(July 2026)
Utilities are important
to every business. Their failure to operate properly results in minor
inconveniences for some businesses and substantial losses for others.
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Examples: Lightning strikes a nearby transformer, runs
through the line into the building, and damages computers, telephones, and
equipment. It may also burn out compressors in refrigeration equipment,
heating units, air conditioners, or other electrical devices. A power spike
(or the more common low voltage from a brownout) at a power plant can cause
damage to the same property in the example above. Loss of water or telephone
service may shut down a business, and employees are sent home after half a
workday. |
There are three
exclusions in the Insurance Services Office (ISO) BP 00 03–Businessowners
Coverage Form that relate to power failure.
This excludes loss or damage caused by or resulting from the failure of
power, communication, water, or other utility service to the described premises
if the failure originates away from such premises. There is also no coverage if
the loss or damage is due to the failure of on-premises equipment for
off-premises utility services. Utility service failure includes reduced supply
and insufficient capacity. In addition, any loss or damage caused by a power
surge that would not have occurred except for an event causing a power failure
is excluded.
A very broad exception to this exclusion exists. A covered cause of loss
may result from a power surge or power failure, or from the failure of any of
these utility services, causing loss or damage. In that case, coverage applies,
but only to the loss or damage that results from the covered cause of loss.
Another exception states that this exclusion does not apply to loss or
damage to computers or electronic data.
The term “communication services” includes Internet access service and
access to any electronic, cellular, or satellite network. However, it is not
limited to just these.
Coverage does not
extend to damage, disturbance, or interference with any electrical or
electronic wires, devices, appliances, systems, or networks, particularly those
that use cellular or satellite technology, if caused by or resulting from
artificially generated energy. The specific types of artificially generated
energy can vary. This exclusion includes examples of such energy types but is
not limited to them. The examples provided are:
· Electrical currents, including arcing
· Electrical charges that magnetic or electromagnetic fields produce or
conduct
· Electromagnetic energy
pulses
· Electromagnetic waves or microwaves
The exception is that if a fire results, coverage applies to the loss or
damage the resulting fire causes.
Loss or damage to
computers due to artificially generated energy is covered only under limited
conditions. The loss or damage must be caused by either an occurrence that
takes place within 100 feet of the described premises or by a blackout or
brownout caused by an occurrence that takes place within 100 feet of the
described premises.
This exclusion states
that magnetic injury, electrical injury, disturbance, or erasure of electronic
data is excluded, except to the extent provided in Businessowners Coverage Form
Section I–Property Additional Coverages, p. Electronic Data. However, coverage
does apply to direct loss or damage caused by lightning.
BP 04 15–Spoilage
Coverage insures loss or damage to stock that spoils due to a power outage,
breakdown, or contamination. The endorsement schedule must include the
location, a description of the perishable stock, the limit of insurance, and
the deductible amount. Either yes or no must be checked to indicate whether a
refrigeration agreement is in effect. The last item is the causes of loss that
apply. These are not the causes of loss on the rest of the property form. There
are only two causes of loss. Breakdown or contamination is one cause of loss;
the other is a power outage.
Perishable stock is not
limited to refrigerated goods and merchandise. It can include any property that
requires climate control and could be damaged if the controlled climate
changes.
The cause of loss
“power outage” is not defined as applying either on-site or off-site, and most
power outage situations are covered, with five exceptions:
The cause of loss
breakdown or contamination applies when the climate changes because the
equipment that provides climate control fails. Stock contaminated by the
refrigerant used to control temperature is part of this cause of loss. If this
coverage option is selected, the named insured can agree to purchase a
refrigeration maintenance agreement. However, such agreements scheduled on the
endorsement create a warranty situation, and a lapse in the agreement also
causes coverage to lapse.
BP
04 56–Utility Services–Direct Damage covers property damaged because of a
covered cause of loss at a utility service provider.
NOTE: This
analysis is of the 07 13 edition of this endorsement. Changes from the 01 10
edition are in bold print.
