Recently, I was contacted by an agent whose client was solicited by his power company to purchase insurance for power surge and lightning. As a commercial lines agent, he knew that power surges aren't covered by most standard commercial property policies, but he wasn't sure about homeowners policies. So, is this coverage needed or not?
A Florida agent asks, "My client called saying he received a 'stuffer' in his monthly Florida Power and Light (FP&L) bill offering insurance against power surge and lightning. What coverage does the typical homeowners policy provide for power surge, and should my client take the offer from FP&L?"
I've received several inquiries like yours. FP&L has an arrangement with an admitted carrier to provide this coverage. When I called the phone number to get more information (I got to play consumer!), I spoke with a representative of that company who accurately answered the questions I posed. Incidentally, I checked the Florida Department of Insurance web page and found that person to be properly licensed and appointed.
Of course lightning damage to the building and personal property is covered in all homeowners policies. The standard ISO 1991 HO-3 policy covers personal property for damage caused by "artificially generated electrical current." In plain talk that's power surge. A limitation though is, "This peril does not include loss to a tube, transistor or similar electronic component."
In the new Homeowners 2000 program, the 2000 HO-3 language adds the following as not covered: "...electronic components or circuitry that are part of appliances, fixtures, computers, home entertainment units or other types of electronic apparatus." In today's "high tech" homes a good amount of personal property contains these excluded items and costs for damage could add up quickly. Keep in mind too, this limitation of coverage applies to personal property only and not to building property. Thus, items such as a built-in range, central air conditioning system, or home alarm system would not be subject to the limitation and would be covered for "power surge" claims.
There is a relatively easy way to avoid the tube, transistor and electronic circuitry problem, and you get a gold star for having remedied the problem on the policy of your particular client. By adding the HO 00 15 endorsement (Special Personal Property Coverage) to the 1991 HO-3 form, the limitation for all the electronics is eliminated. In the Homeowners 2000 program, the HO 00 15 will not be supported any longer, but the re-introduced HO-5 form will serve the same purpose.
The additional premium for the HO 00 15 or the HO-5 is typically only 10% or so of the base premium -- a darn good deal in my book and you can bet I have it on my own policy! In the HO-6 form you can use the HO 17 31 and HO 17 32 for "special" coverage to the personal property and building. Under Homeowners 2000, even those with an HO-4 can now get the "special" coverage with the HO 05 24.
As far as whether the client should purchase the coverage, that's an individual decision. According to the FP&L flyer, the cost for $2,000 of coverage is $5.00 per month and $5,000 coverage is $12.50 per month, with higher limits available. One advantage of the FP&L coverage is it would cover the homeowners policy deductible (there is no deductible on the FP&L coverage) and it may save your client from ever having to submit a claim under his homeowners policy. Another advantage is those clients who don't have access to "special" coverage under their homeowners policy (not all companies provide it) would be covered for damage for the tubes, transistors and electronics excluded by the policy. It's just a matter then of letting the client decide if the additional costs of the FP&L policy are worth the benefits received.
To read the entire article, go to: http://www.iiaba.net/VU/Lib/Ins/PL/Homeowners/ThompsonPowerSurge.htm
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Bill Wilson (bill.wilson@iiaba.net) is director of the Big “I” Virtual University, an online learning center for agents and brokers.
