DISCLAIMER: This is only a brief overview of general coverage issues. Actual coverage is determined by the coverage terms, definitions, and exclusions in each individual insurance policy.
Utilities Causing Business Interruption?
Standard Loss of Business Income Coverage
Most people know that loss of business income insurance (also known as business interruption insurance) is very important. What many people don’t realize is that most standard business interruption insurance only covers the suspension of business caused by direct physical loss or damage to the premises described in the declarations. In other words, it does not cover utility service interruption. For example, when hurricanes or tornadoes damage power lines that are not on your premises, most standard business interruption insurance does not cover that interruption.
Time Element
Fortunately, standard business interruption coverage can be easily extended to include utility services interruptions. The expanded coverage is known as “Utility Services-Time Element”. When damage from a hurricane or tornado knocks down power lines or damages water pipes away from your premises and those damaged utilities cause you to be without power and/or water so you cannot conduct business, Utility Services-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. Other agents or insurers may not explain Utility Services – Time Element coverage, but NIE quotes it on every piece of new business and every renewal that doesn’t already have the coverage.
Direct Damage
As utility service is restored, sometimes a power surge damages expensive equipment. There is a coverage for that as well, known as “Utility Services-Direct Damage”. This coverage takes care of repairing or replacing any item that has been damaged due to a power outage, up to the limit of insurance you have chosen, and caused by a covered cause of loss in your policy. Hurricane is a covered cause of loss on the NIE policy. It is windstorm. NIE quotes this coverage to every customer.
Do you need these two extensions of coverage if you are not in a coastal area? Absolutely. Both apply to any covered cause of loss that happens away from your premises, not just hurricanes. We know that tornadoes can happen anywhere. Or a vehicle can run into a utility pole putting the whole neighborhood out of power. A fire a block away from your store can do this as well.
If you don’t know how much coverage you need, we usually suggest buying ten percent of your total annual sales for Utility Services-Time Element and ten percent of your personal property limit for Utility Services-Direct Damage. However, it is ultimately up to you to buy the amount you think you will need.
What You Need to Remember:
- You must have Loss of Business Income coverage to buy Utility Services-Time Element.
It is an extension of your Loss of Business Income coverage. - The utility must be out due to a covered cause of loss. Since flood is not a covered cause
of loss, these extensions do not provide coverage if a utility is out due to flood. - If you have a deductible or waiting period on Loss of Business Income, it will be the same on Utility Services-Time Element. You must provide documentation to prove your loss if you are down more than two days.
- You must have Personal Property coverage to buy Utility Services-Direct Damage. It is
an extension of your Personal Property coverage. - The deductible that applies to your Personal Property coverage will also apply to Utility
Services-Direct Damage. You must provide repair receipts as proof of loss. - You must report all losses as soon as possible.
- Loss of business due to lack of customers is never covered on a traditional commercial
insurance policy. (Sometimes business declines even though the business did not have
damage and power never went out. Unfortunately, there is no coverage for this situation.)
*NIE does cover flood damage to customer property under your care, custody, and control. (Most insurers do not.)