By CYRIL TUOHY, managing editor, Risk & Insurance®
It's the season of the rolling blackout and the brownout and July in the Northeast has been one beastly month for demand on power supplied by the nation's grid. From New York to Texas, utilities have been forced to balance their loads to accommodate areas of peak demand.
The Midwest Independent Transmission System Operator, a regional power transmission delivering electricity to 13 states and Canada, reported record demand of 103,975 megawatts on July 20.Triple-digit heat indexes in late July caused as many as 64 deaths in 15 states, and records were set July 23 in Newark, N.J. at 108 degrees and in Dulles, Va. at 105 degrees.
The arrival of August, which can generate just as much heat as July, means businesses around the country will likely see power outages. For risk managers working in power-hungry industries, mining and manufacturing, for example, that means it's the season of service-interruption claims.
Service interruption claims can affect several areas of the insurance policy and require unique documentation efforts, according to a Marsh client advisory. Policy areas to review include:
The waiting period: Most service interruption coverage requires a waiting period. Service must be down for a minimum number of hours before coverage begins to respond. Risk managers should also check to see if the waiting period acts as a qualifier and, after the period of time has elapsed, whether a separate deductible applies, or whether the waiting period itself acts as the deductible.
The notice to the utility: Many policies require that the insured give notice to the utility of the interruption. If this requirement exists, risk managers need to make sure that it is also document in the claim file.
The overhead transmission and distribution lines: Many policies exclude losses arising from overhead lines. Risk managers need to identify and document the nature of the service interruption, including specific type of equipment damaged, the cause of the damage, and where the damage occurred.
The distance limitations: Many service interruption coverage grants have limitations that the cause of loss must be within a designated number of miles or feet of the premises, and it is important for risk managers to document that information early on in the claim process.
Insurance policies may also have separate coverage for service interruption property damage and business interruption coverage. Any claim will need to be broken down in accordance with these separate coverage grants, Marsh said.
Risk managers should document costs for extra expenses for generator rentals to save property from further damage or moving workers to continue to conduct normal business operations, Marsh said. .
August 1, 2011
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