Utility Service Interruption Coverage: A utility outage could cause property damage & revenue losses

Updated: Nov 2

Like most businesses, your company probably depends on local utilities to provide power, gas, water, internet, and phone services. If the equipment used to provide one of these services is damaged by a fire, vandalism, wind, or other peril, that service could be interrupted, which could damage your buildings or personal property, and could cause loss of income if you are forced to close your business. You can protect your business against such losses by purchasing utility service interruption insurance (direct damage and time element).

Utility Service Interruption Coverage
Utility Service Interruption Coverage

Utility Services Exclusion

Many commercial properties and businessowners policies contain the utility services exclusion found in the standard ISO Special Causes of Loss form. The exclusion eliminates coverage for loss or damage caused by power failure, gas, communication services, water, or other utility service supplied to the described premises.

Utility Services Exclusion
Utility Services Exclusion

The ISO form excludes utility service outages that result from a failure that originates away from your premises. But the exclusion was expanded in 2007. It now applies to failures originating on or off your premises if they involve equipment used to supply a utility service from an off-premises source. Many insurers that draft their own insurance contracts have incorporated the expanded exclusion into their proprietary policies. The standard utility interruption exclusion also precludes a power surge that results from the same event that caused the power failure.


Utility Services Coverage

Businesses can buy back some of the coverage that is excluded by the utility services exclusion by purchasing one or both of two ISO endorsements. One covers direct damage while the other affords time element (business income and extra expense) coverages. Both cover utility property used to supply power, gas, communication services, water, or other utility service supplied to the described premises.


Utility Services Coverage
Utility Services Coverage

Direct Damage Endorsement

The direct damage endorsement covers loss of or damage to covered property caused by an interruption in utility service to your premises. For the loss or damage to be covered, the interruption must result from direct physical loss or damaged by a covered peril to the type of utility property you have elected to cover. You can elect utility services coverage for all or a portion of your covered property. The most the insurer will pay for a loss is the limit shown in the endorsement or (if no limit appears there) the limit shown in the declarations.

The utility interruption endorsement does not cover loss or damage to electronic data. Such damage can be insured under a cyber risk or electronic data processing policy.


Direct Damage Endorsement
Direct Damage Endorsement

Time Element Endorsement

If your property policy includes business income or extra expense coverage, you can extend that coverage to include utility service interruption. The utility services time element endorsement covers a suspension of operations (loss of income) at your premises caused by an interruption in utility service to your premises. The interruption must result from direct physical loss or damaged by a covered peril to the type of property you have elected to cover (water, communications, or power services supply).


Disclaimer: This post is for informational purposes only. It does not create an attorney-client relationship, and isn't intended and should not be construed as the providing of legal advice.


About the Author



Rabih Hamawi is a principal at the Law Office of Rabih Hamawi, P.C. and focuses his practice on representing policyholders in fire, property damage, and insurance-coverage disputes against insurance companies and in errors-and-omissions cases against insurance agents. He may be reached at (248) 905-1133.


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