Public Utilities Clause

Purpose

If electricity, water, gas or telecommunications supply fails because of physical damage at a utility provider, the insured’s own operations may be interrupted just as severely as if the damage had occurred on site – even though no direct physical damage exists at the insured’s own premises. The public utilities clause closes this gap by treating the resulting loss of income as if it had been caused by damage at the insured’s own premises, provided the cause at the utility is otherwise an insured event.

Effect and limits

The clause generally covers physical damage at the utility only, not voluntary load shedding, rationing, or financially driven supply failures. A time-based deductible (franchise or time excess), commonly 4 to 24 hours, filters out short outages; under a true franchise the whole outage is indemnified once the threshold is reached, while a time excess only covers the period beyond it. Following the privatisation of many utility providers, the scope of the word “public” is also contested – private operators are subject to lighter statutory supply obligations, which can affect realistic restoration timescales.

Negotiation and practice

Key negotiating points include the utility types covered (electricity, gas, water, telecommunications, sewerage), the reach into upstream and downstream network infrastructure (“terminal ends”), and sub-limits, since a single utility failure can affect many policyholders simultaneously. The cover has historically been underestimated and under-rated, despite representing a material accumulation exposure for data centres, cold-chain operations and energy-intensive production processes.