Pardon this interruption… Service Interruption Provisions and Hurricanes

by Zelle LLP

Zelle  LLP

As the urgency to repair immediate physical damage to commercial property subsides, and businesses begin to get back to business as normal in the wake of Hurricanes Harvey, Irma, and Maria, we will undoubtedly see claims to recover lost revenue, or extra expenses incurred as a result of the storm. These claims arise under a general claim for business interruption coverage. Most companies could survive a brief power outage, but an extended interruption will likely affect the business’ operations and result in a loss of income, even if that business did not sustain physical loss or damage. Commercial property policies providing coverage for business interruption may provide specific coverage for such interruption based on loss of incoming utility services, pursuant to a service interruption provision. Service interruption might consist of any one, or combination of, the following:

1.   Water Services, including pumping stations and water mains;

2. Communications Services, meaning property used to supply telephone, radio, microwave or television services. This also includes communication transmission lines, coaxial cables and microwave relays (other than satellites);

3. Power Services, meaning electricity, gas and steam. This includes utility generating plants, switching stations, substations, transformers and transmission lines. 

Strong winds and rising water levels can affect an area long after the storm dissipates, leaving downed power lines, blown transformers or sewage back up resulting in lack of electricity and/or running water. For example, Puerto Rico’s recovery has been hampered by the lack of infrastructure and service. 

Case law in Texas, Florida, and Puerto Rico is underdeveloped in this specific area. Case law addressing general principals of property insurance and business interruption may be used, however, to analyze service interruption claims. Namely, there must be a covered peril that causes the loss. Likewise, “service interruption” provisions typically fall under the umbrella of business interruption. Therefore, an analysis of how courts treat business interruption provisions, generally, as well as other jurisdictions, provide guidance. 

The following guidelines should be used when analyzing whether a service interruption provision provides coverage: 

1.  A covered peril or cause of loss;

2. Resulting physical damage to off-premises utility property the interrupts the utility service;

3. Physical damage to the covered property on the insured’s premises OR a necessary interruption of the insured’s business operations because of the lack of utility services; and

4. With respect to business interruption, an actual financial loss.

The analysis in Prot. Mut. Ins. Co. v. Mitsubishi Silicon Am. Corp., 992 P.2d 479 (Or. Ct. App. 1999) illustrates how courts typically interpret service interruption provisions. In Mitsubishi¸ the insured operated a silicon wafer manufacturing plant in Salem, Oregon. The Salem area experienced a severe flood. In response to increased turbidity in its water, the City of Salem shut down its water treatment facility and requested that the insured voluntarily reduce its water consumption. Subsequently, the city of Salem closed its wastewater treatment facility because of the threat of imminent flooding at its plant, which forced the insured to cease most of its operations. The insured incurred a loss of business revenue as well as increased operating expenses. 

The insured sustained two different types of loss: (1) lost business income and (2) extra expense. Both losses were a result of problems with the city’s water supply (utility service interruption) and both losses were the consequence of an area wide flood. However, the insured’s property was not itself flooded, nor was it directly damaged by flood waters. There was damage at the utility site.

The policy contained the following endorsement: 

In consideration of additional premium, the Time Element [i.e. business interruption] coverage of this Policy is extended to cover the actual loss sustained caused directly by the interruption of the specified incoming services during a Period of Service Interruption, or if applicable, during the restoration of Normal Operations, both as defined in this Endorsement.  


Coverage is provided for loss resulting from interruption of the following specified services: Gas, Water, Electricity, Telephone, by reason of any accidental occurrence to the facilities of the following suppliers: Any Public Utility that immediately prevents in whole or in part the delivery of useable services specified above to the following locations: As stated elsewhere in this Policy subject to the additional conditions of this Endorsement.[1]

Notably, the endorsement also contained a specific exclusion, narrowing the coverage by excluding flood:

This Endorsement does not insure against loss or damage caused by the interruption of incoming services caused by or resulting from any of the following regardless of any other cause or event contributing concurrently or in any other sequence to the loss:


c. Flood, unless otherwise specifically provide elsewhere in the Policy with a Service Interruption Time Element Limit of Liability for Flood, but this exclusion does not apply to the Insured’s loss as defined in the Time element Coverage of this Policy resulting from fire, explosion, or sprinkler leakage caused by Flood at a supplier facility;[2]

The court determined that the policy did not cover the insured’s business interruption loss because the utility service interruption was caused by flood. While the Policy did contain a Flood Endorsement, the Court held that nothing in the Flood Endorsement extended coverage to service interruption:

In consideration of additional premium, and by deleting EXCLUSION No. 6 in GROUP A of Part C. EXCLUSIONS, this Policy is extended to cover physical loss or damage caused by or resulting from flood waters, waves, tide or tidal water, the rising, overflowing, or breaking of boundaries of natural or man-made bodies of water, or the spray from any of the foregoing. [3]

The Court held that this Flood Endorsement added coverage for property damage only, and did not extend coverage to interruption in business operations.[4]

As illustrated above, there are various factors to consider when analyzing whether there is coverage for service interruption claims in the business interruption context, the first of which being multi-peril events like a hurricane, which involve wind and flood claims. In that situation, there may be endorsements extending coverage for flood, but only to property damage, and not business interruption. It is important to distinguish whether included endorsements extend to business interruption claims. If they do not, coverage will depend on what causation rules the state follows, i.e. whether the state follows the concurrent causation doctrine (Texas), dominant efficient cause, first or last peril in chain, or if there is a covered peril anywhere in the sequence of events that leads to damage. It should also be noted whether the Policy includes an anti-concurrent causation clause and whether such a provision is enforceable under the laws of that state. Texas, for example enforces anti-concurrent causation provisions. 

Given the recent hurricane-related events in Texas, Florida, and Puerto Rico, it is likely that insurers will see business interruption claims based on the cessation of utility services. Because claims caused by service interruption usually do not occur on the insured’s property, coverage will most likely only be afforded if there is a specific service/utility interruption endorsement, similar to the one above, included in the policy. But the cause of the service interruption is important to understand to ensure that no exclusions or limitations may apply to preclude coverage.

Service interruption provisions can vary significantly. While it is always necessary to begin an analysis with an examination of the plain meaning of the policy terms, it is also important to remember, that business interruption provisions are essentially designed to do for the business what the business would have done for itself had no loss occurred.[5] At the end of the day, service interruption coverage typically requires that the insured demonstrate it sustained a business loss caused by an interruption in utility services, resulting from a physical loss or damage from a covered peril.[6]

[1] Prot. Mut. Ins. Co., 992 P.2d at 483 (Or. Ct. App. 1999).

[2] Prot. Mut. Ins. Co., 992 P.2d at 484 (Or. Ct. App. 1999).

[3] Id.

[4] Id at 484-486.

[5] Prot. Mut. Ins. Co., 992 P.2d at 481 (Or. Ct. App. 1999) (citing A&S Corporation v. Centennial Insurance Company, 242 F. Supp. 584, 589 (N.D.Ill.1956).

[6] Prot. Mut. Ins. Co., 992 P.2d at 481 (Or. Ct. App. 1999).


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Zelle LLP | Attorney Advertising

Written by:

Zelle  LLP

Zelle LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.