Is insurance coverage on when the power goes off?

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Question: The AAIS Form 3 Ed 2.0appears to exclude coverage for damage caused by a power surge, low power or brown out if the(Sudden and Accidental Damage from Artificially GeneratedElectrical Current) occurs with an off premise (PowerDisruption).

The Power Disruption exclusion along with the precedingbroad preface seems to exclude coverage for a surge when the powerdisruption (regardless of cause) is off the insuredpremises.

The exception to the exclusion, (We do pay for direct lossthat is otherwise covered… which occurs on the insured premises)would apply as follows. If an off premise power disruption caused apower surge that damaged a freezer, or heating system, the damageto the freezer or heating system would be excluded. The otherwisecovered food loss or any resulting freeze damage would becovered.

Can you provide clarification?

Relevant policy sections:

Sudden and Accidental Damage from Artificially GeneratedElectrical Currents

— However, "we" do not pay for loss to tubes,transistors, and similar electronic components.

EXCLUSIONS THAT APPLY TO PROPERTY COVERAGES

1. "We" do not pay for loss if one or more of the followingexclusions apply to the loss, regardless of other causes or eventsthat contribute to or aggravate the loss, whether such causes orevents act to produce the loss before, at the same time as, orafter the excluded causes or events.

h. Power Disruption — "We" do not pay for losswhich results from the disruption of power or other utilityservice, whether or not it is caused by a peril insured against, if the cause of thedisruption is not on the "insured premises."

"We" do pay for direct loss that is otherwise covered bythis policy which occurs on the "insured premises" as a result ofthe disruption of power.

— PennsylvaniaSubscriber

Answer: Let's look at this one step at atime.

The first section you reference is listed under Coverage C, andapplies to personal property damaged by artificiallygenerated electrical currents. (Tubes, transistors and similarcomponents are not covered.) The current must be artificiallygenerated so it would include a power surge either on or offpremises that damaged property.

Since tubes, transistors, and electronic components are not covered, coveragewould apply to the nonelectrical components of the property. Forexample, the refrigerator received a power surge that shorted itout and caused a fire. The short to the electronics would not becovered as the electronics components are not covered, but the firedamage to the refrigerator door and sides would be covered.

Then we get to the exclusions, which has the standardanticoncurrent causation clause that eliminates coverage when twocauses of loss are in play and one is an excluded loss and theother a covered loss.

Next, we must consider the power disruption exclusion, whichfalls under the anticoncurrent causation language. There is anexception to the exclusion, though, so that allows coverage evenwith the anticoncurrent causation clause. Therefore, if atransformer off premises is struck by a vehicle that damages thetransformer, creating a disruption of power or a surge that damagesthe refrigerator, there is no coverage other than a direct lossthat results from said disruption. Therefore, if the damage to thetransformer shorts out the refrigerator and the refrigerator setsthe carpet and sofa on fire, the refrigerator is not covered butthe carpet and sofa are.

Lastly, since we're dealing with a refrigerator, you haveRefrigerated Food Spoilage coverage under the Incidental PropertyCoverages. This pays for spoilage of food in a freezer orrefrigerator caused by temperature change resulting frominterruption of electricity to the refrigeration equipment causedby damage to the generating equipment, which would be the offsitetransformer or onsite power lines, or mechanical or electricalbreakdown of the equipment as long as the equipment is maintainedin good working order. So if the power lines come down and therefrigerator loses power the loss of food is covered.

If the refrigerator malfunctions and the food is lost, there isalso coverage as long as the refrigerator was maintained.

Related: Power Outages and Catastrophes

Property damage caused by a power surge

Question: Our insured had a laser machineinspected, and the error messages that appeared stated it wasdamaged by a power surge. There had been a storm that caused a lossof power, and the ensuing surge damaged the machine. But for thewindstorm there would not have been a power failure or surge. Weunderstand that there is no coverage for power surge or failure,but would proximate cause pick it up?

