Can I file a business insurance claim for a power outage?

Q:

If the power goes out and I can't run my business for a while, can I file an insurance claim?

A:

This is a tricky one, since commercial insurance policies vary widely from insurer to insurer with wildly differing terms. Moreover, the cause of the power outage also plays a factor in whether or not your business interruption insurance will cover you.

Let’s start by going over business interruption insurance and why it's an important purchase for business owners. Basically, what this coverage does is restore your lost income in the event of an interruption to your business due to physical damage caused by an insured peril. As you know, even if your business stops operating, your costs won't. Rent, salaries, and other expenses will keep accruing. Without business interruption insurance, you're left to pay for this out of pocket, all while generating little to no income. That's not easy for any company, but for small to medium businesses, it can be downright disastrous (for related reading, see How to Protect Your Business from Coverage Gaps Related to Equipment Breakdowns).

One of the scenarios you might face is not being able to operate your business because of a power outage. If you've got business interruption insurance, you might be covered for the losses related to the outage, but it all depends on the specific wording in your policy. The cause of the outage might matter, and your coverage might only kick in if the outage lasts for a certain duration.

For example, if a fire damaged the fuse box in your unit and caused the power to go out, then your insurer would naturally step in to pay because your business has suffered physical damage that caused operations to be interrupted. If, however, the power outage was caused by the failure of a public utility, you may not be able to get compensated for these losses unless you have something that is typically called a "services away from covered location extension" on your policy. This extension insures you for interruptions caused by physical damage to specific pieces of equipment located away from your premises, such as a downed power line somewhere down the block. Even with this endorsement, you still won't be covered unless physical damage is involved, meaning that you'll have to bear the losses if the outage is caused by routine maintenance from the utility company.

That being said, some policies cover power outages by default. The British insurance company Aviva’s business interruption insurance, for instance, advertises coverage for blackouts or extended power outages, while some other policies I’ve reviewed don't include coverage for power outages. But as you can see from the phrasing "extended power outages," the duration of the outage still plays a role in whether you have coverage or not.

As you can surely tell, it’s quite a nuanced topic and these are just some things to consider when reviewing your insurance coverage. If you’re concerned about power outages causing business interruption losses, review your current policy with your insurance advisor and work with them to make sure you have the right coverage in place.

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Written by Jacques Wong
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Jacques grew up around the insurance industry and began actively participating in 2013. Since then, he has gotten a Level 2 license, won an Insurance Council of BC award in 2015 for academic excellence in the insurance licensing courses and educates insurance professionals through PNC Learning.   Full Bio