Blog Question: Short Term Power Outages
We have had a few Power outages in our area lately. While there has been no property damage, there has been disruption to many of our clients but due to the 48-72 Time Excesses under the Business Interruption Section of the wordings for Public Utilities, Insurers advise no Cover.
The reason for asking is the occupations involved are hotels/nightclubs and pokie venues of the like.
Is there any way we can get a claim paid under these polices?
If not, does the supply authority have any duty to reimburse business for loss of turnover/Income, as result of failure to supply their services to customer?
If you are not sure, what I mean, please do not hesitate to call.
Brett [surname and email provided]
Insurers are extremely reluctant to provide coverage on public utilities outages for short periods of a day or two. The reason is four fold.
- The frequency is quite high.
- Often the utility is not willing to advise the cause of the failure to supply and insurers will only meet claims that arise through an insured peril to property that would, if owned and used by the Insured at the situation, be covered. Eg. Electrical breakdown is often an exclusion.
- The cost of calculating BI losses often exceeds the value of the claim itself.
- There is a belief that in many businesses it is not a lost sale, but rather a deferred sale.
As such, the industry treats short term outages as a business risk and they only step in when it becomes serious.
The reality is that in clubs and pubs, if someone cannot get a drink or have a meal or gamble, the majority do not come back the next night and gamble twice as much, have twice as many drinks and have two meals.
In most states where gaming is allowed, it is compulsory for the venue to have a backup generator to ensure the pokies keep operating even for a short while so that punters do not lose their winnings or the credits in the machine.
Insurance, of course, is only one form of risk management and your clients may feel it is worth the investment to install a back-up generator. The cost of this is reducing. We at LMI have one to protect us, particularly during periods of bush fire or storm, so that all our services are still operating. Murphy’s law dictates that while we had a spate of outages before we installed it, we have had only two in the two years since, but it worked well.
There is legislation that does provide some compensation to customers for failure to supply. Depending on the jurisdiction, it can only be for domestic users (who vote) and for others, it covers both. Most electricity supply companies have a formal contract with their client and it is necessary to read these on a case by case basis to see if there is a force majeure clause protecting the supply company, or if there is compensation offered.
One final point, if the cause of a power outage was, say, a car hitting a power pole outside the premises, or a fire in a substation immediately adjacent to the premises, then the trigger may be said to be disruption caused by damage to property in the vicinity, which is often not subject to a time deductible.
If you can get one for me I am happy to offer advice on it for you.
Hope this helps.