January 28, 2020

Utility Services – an important Business Interruption endorsement for business owners

Think about a business like an ice cream parlor.  It relies on its local utility source to power the freezers that preserve its primary business product.  If the electricity goes out, the ice cream melts.  So, any interruption in utility services poses a vital threat to the entire business operation.

We’ve talked a lot lately about Business Interruption (BI) coverage to ensure that business owners have a solid understanding of what coverage they should have and how to maximize it in case of a catastrophic event that forces a temporary shutdown of their business.  This examination brings us to an interesting endorsement that business owners should also know about: Utility Services coverage.

From our BI lesson, you’ll recall that you typically only have coverage for your premises.  If you suffer a loss to your business because your utilities go out, you need broader coverage to cover your related losses.

Businesses like this – ice cream parlors, grocery stores – need to broaden their Business Interruption (BI) coverage because they rely on their utilities to preserve their product.  Owners of these type of businesses should elect BOTH endorsements for “Utility Services” – one for their property (e.g., the ice cream), and one for lost revenue, continuing expenses, etc. (standard BI).

You want BOTH endorsements!

The Utility Services endorsement broadens your existing business insurance to provide coverage for lost property or revenue stemming from suspended utility services.  The utility is, obviously, not on your property and is owned by another entity.  Nonetheless, the interruption of utility services leaves your business exposed – and in need of insurance coverage.

How do you get it?
You must elect the type of utility services endorsement that you want – for example: water, electric, communications.  If there is direct physical harm to that utility type (it must be clearly described in the endorsement form) by a covered cause of loss under your insurance policy, your business will have coverage for business interruption purposes.

What losses does it cover?
The loss must be a covered cause under your policy.  So, if you don’t have flood coverage, for example, any damage done to the offsite utilities by a flood will not be eligible for coverage under the Utility Services endorsement.

How does it differ from conventional Business Interruption coverage?
Remember the lesson from our BI tutorial: BI coverage typically only applies when a business has direct physical damage to the described premises.  But, for Utility Services, the damage need not occur on your business premises.  Suppose, for example, a transformer catches fire down the street, and your business loses power for a week while the town’s utility department investigates and works to restore the transformer.  During that time, your business would have BI coverage under the Utility Services endorsement.

What type of businesses have the greatest need for it?
Utility Services coverage is especially useful for supermarkets or ice cream parlors, among others.  If these businesses lose power, their inventory can quickly get permanently damaged – even though their physical locations suffer no damage at all.

If you own a business, you may need coverage for loss or damage to covered property at your described premises that happened because a utility incurred damage off-premises.  If that’s the case, you will want to know about this endorsement and how to take advantage of its important benefits.


Mindi Labella

Mindi Labella

Mindi is a CPA who specializes in commercial losses, business interruption, extra expense and time element claims. She is an integral member of the SMW team, drawing on her business background to advocate on behalf of our clients.
If you’ve had a fire, flood or other property loss resulting in an insurance claim, and need a public insurance adjuster in Massachusetts, New Hampshire, Rhode Island, New England or anywhere in the U.S. or Caribbean, call Swerling Milton Winnick. We are the oldest and largest public adjusting firm in New England, and our team of experts will give you personalized, 24/7 attention to successfully resolve your residential or business insurance claim.