Endorsement Schedule
This coverage
endorsement offers great flexibility. Coverage varies depending on the property
and its location. These options allow the named insured to buy coverage solely
for the property at a particular location most at risk from utility service
interruptions.
Locations and Buildings Covered
This section lists the locations
and buildings covered. The premises number(s) and building number(s) must match
the number(s) on the declarations. It is very important to keep these numbers
coordinated when building(s) and/or premises on the declarations are removed.
Covered Property
The covered property
must be described. This may include buildings, personal property, or the
personal property of others. Any or all may be covered. The definitions of
building and personal property as covered property must be considered
carefully.
Utility Service(s) Covered
The specific type of
utility to be covered must be selected. This can vary by location and by the
type of covered property. The options are:
The named insured may
select one or more utility service providers. If it selects only communication
supply because telephone service is more important than electrical power, there
is no coverage if a storm damages off-premises electrical power lines but does
not damage the underground telephone lines.
Similarly, if the power
supply option excluding overhead transmission lines is selected, there is no
coverage if a falling tree damages only a power line, while the rest of the
system, such as transformers, substations, and the switching plant, remains undamaged.
NOTE: These issues are
becoming increasingly complex and harder to understand because maintaining
communication is difficult without power. For example, what constitutes
communication supply if telephone service is provided by a cable or Internet
provider rather than by the telephone company?
The named insured must
fully understand its needs regarding loss or damage sustained by off-premises
utility providers. It must know which utility services are important and could
potentially cause damage. Careful review is necessary because of this and related
issues.
Utility Services Limit of Insurance
If no limit is entered,
the limit of insurance on the declarations that is available for the type of
property at the listed premises and building is the limit available for this
endorsement. If a limit is entered, it is a sub-limit, not an additional limit
of insurance. Using a sub-limit may be appropriate because the premium is based
on the limit of insurance.
The coverage this
endorsement provides is interesting and must be examined carefully. Coverage applies
to loss of or damage to covered property due to an interrupted service. There
are no exclusions with respect to the type of loss or damage covered. The only
requirements are that the covered property be damaged and that the damage
results from power interruption. As with all coverages, there is a restriction,
but this one relates to how the utility interruption occurs. The utility
service must be interrupted because the utility sustained direct damage by a
covered cause of loss.
If the proximate cause
of loss that results in direct physical damage to the utility service is a
covered cause of loss, coverage applies to any such resulting loss or damage to
the named insured’s covered property that can be traced directly to the interruption
in service. This means that the exclusions in BP 00 03 described above do not apply
to this endorsement.
In addition, none of
the other exclusions apply. Spoilage is a good example. The Businessowners
Coverage Form excludes loss caused by or that results from extremes in
temperature and also from consequential loss. However, this endorsement can
provide coverage as long as covered property was damaged because service was
interrupted.
The same is true of
electrical arcing. If the utility provider's service is interrupted because it
sustains direct physical damage from a covered cause of loss, coverage applies
to the loss of or damage to covered property from the interruption of service
that is usually excluded. In another situation, this endorsement's coverage
applies if artificially generated electrical current (including arcing) is the
direct result of the service being interrupted. This is because there are no
specific exclusions.
The key to this
endorsement providing effective coverage is making the proper entries on the endorsement
schedule. The schedule indicates what is covered and what is not covered and
should not be completed without considering and evaluating all possible
scenarios.
The only exception to
coverage for the insured's property pertains to electronic data loss or damage,
including corruption. There is no coverage for destruction, corruption, or
other damage to electronic data. Consequently, if the insured does not back up
their computer data, coverage does not apply, even with this endorsement. The
insured should consider obtaining separate electronic data processing coverage
to protect against these risks.
Related Articles:
AAIS Electronic Data Processing
Equipment and Business Computer Coverage Forms
ISO Computer Systems Coverage
Form
The utility services
listed on the schedule are defined.
NOTE: There is no requirement
that the services provided be off-premises or that a party other than the named
insured own the utilities or equipment.
These are
pumping stations and water mains that supply the covered premises.
This is
the property that supplies communication service to the covered premises.
