Colorado businesses denied insurance coverage during planned outages

In the aftermath of last month's planned power outages, businesses that lost money are hearing rough news about their insurance coverage. The common word is "denied."

"So I didn't think that we weren't going to be covered because it was a wind event. Xcel didn't shut the power off to do work," said Scott Smith. Smith owns four businesses in Genesee: Genesee Pub and BBQ, Guido's Pizza, Genesee Park Golf Club, and Buffalo Moon Coffee. All of them had losses during five days of on-and-off power, which was mostly off.

"We lost Wednesday night, Thursday night, Friday night, Saturday night, and Sunday night," said Smith. The loss of business was one thing. Spoiled food was an even greater expense. He had to throw out a lot of meat for the barbecue restaurant. All totaled, Smith said the losses were in the range of $35,000 to $40,000. 

He turned to his business interruption insurance.

"We made a claim. They came to the decision that the claim wasn't valid because Xcel shut the power off, and it wasn't caused by nature."

Insurance companies are getting the new type of claim and making decisions about whether insurance will pay out for those losses. "The insurance company called Xcel. Talked to Xcel, and they told us that Xcel told them that it was a planned shutoff." Smith says he got different types of notices from Xcel. Some stated there were planned outages ahead, while others said it was unplanned.

"When it comes to a preemptive power outage, you should check with your policy language, also your insurance professional, because those coverages can vary," said Carole Walker, executive Director of the industry group, Rocky Mountain Insurance Association. "But for the most part, generally, that's not going to be a covered peril. It's something that is done in advance; it's not something attached to some of those coverage triggers, like an act of God," she explained. "The wind didn't do the damage."

State Rep. Kyle Brown, a Democrat representing Colorado's 12th District, who served as the state's deputy insurance commissioner for three years before running for office, said he had not heard of the frustrations with the coverage on pre-emptive power outages. 

"I'm surprised. And I really feel for the businesses in my area and elsewhere," said Brown, whose district includes the Marshall Fire area.

"My guess is that this has not been contemplated under these policies in the past. And I need to do some more research here at the Legislature to figure out which companies may cover this. Clearly, many do not."

Brown has proposed numerous bills on insurance in the legislature. "I don't have enough information to know that anything is being done that's dishonest or anybody's getting away with anything, but I do think that it all depends on how the policies are written," he related. "I think we should investigate whether or not policies are being written in a way that actually should include these things, and maybe they're denying it inappropriately." He said it would get a closer look.  "I think we should also look at whether or not this is the kind of event that should be covered in the future."

Walker said companies are not paying out because they are not taking in money to deal with claims created by a loss of business during pre-emptive outages.

"Insurance companies do have to collect a premium for what they pay out for claims," she said. "If you start forcing insurance companies to make business decisions where we already have a challenging environment, both for affordability and availability of insurance in higher risk areas, which is where these preemptive power outages are happening for wildfire. That's when you really start pushing companies out of the marketplace, because you're forcing them to cover things that they can't collect a premium for." And, she added, the businesses are in an area of higher fire risk where maintaining coverage is already more difficult.

Smith says he's most irritated with the insurance company. But he remains bothered by the way the outages were done and concluded. Power lines are underground in the area of his businesses, though there are above-ground lines nearby.

"Dragging it on and on for five days was a problem as far as I'm concerned with Xcel." He suggests the state may want to consider a tax break for affected businesses in the preemptive outages. But in a tight budget year, said Brown, that may be a difficult ask.

"You know we employ a lot of people, we pay our taxes. We're good citizens, and we're a part of the community," said Smith. "And I think the governor should do a lot for the small businesses that were affected on the Front Range."