— FloridaSubscriber

Answer: On the ISO CP 10 30, the exclusion forpower surge falls under the anti-concurrent causation wording,which states, "Such loss or damage is excluded regardless of anyother cause or event that contributes concurrently or in anysequence to the loss." So, the loss you describe would not becovered.

Some commercials policies allow for coverage after a poweroutage that results in spoiled refrigerator or freezer food.(Photo: iStock)

Coverage for damage caused by an off-site event

Question: Lightning struck a detached sign and powerpole. The sign and pole fell on power lines, which in turncaused a power outage and surge at the insured premises. Theinsured is making a claim for damaged electronic business personalproperty items such as cash register, due to the power outage andsurge.

We are contemplating whether there is coverage under CP 1030 06 07, Utility Services exclusion.

Our initial opinion is that while there is an on-premisesoutage, the language regarding power surges in the exclusion mayeliminate coverage for this loss.

— ColoradoSubscriber

Answer: We agree with your thinking on thisloss — the policy language states that loss or damagecaused by surge of power is excluded if the surge would not haveoccurred but for an event causing a failure of power.

The language here does not specify an on-premises oroff-premises failure, just a failure. Since the surge caused thedamage to the electronics, the loss would not be covered unless theloss was caused by a resulting covered cause of loss. So, if thesurge caused a fire that destroyed the cash register, that would becovered. But if the surge alone damaged the cash register, it wouldnot.

What about fire damage and a windstorm policy?

Question: Our insured has a windstorm policy only. When Hurricane Wilmahit in October 2005, it took down a large tree in the insured'syard as well as the power line. Power was out throughout the areafrom October until November 9. When the power company restored thepower, the house caught fire.

We turned in a claim, but it was denied. We think that theproximate cause was the hurricane that took the tree and wire down;had this not occurred the power would not have had to be restoredand the fire would not have occurred. The "power failure" exclusionsays that any ensuing loss to property not otherwise excluded iscovered, so we think the ensuing loss — the fire — iscovered.

Please give us your opinion.

— Florida Subscriber

Answer: The Florida windstorm only policypromises to pay for "direct physical loss to property" caused bythe perils insured against. But the only perils insured against arehurricane (other than flood, related storm surge, etc.), tropicalstorm, other windstorm (such as tornadoes) and hail.

The exclusion for power failure states that if power failureresults in a peril insured against, that ensuing peril will becovered. However, because the policy covers only loss by windstorm,that ensuing peril would have to be windstorm. In any event, itappears the power loss occurred on, not off, premises.

Although not in the contract, the "outline of coverage" pageincluded with the policy clearly states the policy "does notprotect you against other perils such as fire or lightning."

The only possible approach the insured might take is to convincethe windstorm property insurance corporation, which issued thepolicy, that he reasonably expected that all losses flowing fromthe hurricane — such as falling tree, power loss, restoration, andresulting fire — would be covered.

Power failure vs. power surge

Question: Our insured is covered under thebuilding and personal property coverage form CP 00 10 with thespecial causes of loss form CP 10 30. There was a cessation ofpower off-premises that stopped operations, but caused no damage.However, when power was restored, a power surge did damage insuredproperty. The insurer is denying the claim due to the power failureexclusion in the special causes of loss form.

Would this exclusion apply to these facts?

— California Subscriber

Answer: The usual meaning of the term"failure," as found in a standard dictionary, is "an omission ofoccurrence or performance." Absent a specific definition of powerfailure in the policy, it is this definition that must be applied.Therefore, any damage caused by the cessation of power wouldqualify as damage caused by a power failure; however, damage causedby a surge of power is not an omission of occurrence orperformance, and would not fall under the power failure exclusion,properly applied.

However, a Pennsylvania subscriber correctly points out thatthe adjuster could have relied on the"artificially generated power" exclusion further down in the form.Exclusion 2.a. eliminates coverage for damage caused by orresulting from artificially generated electric current… thatdisturbs electrical devices, appliances, or wires. However, if lossor damage by fire results, that damage is covered.

How to accurately calculate repair,replacement costs

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