Yearly storms bring widespread loss of electricity and other utility services. With these failures comes a flood of questions from owners of homes and businesses about what insurance coverage is available. Helping clients understand the ins and outs of power failure and how coverage applies is another value-added service of the professional insurance agent.
Power and utility failures can happen any time of year. They may be caused by storms with plenty of rain, lightning, and wind; winter’s ice or heavy snowfall; high demand associated with extreme heat; wildfires; and even animals, trees, and vehicles. Applicable coverage under a home or business policy depends on what caused the loss and where it happened. In most cases, if power failure was triggered by a covered loss to property on the insured’s premises, resulting loss is covered. If the loss happens off premises, coverage is less certain. For example, a tree that falls on electric lines coming into the home or business constitutes a covered loss to covered property. However, a tree that goes down on lines off premises is not a covered loss to covered property.
When a power outage lasts for an extended period, food spoilage is a concern for homeowners and for certain businesses. Perishable food, such as meat and dairy products, will stay safe in the refrigerator for about four hours if the doors are kept closed. Freezer food will be okay for about 48 hours. Most policies provide limited spoilage coverage if the power interruption was caused by a covered loss to property on the insured premises. If the initiating loss happens elsewhere though, there is usually no coverage under a standard policy. Some companies offer special equipment breakdown and loss of utility coverages, including for losses that occur off premises.
What about a resident’s indirect loss such as additional living expenses required to relocate while the home is uninhabitable due to lack of power or other necessary utilities? Coverage for loss of use is usually provided only if the loss that caused the home to be unlivable was a covered loss.
The same is true for business interruption type coverages in commercial policies (with possible “carve-outs” for loss of income from dependent properties or interruption of specific services). If a business cannot operate due to loss of power or another utility caused by a direct covered loss to covered property, then the subsequent loss of business income would be payable. However, if the event triggering the loss occurs off premises, there is usually no business income coverage under a standard policy. Optional coverage may be available for purchase.
Ensuing loss is another important consideration. If a stoppage of power or utility access initiates an otherwise covered loss, the ensuing loss may be insured – even if the service failure loss is not. For instance, if electricity goes out causing pipes to freeze, resulting water damage could be covered regardless of the origin of the outage.
Power and utility failures can be traumatic to insureds, and lead to dramatic losses to their property and operations. According to Power Technology, Hurricane Milton left more than 3.4 million Florida homes and businesses without power for five days or more, when the area had not yet recovered from Hurricane Helene’s devastation just two weeks earlier.
Precautions can be taken to mitigate the effect of power failure. Backup power sources have increased in popularity. However, some require gasoline which may be hard to get in a general power outage. A stocked emergency kit is essential, including flashlights and extra batteries. It is important to remember that when power is out, cell phone and internet communications will also be inaccessible. A battery-operated radio can help keep you informed about the outage. Fill the tub with water if an outage is predicted. Water can be used to flush toilets, for hygiene, and even for consumption after boiling for at least one minute, if other sources are not available. Bottled drinking water is also important.
Power failures can wreak havoc on businesses and homeowners. Helping clients understand policy language and providing proper protection for such events, as well as offering preparedness tips, is another sign of the true insurance professional.
by: Sue C. Quimby, CPCU, AU, CIC, CPIW, CLP-A, DAE, ACR