Power outages, gas or other sources of energy shortages, have become a probable occurrence. This can have a major impact on some company businesses. What insurance coverage can be expected?
There is no uniform answer: each insurance contract, in view of its wording, provides an answer; in particular with the interpretation, if necessary, of the broker’s wording. A preliminary point: the “Covid” exclusions massively introduced in 2021 by insurers are inoperative here. As it is often the case, the exclusion only settles a past case, and does not anticipate events.
As for losses due to Covid, we can identify two kinds of coverages: the main coverage of the contracts on the one hand, and the extensions of coverage in property insurance policies, on the other hand.
Many policies provide for coverage to be triggered by an “event”. It is sometimes described in the policy as “accidental”, “fortuitous” or “sudden”. Sometimes this term is not defined at all.
Most contracts also provide for the necessity of a “damage”, most often, but not systematically, “physical”. In this respect, it should be remembered that the Court of Cassation ruled, in 2001, that a “business” (in this case a bakery), an insured movable property, could suffer an insured “physical damage”.
Some contracts make the “event” a cause of triggering the coverage, in the same way as the existence of a material damage, and thus without the need for a (physical) damage.
The decisions to cut off energy supply will be made by the government or by the company supplying the energy. These decisions, external to the insured company, can therefore constitute an “event” within the meaning of certain contracts. Even an “accidental” or “sudden” event, if the situation in the energy market can be qualified as accidental and unforeseen, as the authorities like to remind us ad nauseam since the Russian-Ukrainian war.
Other contracts require the occurrence of a physical damage to the insured property. In these cases, it can be considered that the damage to a computer file, insured movable property, by power outage having damaged the computer systems of a company, satisfies the contractual conditions of coverage.
This is also the case for any damage to computer systems used for payment in stores, or the absence of light or heating, which alters the premises and makes them unfit for use. By analogy, in the case of covid, a judgement considering that an administrative constraint (closing) alters a business, which is insured property, and therefore constitutes a damage to said property.
In addition to the main coverages, many Property Insurance contracts include extended coverages. Depending on the case, these extensions are more or less, or not at all, subordinated to the conditions of realization of the main coverage (“event”, “physical damage”). The less the former are linked to the latter, the greater the probability of their application.
We will limit ourselves here to citing a few examples of extensions which, in our opinion and after analysis of the contract as a whole, can be applied to cases of energy shortages suffered by an insured company:
“Damage or loss to property that has been moved outside of risk situations”
“Coverage is extended to damages or loss to insured property in a risk situation resulting from an interruption in the provision of external data transmission or processing services, as a result of a non-excluded event affecting the facilities of the providers of such services located within the territorial limits of this policy, when the immediate consequence of such damage or loss is to prevent the provision of said services in whole or in part.”
“This is the following losses as a result of an insured event affecting the buildings to which the coverages of this policy apply. [..] :
Loss of use representing all or part of the rental value of the premises occupied by the Insured in the event of the Insured’s inability to temporarily use all or part of such premises.”
“Resulting directly from the interruption, in whole or in part, of electric power, gas, fuel, steam, water or refrigerant supply services as a result of a non-excluded event, other than insured property damage or loss, in a perilous condition.”
“Business interruption due to a total or partial interruption of its business resulting from a non-excluded event affecting the property of a customer, supplier, subcontractor, processor.”
There are also, rarely, contractual exclusions such as “Interruption of electrical power, fuel and gas supply services”. Their opposability to the insured, like that of any exclusion, must be verified in the light of the very restrictive case law of the Cour de Cassation.
In practice, companies in certain lines of business are more likely to affected than others by potential power cuts or energy shortages. At first glance, the following lines of business are the most likely to be in a favorable insurance contractual configuration: Banking system, Agribusiness, IT parks, Establishments Receiving Public, Metallurgy, Glassmakers, Transportation, Activities related to cryptocurrencies.