Insurance Consultants of Maine Newsletter
Scott Simmonds, CPCU
August, 2003
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I've been asked many times, since last Thursday, how insurance responds to the loss of electric power. I've decided to focus this month's newsletter on the insurance implications of the recent "Blackout" instead of the info I'd planned.
Please note; my discussion is general in nature. Different insurers use different coverage forms. Check with me regarding your particular policy or talk with your agent. This review focuses on failures caused by loss of power by a disaster away from your premises. When I talk about failure of your heating system I am speaking of power failure, not of a mechanical breakdown of the heating system.
Personal Insurance
Fortunately, a power failure itself rarely causes actual damage to a home. There can, however, be resulting damage. Here are some of the homeowners insurance issues:
Water Damage - Homes with sump pumps can have water damage from the loss of the pump. Many homeowners policies offer coverage for damage caused by water-backup. Such would provide protection for the damage that results from the absence of a working sump pump.
Changes In Temperature - Failure of air conditioning systems rarely cause damage to normal household items. A change in humidity that causes damage to artwork is excluded except if the item is insured on a separate arts floater. Damage resulting from frozen pipes caused by blackout induced loss of heat is usually covered.
Food Spoilage - Some homeowners insurance policies carry a limit of coverage for food spoilage caused by a power failure; usually $500. Other insurers only provide such coverage with a special endorsement. Check your policy.
Power Surge - When the power is restored there may be a damaging surge in the voltage. Such damage is excluded by most homeowners insurance policies. Many computer insurance policies also exclude power surge.
Commercial Liability
Commercial general liability insurance pays "sums that the insured becomes legally obligated to pay as damages because of bodily injury or property damage..." Most power failure situations will not trigger coverage. Businesses, however, do have a duty to their customers. Dark hallways with no emergency lighting could lead to injuries and suits. The premises liability coverage in a commercial general liability policy would provide coverage for such.
Commercial Property
Most commercial property policies contain an exclusion for loss or damage caused by "the failure of power or other utility service supplied to the described premises, however caused, if the failure occurs away from the described premises." However, like the personal insurance policies described above there is coverage for any loss that results from a covered peril. So a fire in a building experiencing a blackout is covered.
Power Surge - Most commercial policies exclude damage to property caused by voltage surges. Some computer policies include surge as an insured peril. Check your policy.
Spoilage - Restaurants, florist and grocery stores are susceptible to significant losses from spoiling due to lack of refrigeration. Standard policies do not provide spoilage coverage without special endorsement. Review the wording of such endorsements carefully. Policy language that requires damage at the insured location (a fire for example) would not provide coverage for off premises loss of power.
Business Interruption / Loss Of Business Income
This is the coverage area most readers will be interested in. Obviously most businesses shut down when the power goes off. Revenue is lost.
Most policies for loss of business income require that physical damage to insured property occur. For example, a fire damages a warehouse. The damage to the warehouse triggers coverage for the loss of income the business suffers. Without damage to insured property, there is nothing in a power failure to trigger loss of income coverage.
Some insurance companies offer special endorsements to the business interruption coverage to provide for loss caused by power failure. In many cases these endorsements require that the initial cause of the power outage be a covered peril - fire at a power station for example. Also, many of these endorsements exclude damage to transmission lines. Such would exclude an outage caused by ice or wind damage to power lines.
Risk Management
The best way to mitigate the impact loss of power has on you or your business is through risk management.
Include power interruption in your disaster planning process
Install and check emergency lighting
Consider backup power generators for key functions
Install uninterruptible powers source units on your computers
Have flashlights and radios available with extra batteries
Have at least one phone on each floor that does not require electricity to operate
In a blackout, turn off equipment until the power comes on to avoid surge damage
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Scott Simmonds, CPCU
Insurance Consultants of Maine, Inc.
Saco, ME 04072-2431
Phone 207 284-0085
Fax 801 991-4027
scott@icofmaine.com
www.icofmaine.com
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Insurance Consultants of Maine, Inc. is a fee-compensated insurance and risk management advisory firm. We improve our Clients’ operations by controlling their cost of risk including their cost of insurance. Insurance Consultants of Maine helps businesses manage, develop and implement insurance and risk management plans tailored to their unique needs.
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