Utility Interruption Insurance Coverage for Florida Property Owners

When Hurricane Sandy hit, the storm caused lasting damage to residences and businesses which included flood damage.  Inland business owners frequently fail to consider the risk of flood on utility service interruption.  However, many businesses lost power when utility substations were flooded causing service interruption.  When business organizations consider disruption of utility services, such concerns usually focus on loss of electrical power because of downed power lines that pose a direct peril to the business location.  This narrow focus on utility interruptions at the location of a business often fails to account for contingent exposures from remote perils.

While a disruption of utilities on the premises of a business typically will bring the operation of a business to a halt faster than off-premises power loss that interrupts the supply chain of a business, both types of utility disruption can harm a company.  Regardless of whether the utility loss is local or remote, a prolonged interruption of electronic data, water and power must be an important consideration in risk management for a business.  Business continuity planning should be a dynamic process to identify overall utility supply chain weaknesses, strategies for mitigation of risk and potential exposures arising from interruption and loss control.  In some cases, loss control strategies like redundant suppliers might not provide feasible alternatives for extended disruption of water, communications or electricity services.

The risk associated with disruption of utilities has expanded as the definition of utilities has expanded.  While traditionally utility services include gas, electricity, water,  sewer and steam, essential utilities now include data and voice communication services.  Even when onsite data and voice communication services are not disrupted, these vital services can still be disrupted remotely.

There are two categories of loss that are typically associated with offsite utility loss which includes direct damage and time element loss.  Direct damage loss includes expenses, such as damage to perishables (e.g. spoiled food stuffs) or machinery damage (loss of water for cooling).  Time loss includes lost sales, high operating expenses and diminished income.  While many property insurance policies might provide direct damage coverage, typically with a relative low limit, most such policies do not provide coverage for time element loss.  Further, policy coverage for machinery and boiler equipment breakdown policies will not cover utility interruption unless there is resulting damage to covered equipment.

Business owners assessing risk management should carefully review their policy for utility interruption coverage.  The policy will address the following matters:

  • Coverage Triggers (.e.g. interruption of utility of services)
  • Insured Risks (e.g. earthquake, all risks, flood)
  • Coverage Limits

Some insurers will allow interruption of incoming utilities if the interruption is from damage or destruction of utility transmission lines for electricity and communications. Transmission line coverage is not always available in the limits that may be needed, especially in areas prone to widespread damage from the peril of wind.

An experienced Miami property damage insurance claims attorney can help you counter insurance coverage denials.   My law firm represents businesses in commercial claims disputes in Miami and throughout Florida.  The Law Firm of J.P. Gonzalez-Sirgo, P.A. offers free consultations and case evaluations.  No Recovery, No Lawyer Fees.  Call 305-461-1095 or Toll Free 1-866-71-CLAIM.

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