California Subscriber

A

Boiler and machinery coverage should not respond to business income losses arising from rolling blackouts. Standard coverage forms are triggered by losses resulting from an accident. Accident is defined as a sudden and accidental breakdown of an object that manifests itself by physical damage to an object. Even boiler and machinery policies written on a named perils basis, which provide coverage for electric arcing and steam boiler explosion, are premised on loss arising from an unplanned event. Likewise, the consequential loss endorsements that are added to direct damage boiler and machinery forms also are triggered by accidents or unplanned events.

Though your clients are suffering business income losses, the damages do not arise from accidents as defined on the policies. The blackouts are planned. Even if you try to make the case that the blackouts are unplanned from the standpoint of your insured, there still is no direct, physical damage to an object or other property. The case could be different, however, if equipment were damaged by an accident such as electric arcing when the power came back on.

Another consideration is the waiting period on business income forms. Even if coverage could be inferred, which we do not believe is the case, there usually is a waiting period of twelve or more hours before business income coverage is triggered. Since these blackouts are lasting less than two hours each, the waiting period also would preclude coverage.

On the other hand, if a customer tripped, fell, and was injured because your customer's premises were dark, coverage under the CGL form should be triggered.

Since it appears that the rolling blackouts may be around for a while, businesses should institute risk management procedures in an effort to mitigate potential losses. For example, onsite generating systems could be considered. Employee training on what to do if the establishment suddenly darkens is imperative. Data stored on computer systems should be backed up frequently. Stores that sell perishable goods might consider refrigeration units that can generate their own power. Businesses may revert to or install backup manual systems that were prevalent before processes became largely automated and powered by electricity. Insurance companies that specialize in boiler and machinery coverage should be able to provide information on loss control and risk management procedures that could save your clients both money and headaches.