Utility service interruption coverage is a type of property insurance. This insurance may also be referred to as “off premises utility interruption”, or “off premises power interruption” coverage.
Utility service interruption insurance goes beyond standard property insurance… This is because standard property insurance policies usually exclude utility service interruption as a cause of loss when it originates away from an insured premises (such as at the utility itself).
As described below, utility service interruption can be added by endorsement. You may even be able to broaden coverage further with a separate utility service interruption policy.
Does My Business Need Utility Service Interruption Coverage?
Commercial property insurance can protect your business from physical damage and loss of income…
However, for lost income to be covered, your claim may not only need to be due to a covered cause, but also one that is tied to property damage at your insured premises.
For instance, if a fire at your business closes your operation, you could have property insurance cover the physical damage and the loss of income while your business is closed.
However, what if a lightning strike takes out a utility transformer at a substation causing your business to lose power for several days? If your business is damaged or you lose income, most standard property policies will exclude this.
Property Damage And Business Income
Off premises power interruption, or utility service interruption, insurance is often comprised of two coverages:
- Property physical damage: Reimburses you for covered property that is damaged or destroyed due to a power interruption.
- Business income (time element): Reimburses for lost income over a period of time that is due to your business having to shut down or because of loss of power from your utility.
Each of these coverages may include a deductible.
For instance, you may have a $500, or $1,000 or $2,500 deductible for the physical property damage.
Business interruption usually has a time-element deductible (or a waiting period) of 8, 12 or 24 hours before your business income will start to be covered.
Obviously, for businesses like restaurants, the shorter the time-element deductible the better because food only stays fresh for so long…
Food Loss Due To Utility Power Loss
Restaurant owners often must maintain thousands of dollars of food in storage, outside of the “food danger zone”1.
So, what if your restaurant lost power because of utility downtime? What would happen to all the food in your low-boys, refrigerators and walk-in-freezer? What about the bar fruit and dairy in the reach-ins behind the bar? What about the open kegs?
Without an endorsement on your property insurance for utility service business interruption, your insurance may deny a claim for the lost food (property) or the lost income for the period of time when you were closed.
Are Waiting Periods Unacceptable?
As mentioned above, utility interruption coverage in property policies is not standard but is available as an added endorsement.
These endorsements can cover electric, water, gas, steam, sewage, or communications services. Businesses can tailor which utilities and which types of utility property (e.g., generating plants, substations, transmission lines) are included.
To trigger coverage, the utility interruption must be caused by a covered peril (e.g., windstorm, fire, explosion) that damages utility property away from the insured location. Some endorsements exclude overhead transmission lines, so review policy language carefully.
However, a waiting period (such as 24 hours) often applies before business income coverage kicks in. This is considered a gap in coverage for some businesses, such as restaurants, that may lose significant property during the waiting period.
If a waiting period is unacceptable for your business, you need to have uninterrupted utility service. Schedule an appointment with me to discuss your needs and craft a coverage that will fill that gap in the event of utility service interruption.
