Consider these loss scenarios:

• A fire at the electrical utility results in a blackout. The loss of power at a glass factory means all of the glass in process is ruined. In addition, the power shutoff damages several pieces of equipment.
• A brownout lowers the amount of power coming to the registers at a restaurant. The registers are damaged.
• An explosion at the water utility stops the flow of water to an aerospace parts factory. Machines are ruined by cutting when dry, and the parts in production are destroyed.

With the standard ISO Property policy, there is no coverage for either damaged property or lost income. Equipment Breakdown policies also do not provide coverage.

Basic, Broad and Special Forms exclude “Utility Services. The failure of power, communication, water or other utility service supplied to the described premises, however caused, if the failure . . . Originates away from the described
premises . . . Failure of any utility service includes lack of sufficient capacity and reduction in supply. Loss or damage caused by a surge of power is also excluded . . .”

This is an important gap for some businesses, particularly those in manufacturing, processing and cold storage. Compressors, motors, switches and other equipment can be damaged by unscheduled shutdowns and restarts. How can coverage be obtained? By using two coverages for Utility Services: Direct Damage and Time Element. ISO provides forms CP 0417 and CP 1545, other carriers will have their own forms. Some carriers include a low limit for direct damage in packages, such as $25,000.

Form CP 0417 covers the physical damage to Building, BPP, or PP of Others. Premises description and property type must be scheduled, along with Causes of Loss to be insured against. The same Causes of Loss does not need to match what is used on the insured’s Property dec. The Causes of Loss on this form applies to the property of the utility service. For example, the insured can use Special Form for all its own property, but apply Basic Form for damage to the utility’s property which causes the interruption.

The type of utility is scheduled, and this means the insured must understand whether it needs to insure overhead transmission lines for power or communications, or just underground.

This form does not increase the Property limit, it merely expands the covered causes of loss. Since the equipment at risk from losing utility services is likely already included in Property limits, there should be no need to increase limits.

Form CP 1545 provides Business Income and optional Extra Expense coverage for losses caused by interruption of utility services. Coinsurance does not apply.

For perishable storage and processing businesses, CP 0440, Spoilage Coverage, may be beneficial. Coverage includes “C.3.b. Power Outage, meaning change in temperature or humidity resulting from incomplete or partial interruption of electrical power, either on or off the described premises.” Note that this does not cover damage to the equipment, only to the perishable goods, such as food and flowers. It also does not cover brownouts.

The utility service exclusion can cause a big financial impact on businesses. Insurance solutions exist.