Massive Blackout Not Expected to Light Up Massive Claims
By Robert Warne - August 15, 2003 One bright side to the mega power outage that left eight states and parts of Canada in the dark Aug. 14 is that insurance experts predict a low volume of claims.
In fact the American Insurance Association said the outage might not even be classed as a "catastrophe" for insurers, which is typically defined as an event that produces over $25 million in claims.
In the event that National Grid Transco, the parent of Niagara Mohawk Power Company is found liable, investors have already been assured that it is adequately covered by public liability insurance from American International Group.
But because regulators keep a tight reign on claims against utility companies for power outages, companies would have to prove that the power outage was a result of gross negligence.
The Niagara Mohawk power plant is believed to be where the power failure originated, although the cause of the failure has yet to be determined.
Damaged equipment at the power plant will certainly generate a slough of claims, but business interruption claims will be limited for most companies because the power went out at about 4pm.
Analysts expect some claims from a range of companies as a result of computer and other pieces of electrical equipment damaged from power surges.
The proportionately few companies that carry power interruption insurance, such as grocery stores and restaurants, will be able to file claims to cover losses.
So based on the initial indicators, this power outage currently pales in comparison to the last New York City blackout in 1977, which produced $28 million in payouts from carriers.
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