Property Insurance Coverage Law Blog : Florida Insurance Lawyer & Attorney : Merlin Law Group Law Firm : Tampa, Houston, Coral Gables, Gulfport

The Ft. Myers News-Press reported on the disaster:

The TECO People’s Gas line has been repaired, after being damaged by a
construction vehicle...Approximately 6,500 customers lost their gas connection, and company representatives say it could take up to a week to get all service restored.

As in any emergency, restoration of the utility will occur in order of
priority with the largest and most critical customers, such as hospitals,
nursing homes, assisted living facilities and emergency service facilities,
first.

Commercial customers, such as hotels and restaurants will be next, and
residential customers will be third. If a less critical customers is on the
same line as a critical facility, then their service may be restored more
quickly (similar to what happens in restoring power following a hurricane).

Power outages are common following major hurricane events. The loss of income and other damage may be caused by off-site damage, similar to the power outage experienced by the businesses in Ft. Myers. For such situations, it is important to have off-site power outage coverage endorsed to the policy. Since there was no direct damage to covered property, but damage to property of others resulting in a loss of power, most commercial property insurance policies will not provide for loss of income and other losses by definition. Off-premises damage resulting in loss of power is generally added as an endorsement.

For example, Utility Service Interruption Coverage generally provides:

We will pay for loss of or damage to Covered Property described in the Schedule, caused by an interruption in utility service to the described premises. The interruption in utility service must result from direct physical loss or damage by a Covered Cause of Loss (as indicated in the Schedule) to the property described in Paragraph C. if such property is indicated by an ‘‘X’’ in the Schedule and is located off the described premises.

The loss still needs to be caused by a covered peril, but this endorsement adds coverage otherwise generally excluded. Indeed, some business interruption forms are more restrictive and eliminate coverage for income losses if the failure occurs ‘‘outside of a covered building,’’ rather than loss of power on premises.

Restaurants, food stores and food brokers should also purchase Spoilage Coverage. This provides for losses caused by power outages on or off premises with the following language:

Power Outage, meaning change in temperature or humidity resulting from complete or partial interruption of electrical power, either on or off the described premises, due to conditions beyond your control.

Power outage is a very common and significant threat to businesses. Prudent risk management requires power back-up systems as well as proper insurance coverage for these disasters. Otherwise, a second financial disaster will likely occur.