California businesses can be in the dark on coverage for fire-safety power outages
The power goes off at your business during a time of high fire danger, and whether your operation's insurance policy will cover losses while the lights remain off and equipment stays idled can be highly dependent on what the carrier.
'If you've got business income coverage, it's not going to be covered in this situation,' said Rob Daer, chief operating officer of George Petersen Insurance. 'So it leaves a lot of business owners to have to try to figure out how they keep their computers up, their cash registers ringing.'
One of the big question marks in the insurance industry is whether there's business-interruption coverage for preventative power outages by Pacific Gas & Electric Company when winds, humidity and other conditions are similar to those that spawned the deadly firestorms in Northern California in the past two years.
A place brokers have been looking for such coverage is the civil-authority endorsement common to commercial property policies, figured from net operating income minus ongoing expenses such as rent.
Civil authority coverage usually is used for when an authority such as law enforcement closes down access to businesses because of a downed power line, according to Joe Sucetre, vice president of the preferred lines division at Vantreo Insurance. The coverage is not for damage to the business from a peril but for law enforcement or some other authority preventing customers from getting to the business.
One of the firm's customers is a large winery on Sonoma Highway, and civil-authority coverage kicked in when California Highway Patrol shut down the roadway for several days as the October 2017 fires were raging. Coming during the wine grape harvest, the vintner couldn't get into the winery to move wine out for sale. And another customer, a business in the Oakmont area of east Santa Rosa, claimed $100,000 in lost income when connecting roads were shut down for four days during the fires.
According to the Federal Emergency Management Agency, 90% of small businesses fail within a year after a sudden closure such as a disaster if they can't reopen in five days.
But the insurance situation seems to be different with the preventative power line deenergization, brokers say. After talking with underwriters for the carriers the brokerage represents, Sucetre received confirmation from Hartford, Liberty Mutual and a wholesaler for 40 carriers that they would consider a PG&E preventative outage for a civil-authority claim. One challenge is that some in the industry consider preventative outages akin to a homeowner's trimming trees that could fall on the home, he said.
Typical terms for civil-authority coverage include a deductible-like waiting period (often 24-72 hours after an event before coverage starts) and including as much as a month of lost income. While PG&E has warned customers in higher-risk areas, which in the North Bay are concentrated in the hilly areas of Sonoma, Mendocino, Lake and Napa counties, that planned outages could last up to two days depending on weather conditions.
Depending on the policy and carrier, a 48-hour outage could be covered, but if the outage is only hours or less than the waiting period, the lost business wouldn't be, Sucetre said.
And civil-authority coverage wouldn't work for parts or machines ruined in the midst of cutting parts when the power went out, because the product wasn't salable, he said.