A common question that business owners have is whether their business interruption insurance will cover power outages. The quick answer is yes, but it’s important to identify the cause of the power outage to ensure that coverage will apply. Most business interruption policies will only cover power outages caused by utility companies suffering some kind of property damage at their power generation facilities. This means that the power generation plant must suffer physical damage, such as from a fire, flood, explosion, or other causes. If your business suffers a power outage because the utility company was conducting routine maintenance, or because the government ordered the utility firm to shut down for safety reasons, then ordinarily, you will not be covered for business interruption losses.
Also, coverage will depend on the specific wording of your business interruption policy. Some insurers in Singapore will automatically cover business losses caused by power outages. Some insurers won’t include this as an automatic cover, and may require you to specifically request for it, with additional premiums payable. If you feel it’s important for you to have coverage for power outages, then make sure you read through your policy wording to ensure that this coverage term is included.
Business interruption coverage for power outages can get complicated. This article will help to explain the specific scenarios where your business interruption cover will kick in to cover you against losses suffered from power outages.
What should I look for if I want business interruption insurance for power outages?
Your business interruption policy wording should have a “Public Utilities” clause, which states that business interruption coverage applies in the event of a failure of utility services to your company. Look for a clause that is similar to the one below in your policy wording. It shouldn’t be hard to find. Just search for “Public Utilities” – if it’s in the wording, then you’ll have the coverage.
Let’s take a look at a sample Public Utilities clause (emphasis mine):
“We extend to cover losses resulting from interruption or interference with the Business as a result of damage to property at any electricity station, sub-station, gas works, or water works from which You obtain direct supply, provided the supply failure extends for a minimum of 12 hours, and Our liability shall only extend to such period exceeding 12 hours.”
That’s quite a lot of legalese. Let’s break it down into layman’s terms.
The sample clause above basically means the following:
- The insurance company will cover you for business interruption losses due to public utility failures
- These utility failures must be caused by the utility plant suffering some kind of property damage
- Examples of covered utility failures include power outages, water supply outages, and gas supply outages
- Any power outage or utility failure must last for more than 12 hours in order for coverage to take effect
What else is covered besides power outages? Do utility failures only mean an absence of electricity supply?
As you can see from the sample wording above, it’s common for business interruption coverage to protect you against more than just power outages. Water supply and gas supply faults are commonly covered too. Such broad cover is good since electricity, water, and gas are essential for all businesses and homes to run.
Must my power outage be caused by a specific reason in order for me to receive business interruption coverage?
Yes. In the sample policy wording above (which is quite representative of most business interruption policies), there is a key phrase that often goes unnoticed by business owners. This key phrase is that insurance coverage only applies “as a result of damage to property at” the public utility plant itself.
What are the implications of this? It means that you will not receive coverage if your power supply is interrupted because of any other reason that the utility plant’s premises suffering physical damage.
Let’s clarify this with some concrete examples. Here are some situations where business interruption coverage would NOT apply:
- The power transmission lines along the road were destroyed by a storm. Since the power lines were damaged, you couldn’t receive electricity. However, the utility plant that you receive power from remained undamaged. Coverage would not apply here as the transmission lines are not a part of the utility plant’s premises.
- The government orders power plants across the country to shut down. Since the utility plants have not suffered physical damage, coverage would not apply here.
- The utility plant shuts down its electricity, water, and gas supply (e.g. for routine maintenance, or for safety reasons). As long the utility plant itself is not damaged, coverage would not apply.
- The utility plant suffers a cyber attack which interrupts its cooling systems, damaging the utility plant and cutting off its power generation abilities. Although physical damage has been suffered, most insurance policies contain an “Absolute Cyber and Data Exclusion”, which exclude losses stemming from a cyber attack. Coverage would not apply here.
Let’s look at opposite scenarios now. Here are some situations where business interruption coverage WOULD apply:
- The utility plant suffers a fire, damaging its ability to generate water and electricity. Your power and water supply get cut off. Coverage would apply here since the plant’s premises were physically damaged.
- A natural disaster (e.g. earthquake or flood) destroys the utility plant. Coverage would apply here.
- The utility plant’s cooling systems overheat due to poor maintenance, damaging its ability to generate electricity. Its water pipes accidentally burst due to mistakes made by their own engineers. Many customers are thus left without electricity and water. Coverage would apply here.
It’s also helpful to take a look at some real life examples where major power outages have affected businesses.
