The storm was ferocious. Luckily, your buildings were spared damage from the high winds and heavy rains; however, a few miles away the storm brought down power lines that supply your business with electricity. While there is no physical damage to your property, you’re still out of business without power. Does your business insurance cover this? Do you have utility service interruption insurance?
Commercial Property Policies Exclude Utility Service Outages
You have a standard loss of business income insurance policy, and you may think that you are protected in the event of an outage. Unfortunately, most policies do not cover utility interruptions that originate away from your premises. While utility service exclusions may vary from one policy to another, they usually include the following:
- Power supply services--electricity, gas and steam
- Water supply services
- Communications supply services--telephone, radio, microwave or television
Losing these services for an extended period can be financially devastating. To protect your business from any of these utility outages, you will need to purchase an endorsement that extends your insurance coverage to include utility services interruptions.
Utility Service Interruption Insurance Closes the Gaps
Storms are not the only threat to your business. A vehicle can snap off a utility pole, a fire can start several blocks away, or a tornado can touch down unexpectedly. None of these has caused damage to your facility, yet your business is on hold because one or more utilities that are vital to your operation have been interrupted.
Utility service interruption coverage is an endorsement that covers your losses due to lack of incoming electricity--or similar utility services--caused by damage to property away from your premises. (For instance, the utility generating station may have been damaged or transmission lines could be down.)
These endorsements vary widely as to what utility services are included and whether both Direct Damage and Time Element losses are covered. The following details explain these coverages:
Direct Damage Coverage
- If a power surge occurs during power restoration, this coverage pays to repair or replace any items that have been damaged by the surge
- You must have Personal Property insurance to purchase Direct Damage coverage. It is an extension of your Personal Property coverage
- The deductible that applies to your Personal Property coverage will also apply to Direct Damage
Time Element Coverage
- Time Element coverage extends standard business interruption coverage to include utility services interruptions
- Time Element pays your profit plus continuing expenses, up to the limit you have chosen or until the utility comes back into service, whichever comes first
- You must have Loss of Business Income coverage to buy the Time Element extension
- The utility must be out due to a covered cause of loss
- If you have a deductible or waiting period on Loss of Business Income, it will be the same on your Time Element endorsement
Consider the Exposures to Your Business
The first step is to evaluate the exposures facing your company. Will the loss of power for hours or days adversely impact your operations and profits? If you determine that it will, your next step is to determine how your current insurance program would apply. This involves reviewing the policy language, evaluating the coverage and taking the appropriate action to change the policies or add endorsements.
A word of caution: many power outages are caused by downed transmission and distribution lines. These endorsements do not automatically extend coverage for loss caused by or resulting from the damaged lines. This coverage is available, but it must be specifically requested and added by endorsement.
We Can Help You Get the Right Utility Services Interruption Insurance Policy
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