'Left holding the bag…in the dark': A look at the Calif. blackouts
Will utility companies reimburse customers for their financial loss caused by recent power outages to mitigate wildfire risk?
California electricity providers Pacific Gas and Electric (PG&E) and Southern California Edison have both adopted a strategy of shutting off power through overhead transmission lines in high wind conditions, in an attempt to reduce the number of wildfires sparked by fallen power lines or tree limbs striking live power lines. The California Public Utility Commission allows the investor-owned utility companies broad latitude to take such action at their own discretion.
Recent years have made it abundantly clear that steps needed to be taken to change how we prepare for, mitigate, and fight wildfires in California. In 2018 alone, the state spent more than $1 billion fighting wildfires — and that was just the cost of fighting the fires, not the cost of repairing the damage done. That damage came to more than $9 billion, according to the Sacramento Bee. $10 billion in economic loss from wildfires in a single year, it’s hard to wrap one’s head around. In an effort to reduce the loss of both lives and property, the major utility companies are turning the power off when the wind blows.
The insurance impact
Over the third weekend in October 2019, weather forecasts called for gale-force winds in the greater San Francisco Bay Area, including Sonoma County, home of the Kincade Fire. In preparation for the dangerous winds, PG&E de-energized power lines across the Bay Area. Large swaths of Marin County, Sonoma County, Alameda County, and more went dark; some areas remain without power five days later. Homeowners and business owners alike are finding spoiled food in refrigerators and freezers, internet access spotty or completely absent, cellular phone service as well. The jury is still out as to the magnitude of the economic loss from power outages, but the question is already being asked — who will be left holding the bag for the cost?
For business owners with commercial property insurance policies written on ISO coverage forms may be in for some unpleasant surprises. The Business Income and Extra Expense Coverage Form (CP 00 30) states that the period of restoration following a loss begins 72 hours after the damage occurs for Business Income losses, or immediately following the damage for an Extra Expense loss. But having the electrical transmission lines de-energized by the utility company does not meet the “damage” standard to trigger coverage here.
The Special Form Causes of Loss form covers risks of direct physical loss except where excluded or limited. The form goes on to list Utility Service in the exclusions — failure of power is excluded if the failure originates away from the described premises, and again, the reference to direct physical loss appears.
Even insureds who carry Equipment Breakdown coverage may find themselves without help to get back on their feet following a lengthy power outage. Many equipment breakdown endorsements and policies contain language limiting coverage for a power failure to those occurrences caused by an “accident” to equipment. The mere absence of electricity ion the lines would be unlikely to trigger coverage under these specialized policies, either.
Given that most small business owners live near their businesses, it is likely that they will be the victims of inconvenience and expense in their homes at the same time as their businesses are shuttered for lack of power — adding insult to injury.
It remains to be seen how effective these pre-emptive power outages will be in reducing wildfire ignitions — the Kincade fire in Sonoma County is thought to have been started by an incident involving a high-voltage line (the low voltage lines that serve customers directly had been de-energized, but not the high-voltage, long-distance transmission lines). What is known already, though, is that in attempting to limit wildfire ignitions (not to mention the utility company’s potential liability for wildfire damage costs), PG&E and SoCal Edison are creating difficult times for their customers.
Will the utility companies reimburse residential and commercial utility customers for their financial losses caused by the power outages, or will their customers be left holding the bag, in the dark?
Michael Brown (michael@goldenbear.com) is vice president and property department manager at Golden Bear Insurance Company. The opinions expressed here are the author’s own.
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