A prospective client is a wholesale grocer with ~$7M of inventory in their warehouse, some of which is refrigerated and at risk of spoilage in the event of a power outage. Their current policy has a $100k spoilage endorsement, but it also has $500k of utility services direct damage & time element (combined limit). The Utility Services Direct Damage endorsement states that it covers "loss of or damage to Covered Property at the described premises caused by the interruption of utility service to the described premises.. The interruption of utility service must result from the direct physical loss or damage by a covered cause of loss to any of the utility supply properties…".
Would this include spoilage? e.g. if the insured loses power because an overhead power line (which is included) is downed in a windstorm, resulting in spoilage of perishable stock, would the Utility Services Direct Damage endorsement be triggered? Or would the base property form's exclusion for change in temperature apply — in which case, they would need to rely on the Spoilage Endorsement only? Excerpts from the policy are attached.
Maryland Subscriber
One of the conditions of coverage in the spoilage endorsement is from interruption of power supply, either on or off the premises. As such, this would be the endorsement to cover a spoilage loss from a utility failure. However, there would be no coverage from the utility failure itself without the utility services direct damage endorsement. These two endorsements work hand in hand to cover the insured's power outage and subsequent spoilage and down time. The utility services endorsement does not include coverage for the spoilage loss so the spoilage endorsement is needed. Spoilage is not a direct damage, but a consequential damage from the loss of power. Direct damage would be things like blowing a fuse or a power overload causing a fire or damaging a piece of equipment.
Christine G. Barlow, CPCU
Christine G. Barlow, CPCU, is Executive Editor of FC&S Expert Coverage Interpretation, a division of National Underwriter Company and ALM. Christine has over thirty years’ experience in the insurance industry, beginning as a claims adjuster then working as an underwriter and underwriting supervisor handling personal lines. Christine regularly presents and moderates webinars on a variety of topics and is an experienced presenter.