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Contingent Business Interruption Insurance - Insuring Against the Unfathomable

The recent government shutdown luckily only had minimal effect on businesses in the private sector (mainly, government contractors). But the shutdown was enough to make business owners and operators everywhere think about the unthinkable - what happens when your business is interrupted through no fault of your own?

Owning your own business is a risky endeavor. Contingent business interruption insurance ("CBII") minimizes some of the risk that accompanies ownership. This coverage is usually a part of a broader commercial insurance policy. Its purpose is to insure the losses a business encounters when a significant customer's or supplier's operations are interrupted by covered loss or damage. Most often, CBII comes into play after a natural disaster temporarily suspends normal operations.

The majority of CBII policies cover loss or damage only to tangible items (equipment, inventory, warehouse, etc.), not lost profits. However, policies vary and riders can be added. The loss of functionality businesses may have experienced because of the shutdown may be, in some instances, sufficient "loss" necessary to invoke CBII for those who do business with the federal government.

CBII is a limited form of coverage and will normally be limited in time. Some policies may not immediately go into effect after an interruption, but instead only take effect after a certain number of days. As with every insurance policy, an insured should provide prompt notice of a claim, be prepared to prove the loss through documentation and take any reasonable steps to mitigate loss. Businesses can fall victim to circumstances beyond an owner's control - CBII can provide some reassurance that if an interruption occurs, you will be covered.

Thomas D. Flanigan is a member of McBrayer, McGinnis, Leslie & Kirkland, PLLC in the Lexington, KY office. Mr. Flanigan specializes in the areas of entrepreneurial business, lending and commercial services and mergers and acquisitions. He can be reached at tflanigan@mmlk.com or 859-231-8780, ext. 1211.

This article does not constitute legal advice.

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