Many businesses will experience power failures and consequent property damage or business interruption losses if Hurricane Irma makes landfall. Coverage for such losses will depend on specific terms and conditions of the insurance policy.
Property insurance policies provide coverage for property damage and business interruption when there is physical damage to insured property from a covered cause of loss. At one time, many policies included no specific exclusion or coverage provision for utility service interruption losses. In those instances, courts found coverage where a covered peril (like a windstorm) causes a power outage which, in turn, results in direct physical loss or damage to covered property. See e.g., Fred Meyer, Inc. v. Central Mutual Insurance Co., 235 F. Supp. 540 (D. Or. 1964) (finding coverage for food spoilage that occurred following a windstorm that caused the failure of power supplying the insured’s refrigeration facilities); Fed. Ins. Co. v. Bock, 382 S.W.2d 305 (Tex. Ct. App. 1964); Lipshultz v. General Insurance Company of America, 96 N.W.2d 880 (Minn. 1959) (same).
But most property insurance policies now include either a specific exclusion or coverage provision for utility service interruption losses. The utility service exclusion typically excludes coverage for loss or damage caused by the failure of power if the failure occurs away from the insured’s premises. Courts generally have enforced that exclusion. See, e.g., Gies v. City of Gering, 695 N.W.2d 180 (Neb. 2005). But one court found coverage for a restaurant’s spoilage loss under an ensuing loss provision in a power failure exclusion where the power failure was caused by Hurricane Hugo. See Brooklyn Bridge, Inc. v. S.C. Ins. Co., 420 S.E.2d 511 (S.C. Ct. App. 1992).
Policies that include specific utility service interruption coverage typically require that the power failure be caused by physical loss or damage at the utility service provider’s premises. If the power failure is caused by other reasons, there likely will be no coverage. For example, a court found no coverage for power outage losses that occurred when the power failure was caused by the utility company preemptively shutting off power to preserve the integrity of its service in anticipation of storm-related flooding from the approaching Hurricane Sandy. See, e.g., Newman Myers Kreines Gross, P.C. v. Great N. Ins. Co., 17 F. Supp. 3d 323 (S.D.N.Y. 2014).
In some cases, utility service interruption coverage is subject to a waiting period, so the service interruption must exceed the indicated number of hours or days. Other policies include coverage for spoilage caused by a power outage.
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