Why Every Business Should Consider Off-Premises Utility Interruption Insurance

You are a careful business owner who works hard to protect your business.  Perhaps you have fire extinguishers, a burglar alarm and a work-safety program.  As careful as you can be, there are still events that can happen to your business that can wreak havoc on your bottom line and are completely out of your control.One of these events is if your business loses power or access to other utility services.  Although this used to be a rare event, think about the storms over the last few years:

• Ice storm of 2008: 1.7 million power outages, with 400,000 in NH alone, lasting up to 14 days
• 2011 Halloween Nor'Easter: 1.7 million outages in Northeast for at least three days
• Super Storm Sandy 2012: 142,000 NH power outages lasting numerous days

If you are a business owner who relies on public utilities to run your business, you may find yourself out of business if utilities go down.  With the severity of storms increasing we at HPM Insurance have seen the frequency of such events increase significantly.

Here are some real examples of such events:

• A hurricane hits and though there is no water damage, but the wind has brought the power down throughout the area.  With the thousands of outages, it takes four days for PSNH to restore power to a convenience store which was forced to close due to lack of refrigeration, lighting and cash registers.  On a standard business income policy, there is no coverage for income lost during this period. 

• Right before Christmas, wind knocks the power out and is not restored for several days, including a precious weekend when multiple holiday parties are booked.  You not only have to throw out all the perishables in the refrigerator and freezer but close the doors until power can be restored.  Even if you have a standard business income policy, you may not have coverage for this loss of income as it was not a result for a covered loss on your property.  (Perhaps a fallen tree down the street took the lines down.  If the cause of loss was not actually on your business property, then the standard loss of income coverage would most likely deny coverage.)

• Your business relies heavily on water.  During a severe electrical storm, lightning strikes the pumping station prohibiting your access to a water supply until the pump can be replaced.  How long will this take?  How much income will you lose while you wait?

Off-Premises Utility Interruption Insurance fills the gap on your Business Income coverage:

With power outages becoming more frequent and severe, any business owner should add the "Off Premises Utility Services - Indirect Damage" endorsement.  This additional coverage can pay for your loss of income and continuing expenses up to the limit you purchase as long as the utility is out due to a covered loss under the policy.  If you recall the ice storm of 2008, at least 400,000 customers were without power in NH for at least a week, with several thousand going up to fourteen days.  Could your business absorb such a hit to the bottom line?

Things to think about regarding Off-Premises Utility Interruption coverage:

Instead of a flat deductible, there is typically a waiting period for coverage to kick-in.  Because of this, you will want to consider how much your business could absorb before you would need to be reimbursed, factoring in peak and low periods of business. 

You will want to discuss your particular business needs with your insurance agent as different insurance companies offer off-premises utility interruption coverage with different conditions.  For example:

• The type of utility power or service (electricity, water, steam, etc.) may have to be listed or described on the policy.
• A specific waiting period such as 24 or 48 hours is typical and must elapse before coverage is triggered.  Some classes of business may have longer waiting periods, in addition to a dollar or daily value deductible.
• The service interruption coverage extension may not apply to contingent third party locations (suppliers and receivers).

Three words of advice if you have a Business Income claim - document, document, document:

Any business income claim, whether it is caused off-premises or not, can be challenging to estimate the financial damage because it is not figured on what was actually lost, but rather what was supposed to have been lost.  This means that you will need to provide documentation to the insurance company claims adjuster such as prior tax returns and profit and loss statements to determine revenue, but also taking into consideration non-continuing expenses.  Be sure to keep such documents in order and readily available as this can make the settlement process much smoother.