III: Massive Blackout May Lead To Minimal Insured Losses

By Allison Bell

NU Online News Service, August 15, 2003, 12:21 a.m. EDT-- The massive power failure that swept over theNortheastern United States, Ontario and Quebec around 4:10 p.m.Thursday threw off the schedules of insurance agents and insurancecompany personnel in the affected areas, but it might not have muchdirect effect on insurance claims costs, according to the InsuranceInformation Institute, Washington.

The blackout grounded airplanes, stopped trains, disruptedtraffic signals and shut down freezers, refrigerators and airconditioners in Hartford, New York, Philadelphia, Cleveland,Detroit, Toronto and many points in between.

At 11 p.m., power plant operators had restored 21,300 megawattsof the 61,800 megawatts lost, according to the North AmericanElectric Reliability Council, Princeton, N.J.

"A large number of nuclear plants in the affected areas went offline and may take several days to return to service," but operatorsshould be able to bring most fossil-fired generators back onlinewithin a few hours, NERC said.

Although III officials were not able to release a specific costestimate Thursday, they said they believed that the blackout wouldbe relatively short and that losses would be modest.

"There are specific exclusions in most commercial policies forpower failures," said III Vice President P.J. Crowley.

When businesses have coverage against business interruptions,the interruption provisions usually kick in only afterinterruptions of at least 24 hours, Crowley said.

Although many homeowners policies cover losses due to foodspoilage resulting from a power failure, III pointed out indiscussion of Thursday's outage that the typical spoilage lossfalls below the average homeowner's insurance deductible.

One of the most famous U.S. power failure, a two-day blackoutthat hit New York in 1977, and the riots connected with the outageled to only $30 million in insured losses, III said.

At press time, authorities were still determining the cause ofthe power failure. In theory, if authorities found that theblackout was due to negligence, affected businesses might try tosue the party or parties alleged to be responsible. Crowleydeclined to discuss the possible effects of the blackout onliability claims exposure.