Telephone, radio, microwave, and television are communication services, but the
term is not restricted to only these. Property types include transmission
lines, coaxial cable, and microwave radio relays. Communication property
includes satellite dishes but excludes satellites themselves. Overhead
transmission lines may be included or excluded, depending on how the endorsement
schedule is completed.
This means five
specific types of property used to supply electricity, steam, or gas to the
scheduled property. They are generating plants, switching stations,
substations, transformers, and transmission lines. Transmission lines may be
included or excluded, depending on how the endorsement schedule is completed.
Transmission lines, as used in this endorsement, include
all lines that transmit power, communication, or service. A distribution line
is a type of transmission line.
The last element is how
the limit is applied.
Purchasing BP 04
56–Utility Services–Direct Damage does not add extra coverage amounts. Instead,
it fills a coverage gap for the existing insured property. For example, if the
building limit in the declarations is $100,000 and this endorsement offers a
$25,000 limit, the insured cannot claim $100,000 for a fire plus an additional
$25,000 for a utility service interruption occurring simultaneously. The
maximum payout for both events combined is $100,000.
NOTE: This
analysis is of the 07 13 edition of this endorsement. Changes from the 01 10
edition are in bold print.
BP 04 57–Utility
Services–Time Element is very flexible. It offers several options the named
insured can select to cover the desired type or types of utility interruption
coverage. The options available are:
Communication Supply
Property or Power Supply Property coverage requires the named insured to decide
whether coverage applies to damage to overhead transmission lines. Downed power
lines frequently interrupt communications and power. However, insuring them
carries a significant premium charge.
A distinctive aspect of
this endorsement is the requirement to specify a business income coverage limit
of insurance. This limit replaces the 12-month actual loss sustained approach
used in the Businessowners Coverage Form, but only for this endorsement. When
choosing this limit, it should be based on a realistic estimate of how long an
interruption of service might cause lost income, additional expenses, or both.
BP 04 57 addresses loss
of income or additional expenses caused by the interruption of covered utility
services due to a covered cause of loss occurring at the insured premises. The
interruption must stem from direct physical loss or damage to the listed
utility service, and this damage must occur outside any covered building
specified in the endorsement schedule.
The coverage provided
does not apply if a utility service interruption damages, destroys, or corrupts
electronic data as defined in the Businessowners Coverage Form. Electronic data
processing coverage forms or policies provide coverage for electronic data.
Related Articles:
AAIS Electronic Data Processing
Equipment and Business Computer Coverage Forms
ISO Computer Systems Coverage
Form
The utility services
listed on the schedule are defined.
NOTE: There is no requirement
that the services provided be off-premises or that a party other than the named
insured own the utilities or equipment.
These are
pumping stations and water mains that supply the covered premises.
This system is not primarily designed to drain stormwater.
Instead, it covers utility infrastructure like sewer mains, pumping stations,
and other facilities mentioned in this endorsement that remove wastewater and
sewage from the property. This includes any facility that holds, treats, or
disposes of wastewater or sewage.
Heavy rainfall or flooding can lead to water or sewage
discharge, which may interrupt service to the premises. However, such
interruptions are not covered.
This is
the property that supplies communication service to the covered premises.
Telephone, radio, microwave, and television are communication services, but the
term is not restricted to only these. Property types include transmission
lines, coaxial cable, and microwave radio relays. Communication property
includes satellite dishes but excludes satellites themselves. Overhead
transmission lines may be included or excluded, depending on how the schedule
is completed.
This means five
specific types of property used to supply electricity, steam, or gas to the
scheduled property. They are generating plants, switching stations,
substations, transformers, and transmission lines. Transmission lines may be
included or excluded, depending on how the schedule is completed.
Transmission lines as used in this endorsement include all
lines that transmit power, communication, or service. A distribution line is
one type of transmission line.
The insurance on the endorsement
schedule overrides the Limits of Insurance in the Businessowners Coverage Form.
This means a particular limit applies to this endorsement rather than the usual
12-month coverage period.