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Where is Your Coverage When the Lights Go Out?

In the aftermath of a blackout that left some 50 million American and Canadians powerless and, others stranded, many people are asking how and why the August 2003 Northeast Blackout occurred.    While most were merely inconvenienced by the effects of the blackout, some significant property losses undoubtedly were suffered.  What property loss might occur as a result of a blackout?  What factors might come in to play to limit coverage availability or applicability? What types of coverage are typically available?

First and foremost, it is advisable that you look into whether your insurer offers any kind of coverage for food spoilage or other loss caused by failure of power that originates outside of the insured premises.  In lieu of such an endorsement to the policy, most property policies exclude claims arising out of loss resulting directly or indirectly from power failure that does not emanate from the covered property.  In other words, if the power loss occurs somewhere within the vast and complex grid that powers your home or business, it is not covered.  The London Financial Times noted that companies most likely to hold such coverage “are those with perishable goods they need to protect, such as supermarkets, other grocery stores, florists and restaurants. Theatres, hotels and restaurants suffering perhaps from loss of business in cities last night were unlikely to have any chance to make a claim.”* 

It is important to note that there are many different potential causes of blackouts.  A power crisis in California in 2001 was caused by a confluence of factors which were foreseen long before the rolling blackouts occurred, making them very different from the August 2003 Northeast Blackout, which occurred despite largely adequate power supply and with no advanced warning.   These differences may impact upon the coverage afforded for any given claim as the California scenario may be argued by your carrier to be a “known” hazard, which was foreseeable and preventable, thus excluded.

In addition to the limited types of coverage available under homeowners and commercial property policies, “Power Plant Insurance” may be available under a Boiler & Machinery or SMP (Special Multi-Peril) policy.  If you have or need such a policy to cover your business, check with your agent as to whether or not this endorsement is available and if so, for what additional premium.  Note, however, that such coverage often comes with time constraints for the blackout duration.  For example, a blackout that lasts for less than 24 hours may not be a qualifying trigger for coverage, despite whatever losses have been incurred.

Last but not least, what about the disruptions at airports that left travelers stranded during the Northeast Blackout?  Coverage may be available on your travel insurance policy – if you purchased one.  If you are planning a trip in the near future look into this valuable coverage, but be prepared – some companies offer a dizzying array of products for just about every type of travel possibility.  It can be confusing even to the well informed.  Check the fine print before you purchase as there is a great deal of variability in coverage.  Certainly, if a blackout caused you to miss a flight connecting you to a cruise, it would be reasonable to expect that travel insurance would reimburse you for the lost money spent on the cruise, but again, check the fine print for any power failure exclusions. Some policies will reimburse you a set amount per day for having to make alternate travel arrangements due to an unforeseen delay.   On the other hand, if you are unable to find a hotel room and you find yourself lying in a cot in the airline terminal as many hapless travelers did during the Northeast Blackout, you may just have to grin and bear it.