Carteret, N.J.-based Pathmark Stores Inc., for instance, told National Underwriter that the supermarket chain suffered “substantial losses” at its 70 stores in New York and New Jersey from “spoilage of perishable foods, primarily from the dairy, frozen food and meat departments, and prepared salads.”

“And yes, we do have insurance to cover those losses,” said Richard Savner, spokesperson for the company. “I would say it's the norm for larger supermarket operators to have this coverage. But I understand many smaller groceries and restaurants won't be able to recoup their losses,” he noted.

Indeed, many restaurants in New York lack such coverage, and there is now talk about class action lawsuits against “whoever caused this,” said Chuck Hunt, speaking for the Greater New York City Restaurant Association.

The Great Atlantic & Pacific Tea Company, which operates A&P, Waldbaum's and Food Emporium supermarkets in the Northeast and Midwest, also noted that “hundreds of stores” have been affected, adding, “We are covered by insurance for those losses.”

Among automobile manufacturers, General Motors Corporation in Detroit said it had to temporarily shut down 17 manufacturing plants in the Midwest and in Canada. “We were down from Aug. 14, Thursday afternoon from 4:10, and we began full production in all our plants Monday morning. People in our corporation are now looking at our insurance coverage,” GM spokesperson Patrick Morrissey told National Underwriter.

Commenting on auto manufacturers, Marc Serafin, an analyst at Moody's Investor Service in New York, added: “All the big auto manufacturers in Detroit shut down. If you are the guy that insures, say, two of these auto plants in Detroit, there could be substantial insured losses. These manufacturers likely have tailored coverage for their business income loss from power failures.”

On the personal lines side, Michael Flaharty, president GAB Robbins Capital Partners Consulting, speculated that there would be a blip in homeowners claims. “In New York City, for example, there was an increased number of fires reported from private homes because of the use of candles, which would be covered by homeowners insurance,” he said. There would also be food spoilage issues, he added, but most of those would fall below typical $500-$1,000 deductibles.

Mr. Flaharty also forecast there could be a blip in workers compensation losses, with “injuries from workers who were evacuating the workplace through dark stairways or even when evacuating from stalled subway cars.”

But overall, the blackout's impact on the insurance industry is likely to be minimal, according to market experts.

In commercial lines, more sophisticated buyers likely have the business interruption insurance for power failures. But then you have to see if coverage would even be applicable, because a lot of policies have 24- to 48-hour waiting periods, said Mr. Serafin.

Electronic equipment damaged from power outages is not covered under typical commercial property coverage.

Also, for a lot of business income coverage that includes losses from power failures, it still depends on the root cause of the service interruption, he said. “So, all this is like a third derivative in order for someone who has the coverage to actually get the coverage. It will be interesting to see how it actually plays out.”

Many endorsements require the actual cause of the service interruption to be a covered loss, Mr. Serafin explained. “They still don't even know what exactly caused the blackout. Everybody is pointing fingers at everybody else,” he said, adding that small businesses, who need the most help, will lack coverage.

“You hear these stories on the street, that many small businesses and shops just don't seem to have this coverage, and even for a few that may have coverage, a lot of them seem hesitant to submit claims because they feel their premiums will skyrocket,” he said.

He said, overall, Moody's doesn't anticipate any substantial impact on carriers' results. “Still, there are going to be claims reported and carriers will have to investigate. So there will be some distraction and expense involved with a lot of these activities.”

He said one of the reasons many businesses may not have coverage to recoup power failure losses is the high-priced hard market. This extra coverage may have been thrown a few years ago, but because premiums have been going up more recently, many insureds probably got rid of what they deemed was less essential coverage.

William Wilt, analyst at Morgan Stanley in New York, said his firm's understanding of typical policy provisions leads him to believe “this will not become a mega-catastrophe.” He added that he doesn't expect this event to move market pricing or noticeably change industry trends already underway, such as slackening property rates and slowing margin expansion in casualty. “It is possible that insurance losses will be a fraction of the economic losses caused by the outage,” he said.

Morgan Stanley explained that business interruption insurance–including contingent business interruption, extra expense coverage, service interruption coverage and civil authority–could be impacted by the blackout. “For example,” Mr. Wilt noted, “service interruption coverage is triggered when an insured's losses result from the loss of a utility.” But, he stressed, there are several factors that could minimize the impact to insurers, such as the optional nature of coverage, time-period deductibles and the requirement, under many policies, that the ultimate source of the loss be a covered peril such as lightning or fire. “We don't know what exactly happened here yet.”

The Insurance Information Institute, in New York, also pointed out that most commercial insurance policies specifically exclude payment for losses from power failures, According to I.I.I., it's probable that only around 10 to 15 percent of commercial insurance customers purchase supplementary policies that provide the coverage.

The blackout “will cause lots of inconvenience, but not significant insured losses,” I.I.I. predicted in a statement released before the lights went on for some Northeasterners.

Claims activity for one major carrier bears out this forecast. “I know that by Friday, the day after the blackout, we had about 30 claims. It's very small,” said Sue Honeyman, spokesperson for The Hartford Financial Services Group Inc. “Claims are still continuing to dribble in. There are no huge numbers. We are pretty sure that, in the scheme of things, there wont be a lot of claims.”

Ms. Honeyman also said, “Generally, [Hartfords] main policies–both commercial and personal–exclude losses from power outage. Mercifully, for most people, the blackout was a fairly short one. But there are certain endorsements that have been purchased by customers that might afford some coverage.”

From the insureds' side, Elizabeth Sherwin, an attorney at Washington, D.C.-based Dickstein, Shapiro, Morin & Oshinsky, which represents policyholders, said that even though many affected businesses won't find any insurance coverage from the blackout, “no business owners should just assume that they don't have coverage for this.”

“Take out your policies and take a very close look at them,” she advises policyholders.

“The policy language is going to control, and business owners should not just assume they are not covered,” she said.

Ms. Sherwin pointed out that business interruption insurance may even be available for companies far away from the blackout areas. “Even if you were not down, your suppliers may have been in the blackout area. And as a result, if you could not get all the necessary supplies to turn out your products, that's something worth investigating even if you are outside the blackout area.”

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, August 25, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.