Real life example 1:
In late February 2021, a massive snowstorm struck Texas in the Unites States. The snowstorm that hit Texas damaged many overhead power transmission lines. This cut off electricity supply to millions of people, and tens of thousands of businesses across the State. Chillers and freezers were left unpowered, causing F&B businesses to lose their food inventory. Offices couldn’t operate their electronic equipment. Manufacturing facilities were forced to shut down. If all this damage wasn’t a nightmare in itself, what made the entire situation worse was that many business owners were suddenly finding out that their business interruption insurance couldn’t cover them! Many insurers in Texas had denied the slew of business interruption claims that were filed. Was this just another case of insurance companies playing dirty tricks the moment their clients started filing claims? Well, not really. The snowstorm didn’t actually cause physical damage to the utility plants themselves. The primary cause of power outages was downed power supply lines. In the US, most power cables are laid across miles and miles of overhead poles, completely exposed to the fickle and devastating power of the elements. This is very different from the situation in Singapore, where power cables are safely buried beneath the ground. Many such power poles in Texas came were toppled by the brute force of the snowstorm, damaging the electrical cables that delivered power to homes and businesses. Since the damaged power cables were not within the utility plant’s premises, business interruption insurance was not applicable for such scenarios.
Other businesses that had suffered physical damage to their own business premises as a result of the storm were fine with their insurance claims. This is because business interruption insurance covers businesses if they can’t operate, due to damage suffered to their own premises.
Real-life example 2:
In 2019, huge wildfires engulfed northern California, causing more than 100,000 people to be displaced from their homes. The cause of the massive conflagration was determined to be downed power transmission lines from Pacific Gas & Electric (PG&E), a large utility corporation. The utility companies determined that the best way to stop the massive fires from spreading even further was to shut down their electricity transmission services. PG&E and other major utility companies in California shut down their power services from 9th October 2019 to 1st November 2019. Power services were restored intermittently throughout this 3-week period, but for most of this time many residents and businesses were left struggling without power. Many F&B businesses suffered tens of thousands of dollars of losses as their inventory rotted. Manufacturing companies suffered millions in losses with idle factories. Because of the sheer breadth of the fire, many of the utility companies’ own facilities ended up being damaged, too.
Businesses in California started filing business interruption insurance claims for their losses suffered during this massive power outage. For businesses that had suffered physical damage due to the fire, their claims went through fine. For businesses who received utilities from a utility plant that had been damaged by the fire, their claims went through fine. But for those businesses who received utilities from a plant that had not been damaged, and whose own business remained unscathed by the fire, their claims did not go through. This is because they didn’t suffer property damage to their own business, and their utility provider also didn’t suffer any property damage themselves.
Although these 2 real-life examples are from the US, they are good demonstrations of how business interruption insurance functions when it comes to power outages. There is complexity involved in determining whether claims are admittable (or not). Most business owners may initially think that any power outage is covered. In reality though, the cause of the outage is absolutely fundamental to determining whether coverage applies.
It’s important to understand the situations in which business interruption insurance would and wouldn’t apply. That way, you can request for broader coverage from the get-go if you need it, and you won’t be caught off-guard if your business gets hit with a power outage and suffers losses that you want to claim back from the insurer. It’s also worthwhile to speak with an expert who can provide you with proper advice on business interruption coverage.
Consider additional protection against power outages
It’s a good idea to not rely solely on business interruption insurance to protect your company against power outages. If your business will suffer significant losses if you don’t have power access, then you should invest in back-up power generators. Businesses like restaurants, bars, data centres, and factories would all benefit from having a source of back-up power.
Must the power outage last for a minimum time period, before business interruption insurance kicks in?
Yes. Your business interruption policy will specify the minimum number of hours that you must be without power, water, or gas. This is called the “time excess”.
For instance, if your time excess is 12 hours, then you must be denied utility access for at least 12 hours. Once you have been without power, water, or gas for more than 12 hours, you can file a business interruption claim. This is, of course, provided that the cause of the utility interruption was due to a valid cause (as explained in the preceding paragraphs).
The amount of time excess set is meant to exclude small interruptions that may commonly occur. These small interruptions of 30 minutes, or a couple of hours at most, may occur due to routine maintenance works. Minor interruptions are easier for businesses to handle with basic contingency planning. For instance, if a restaurant knows that its electricity will be interrupted for 1 hour due to power supply maintenance, it can pack its fridges with lots of ice to keep the food cold during that short period. Food losses are unlikely to occur if the restaurant is prepared. Excluding small interruptions also helps to keep premiums for business interruption insurance affordable.
How can I get business interruption insurance for power outages?
You can purchase business interruption insurance online here, starting from just $9/month. You’ll get an instant quote, and you can purchase your coverage online within only 3 minutes. Provide’s digital platform helps you save up to 25% on business insurance. Our business interruption insurance covers losses due to power outages.