When Your AI Vendor Goes Down: Does Your Insurance Cover the Outage?

More and more businesses now run on AI tools and the cloud platforms behind them. Your scheduling, your customer service, your analysis, your website — all leaning on vendors you don't control. So here's a question worth asking before it happens: when one of those providers goes down for a day, and you lose income because of it, does your insurance cover the loss?

The answer is "sometimes," and the details matter a lot. The coverage exists, but it's one of the most capped and carved-out parts of a cyber policy. This guide explains what dependent business interruption covers, where it stops, and what to check.

For the full view of how AI touches your policies, start with does your business insurance cover AI. This post focuses on vendor outages.

What Dependent Business Interruption Covers

Regular business interruption coverage replaces income you lose when your own operations go down. Dependent (sometimes called contingent) business interruption extends that to a vendor you rely on. If a provider you depend on has an outage and it costs you income, this is the coverage meant to respond — typically found inside a cyber policy for technology and data vendors.

For an AI-dependent business, that vendor might be your AI platform, your cloud host, your payment processor, or the API your product is built on. When they go dark, your revenue can stop even though nothing is wrong on your end.

The Catch: Caps, Waiting Periods, and Exclusions

This is where expectations and policies part ways. Dependent business interruption is rarely full coverage:

• It's often capped. The sublimit for dependent losses is frequently a fraction of your policy's main limit. The outage can cost you more than the policy will pay.
• There's usually a waiting period. Many policies only start counting your loss after an outage lasts a set number of hours. A short outage — the kind that's most common — may produce no payable claim at all.
• Infrastructure exclusions can bar it entirely. This is the big one. Some policies exclude outages of large, shared internet and cloud infrastructure. When a major cloud or AI provider has a widespread failure, that exclusion can be exactly what applies — the scenario most likely to hurt you is the one most likely to be carved out.

Security Failure vs. System Failure

There's one more distinction that decides whether you're covered at all. Many cyber policies only cover a dependent outage if it was caused by a security event at the vendor — a hack or breach. A plain, non-malicious outage (the server just went down) may not be covered unless your policy adds system failure coverage.

Since most AI and cloud outages are ordinary technical failures, not attacks, this is a coverage you have to ask for by name. Without it, the most likely outage is the one your policy ignores.

What to Check

• 1. Is dependent business interruption included at all? Confirm it's on the policy, not just assumed.
• 2. Security-only, or system failure too? Make sure non-malicious outages are covered, since that's what actually happens most.
• 3. What's the sublimit? Know the cap for dependent losses specifically.
• 4. What's the waiting period? Find out how long an outage must last before coverage starts.
• 5. Is there an infrastructure exclusion? Ask directly whether a major cloud or AI provider outage would be covered or carved out.

The only way to know your real exposure is to read these terms against the vendors you actually depend on. We'll do that with you. Start a review here.

Frequently Asked Questions

Does cyber insurance cover an AI or cloud provider outage?

It can, through dependent (contingent) business interruption coverage, but with important limits. The coverage is often capped below your main limit, usually has a waiting period before it pays, and may only apply to outages caused by a security event unless you add system-failure coverage. Infrastructure exclusions can also bar widespread cloud outages entirely.

What's the difference between business interruption and dependent business interruption?

Business interruption covers income you lose when your own operations go down. Dependent business interruption extends that to losses caused when a vendor you rely on goes down. For businesses built on AI platforms and cloud services, the dependent version is often the more relevant exposure.

Why might a vendor outage not be covered?

A few reasons: the outage was shorter than the policy's waiting period, the loss exceeded a dependent-business sublimit, the outage was a technical failure rather than a security event (and you didn't have system-failure coverage), or an infrastructure exclusion applied to a widespread cloud failure. Checking these terms in advance is the only way to avoid the surprise.

Should I add system failure coverage?

If your business depends on AI tools or cloud platforms, it's worth strongly considering. Most real-world outages are ordinary technical failures, not attacks, and security-only coverage wouldn't respond to them. System-failure coverage closes that gap.

Related Reading

• Does Your Business Insurance Cover AI? — the full map of AI risk and coverage
• Your Employees Are Using AI. Does Your Cyber Policy Cover It? — the data-leak and shadow-AI side
• Cyber Liability Coverage — where dependent business interruption coverage lives