2003 Blackout Held to Involve 'Property Damage' Sufficient to Support Claim Under Property Policy

This post was written by Douglas R. Widin.

On April 22 , 2009, the Appellate Division of the New Jersey Superior Court published its March 9, 2009 opinion holding that the massive Aug. 13, 2003 electrical blackout of the eastern United States and portions of Canada inflicted “property damage” sufficient to support a property insurance claim. The court held that the loss of functionality that resulted when protective safety equipment shut down the power grid and caused the blackout of August 2003 qualified as “physical damage” for property insurance purposes. See Wakefern Food Corporation v. Liberty Mutual Fire Insurance Company, No. A-2010-07T3 slip op (March 9, 2009). As a result, insurers were not entitled to summary judgment in their favor on Wakefern’s claims for food spoilage and business interruption at their supermarkets resulting from the blackout.

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Internet Interruption May Trigger Insurance Coverage

This post was written by Doug Cameron, John Ellison, and Richard Lewis.

On Dec. 19, 2008, underwater Internet cables in the Mediterranean Sea were cut, causing major connectivity issues to most Middle Eastern countries, as well as to South Asia. News reports are noting that while ships have been deployed to correct the issue, it could be upward of 10-14 days before connectivity is returned to normal.

If your business is affected by this event, you may have insurance coverage for any losses of income under your first-party or property insurance forms. Most such policies contain “Service Interruption” clauses, which cover policyholders for loss stemming from interruption of various services, including transmission of incoming or outgoing voice, data or video services. Such coverage is typically subject to a waiting period of a couple of days (equivalent to a deductible), but it appears the interruption in question will exceed the waiting period in most forms. If the event occurring Dec. 19 has had a negative impact on your ability to do business, you should immediately check whatever first-party property cover your company purchased to determine what insurance cover is available to respond to this situation.

Service Interruption forms vary greatly from policy to policy, with some limiting coverage to loss stemming from damage occurring at the “facilities” of suppliers, or to transmission equipment within a certain distance from the policyholder’s premises. Others, however, cover loss caused by damage to service lines wherever they are located; such policies would appear to cover loss stemming from the severed Internet lines. For this reason, it is critical that a prompt review of your insurance policies be undertaken, and, if appropriate, you should consult with experienced insurance counsel who can assist in understanding the available options your business has to mitigate the damage caused by this interruption.

Another important step is that you begin to document immediately and contemporaneously the financial impact this event has caused your business. Establishing a system for capturing the economic impact on your business is crucial to being able to demonstrate properly the financial consequences suffered from this event. Consultation with appropriate professionals will enable you to ensure that the full scope of your claim is captured and presented to the insurance company for reimbursement.

If your business is affected by this interruption of Internet service, you should review immediately your insurance policies to determine the scope of your coverage. The attorneys at Reed Smith, with decades of experience in counseling clients on first-party coverage, and litigating and resolving first-party claims, are available to assist in evaluating your coverage. Since time is of the essence for claims of this type, we urge you to undertake these activities as promptly as possible.