Last month, I posted a blog article following Hurricane Harvey entitled “Catastrophes and ‘Do Little’ Syndrome” that examined why so few people purchase readily available coverages for flood and earthquake. Generally speaking, only 15% or less of property owners buy coverage for catastrophic natural disasters and many, if not most of them, do so only because a lender or other third party requires it.

The blog post quotes German philosopher Hegel who said, “History teaches us that man learns nothing from history.” This continues to be anecdotally evidenced based on reports of claims coming from Hurricane Irma in Florida where much of the damage is attributable to windstorm. While most property policies around the country cover windstorm, there are specific exclusions for some types of insurable exposures. That is the purpose of this blog post.

David Thompson, CPCU, AAI, API, CRIS with the Florida Association of Insurance Agents has been dealing with these issues for many years in Florida (Irma, Matthew, Hermine, Katrina, etc.) and following similar natural disasters around the country. By his estimation, about 20-25% of all E&O claims against agents involved off-premises utility failure, something readily insurable in most parts of the country. Yet far too many commercial customers do not have these critical coverages, so it is imperative that we make sure that business owners understand the consequences.

Several independent surveys have indicated that 40-45% of businesses that experience a serious loss never reopen and 28% of those that do, close within 3 years. As many as 75-95% of small businesses are underinsured, most of them by 40-50%. Most of these businesses do not have business income coverage or have inadequate limits. However, many of them have coverage BUT there is an exclusion that applies, the most common being one for damage, both direct and indirect, arising from off-premises power failure.

ISO has at least three direct and indirect damage commercial property endorsements that can be used to address these exclusions:

  • CP 04 17 ― Utility Services – Direct Damage
  • CP 15 45 ― Utility Services – Time Element
  • CP 04 40 ― Spoilage Coverage

Similar endorsements are available in ISO’s BOP program and those of insurers. These endorsements should be brought to the attention of ALL insureds and prospects. In particular, restaurants, grocery stores, pharmacies, flower shops, and any other business with similar cooling, heating or processing needs should be offered these coverages and the offer and any denials should be documented in the customer file.

For business income coverage, the standard 72-hour waiting period can be reduced or removed, so that broadening of coverage should be offered given that 5- to 6-figure losses occurring within a few days of loss are common. Make sure that the option for damage resulting from overhead transmission lines is included, an option often overlooked. Also, consider endorsement of coverage for dependent properties (e.g., CP 15 08) since losses may result not from damage to the insured premises, but from damage to business partners or localized leader properties. Another issue is increased cost of construction due to the application of ordinances or laws governing reconstruction…be sure to always offer O&L coverage.

Do all members of your staff understand the importance of these coverages? Are you sure? We’ve seen agents with 2-3 decades of experience and professional designations like CIC who didn’t understand the need for these coverage enhancements. If you’re confident your staff understands the significance, are you certain that they are communicating this to your customers and prospects?

If you would like to dig deeper on this subject and you have access to the Big “I” Virtual University, here are two additional articles:

If you want to dig deeper on these commercial (and personal) lines issues, scroll down to the Comments section where you’ll find links to David Thompson’s recent blog posts.


Photo by Tim Patterson

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Bill Wilson

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One of the premier insurance educators in America on form, coverage, and technical issues; Founder and director of the Big “I” Virtual University; Retired Assoc. VP of Education and Research from Independent Insurance Agents & Brokers of America. Reprint Request Information