitable for clinical-stage companies with complex supply chains supporting multiple trials.

Premium factors: Number of suppliers named (more suppliers = more risk = higher premium), supplier financial stability (unstable suppliers cost more), indemnity period (180 days costs 40-60% more than 90 days), your annual revenue (higher revenue = higher potential losses), supplier geographic concentration (all suppliers in one region = higher risk).

When You Need Contingent BI

Trigger 1: Engaging first CMO for GMP manufacturing: Within 30 days of signing CMO contract. CMO quality issues or capacity problems can halt your operations entirely.

Trigger 2: Identifying single-source reagent suppliers for trials: Before trial start. If supplier fails during trial, you need funding to qualify alternatives without abandoning enrolled patients.

Trigger 3: Relying on specialized equipment suppliers with long lead times: When replacement/substitute equipment requires 8+ weeks procurement and validation.

Trigger 4: Series A funding with investor due diligence: Investors increasingly ask about supplier risk mitigation. Contingent BI demonstrates risk management sophistication.

When you DON’T need contingent BI: All materials easily sourced from multiple suppliers, you maintain 6+ months inventory of critical materials eliminating time pressure, you have pre-qualified backup suppliers for all critical items (rare in life science).

How to Buy Contingent BI (And Information Insurers Need)

Why Specialist Brokers Are Essential

Contingent BI for life science requires specialist brokers because:

• Named supplier wording negotiation requires understanding of life science supply chains
• Indemnity period structuring needs knowledge of regulatory approval timelines for supplier changes
• Access to insurers (Lloyd’s syndicates, Markel, Hiscox) who write life science contingent BI

Information Insurers Need

Critical supplier list: Every single-source supplier where failure would stop operations for >2 weeks. Include: legal name, location, what they provide (specific materials/services), why they’re single-source, relationship history.

CMO details: Name, location, services provided (manufacturing, fill-finish, storage, testing), GMP certification status, your production dependency, backup CMO options if any.

Financial dependency assessment: Annual spend with each supplier, percentage of your operations dependent on each, alternative sourcing timeline if supplier failed.

Supply agreements: Contract terms, minimum order quantities, exclusivity arrangements, any contractual protections for supply disruption.

Business continuity planning: Document your supplier risk analysis, backup supplier investigations, inventory management for critical materials.

Typical Timeline

Week 1: Broker consultation, supplier mapping, dependency analysis.

Week 2-3: Quote submission to insurers, underwriter assessment of specific supplier risks, possibly requesting additional supplier information.

Week 3-4: Quote review, named supplier schedule negotiation, indemnity period selection, premium negotiation.

Week 4-5: Policy binding, review named supplier schedule carefully, payment, coverage effective.

Total: 4-5 weeks from initial contact to coverage in place.

Next Steps: Protecting Your Supply Chain

If you have single-source suppliers or CMO dependencies where failure would halt operations for >4 weeks, contingent BI should be on your agenda immediately.

Immediate actions:

1. Map your supply chain dependencies (1 hour): List every supplier. Identify which are single-source. Note what happens if each fails. Calculate recovery timeline.
2. Review your current business interruption coverage (30 minutes): Pull out your BI policy. Read what triggers coverage. Look for “physical damage to insured premises only” language. Confirm supplier failures aren’t covered.
3. Document critical suppliers (1 hour): For each single-source supplier: legal name, location, what they provide, annual spend, why single-source, alternatives investigated, relationship history.
4. Contact specialist brokers (this week): Search “life science insurance brokers UK.” Schedule consultations with 2-3 brokers who have contingent BI experience. Ask: “How many contingent BI policies with named supplier wording have you placed for life science companies?”
5. Budget appropriately: £1,500-£2,500 for basic coverage (2-4 named suppliers, 90 days), £2,500-£4,000 for standard coverage (5-8 suppliers, 180 days).

Your supplier will fail eventually. CMO quality issues occur. Reagent manufacturers experience disruptions. Equipment suppliers have delays. The question is whether you have £180,000 in funded runway to find alternatives, or whether you burn reserves and collapse during the gap.

Your trial timeline, your investor confidence, your company survival depend on supply chain resilience. Contingent BI provides the funded recovery time life science companies need.

 

Simplify Stream provides educational content about business insurance for UK companies, especially those with high growth business models that require specialist insurance market knowledge. We don't sell policies or provide regulated advice, just clear explanations from people who've worked on the underwriting and broking side.