Business insurance is a complex animal. The list of potential risks is long and fairly nuanced, depending on the type of business at hand. Without an industry expert in your corner, it can be easy to overlook certain “what-if?” scenarios that aren’t expressly covered by your business owner’s policy. Having the right agent on your team, to anticipate and explain hidden gaps, is essential.

In the world of microbreweries, utility service interruptionis a perfect case in point. Utility service interruption is a specific type of loss event—an event not typically covered by standard commercial property terms, nor equipment coverage (a.k.a. “inland marine”), nor basic business interruption, despite its similar-sounding name. Meanwhile, utility service interruption is a very real and very costly exposure.

So here’s what you need to know:

What is utility service interruption insurance?

Also known as “off-premises power coverage,” utility service interruption (USI) is an endorsement that can beaddedto basic business interruption and/or commercial property coverage. USI typically covers disruptions to the following:

· Your Water Supply (pumping stations, water mains, sewer mains)

· Your Power Supply (utility generating plants, switching stations, substations)

· Your Communications Supply (optic fiber transmission lines, coaxial cables, microwave radio relays, overhead transmission lines)

USI endorsements vary widely, in terms of which utility services are included, whether both “Direct Damage” and “Time Element” losses are covered, whether transmission lines are covered, and other variables. Your brewery insuranceteam should help you define which elements within these categories are covered on your policy.

What’s the difference between Direct Damage and Time Element Losses?

There are two ways to extend your basic insurance program by adding USI coverage: a direct damage endorsement and/or a time element losses endorsement.

A Direct Damage endorsement acts as an extension of your propertyinsurance, offering protection against damage to tangible property, resulting from a utility interruption. So if, for example, a power line down the street is struck by lightning, and a surging electrical current flows back into your building, the burst can overwhelm your surge protectors—damaging your computers, appliances, breakers, switches and receptacles. A Direct Damage endorsement would kick in to cover any new wiring needed or equipment replacement.

Time Element Losses, on the other hand, are associated with stalled operations and lost income. After a utility disruption, lacking electricity or water would likely prevent you from opening your doors—costing you money. Similarly, if a prolonged power outage affected your ability to control fermentation temperatures, you might lose valuable batches of beer: more lost income. A USI Time Element endorsement would extend your business interruption coverage to help you recoup these losses, up to a predetermined time limit or until utility service was restored.

But I already have business interruption coverage? Isn’t this the same thing?

Not necessarily. Basic business interruption insurance covers your costs if an unexpected event (e.g. a fire or a flood) damages your propertyand forces you to close shop for a short time. In some cases, basic business interruption may also cover certain types of utility disruptions while excluding other types; overhead transmission lines are a prime example. Be sure to ask your agent which utility disruptions, if any, are included in your current BI policy.

How common are utility service interruption events?

In the past 10 years we’ve all been affected by at least one severe weather event. Following the October snowstorm of 2011, thousands of New England customers lost power—many for more than a week. Hurricane Sandy caused nearly 400,000 power outages in Massachusetts alone, dragging out over a five-day span.

Lightning is another common concern. According to electro-mechanical consultants, direct and indirect lightning strikes happen every day, causing a variety of business interruptions. “…All business machines and various equipment types can be electrically shorted and mechanical components become fused, resulting in premature failure, if not instant total loss. Water pumps, blower motors, alarm systems and machinery can be compromised. Building plumbing, HVAC air handlers, heaters and wiring can have extensive damage affecting the operation and control.” In fact, in 2015, nine percent of all reported claims involving HVAC systemswere caused by lightning strikes.

What does utility service interruption insurance cost?

Costs and ideal coverage limits vary, depending on your operation. The cost may also be a function of your carrier’s property rating algorithm. To provide a ballpark figure, our craft brewery insurance team was able to add $25,000 in utility service coverage—including overhead transmission lines—for a mid-sized brewery/tap room, for less than $200 per year. Well worth it, when you consider the cost of new equipment or multiple days of downtime.

What do I need to ask my agent about USI coverage?

We recommend having a conversation with your brewery insurance agent as soon as possible—especially now that we’re officially into hurricane season. He or she can explain the conditions under which your insurance company offers USI coverage, as well as advise you on what makes sense for your microbrewery. Talking points should include:

The types of utility power or service to be listed on your policy
The specific waiting period (often 24 or 48 hours) that must elapse before coverage is triggered. (Instead of a flat deductible, there is typically a waiting period for coverage to kick-in. Because of this, you will want to consider how much your business could absorb before you would need to be reimbursed, factoring in peak and low periods of business.)
Whether or not your USI coverage applies to contingent third-party locations (suppliers and receivers)

In addition to utility service interruption, there are many other niche coverages and endorsements that craft brewers should at least consider adding to their policies. If you’re not sure what your current program covers (and what it doesn’t), please don’t hesitate to contact our knowledgeable brewery insurance team.

In addition to being a craft brewery insurance expert, Ben Cavallo is the owner and principal of C&S Insurance, a proud member of the Mass Brewers Guild. He holds degrees from Emory University and Boston College, as well as CIC, AAI, and CISR insurance designations. He can be reached at 508.339.2951 or ben@candsins.com.