April 29, 2010 02:29
Movie production or distribution is not something I get to do every day. Or even at all. But this opportunity is proving hard to pass up. What happens when a windmill fails? Let’s watch what happened in Denmark in February 2008. http://www.windaction.org/videos/14294. Can you get insurance for this? And what about other problems that wind farm owners and operators might face?
This is not of obscure interest. Last night Interior Secretary Salazar made a decision on whether the Cape Wind wind farm project in Nantucket Sound can move forward: he approved it. Proponents assert this is the harbinger of a $270 billion industry and can be the source of 75% of the energy needed by Cape Cod, Nantucket and Martha’s Vineyard. Critics point to desecration of Native American sites and rituals, as well as the destruction of unique and beautiful views. (It seems hard to believe that nine years have passed since the project was announced. But that is due process. In the end the Secretary’s decision coincided with the views of Mass Audubon, the NRDC, the Conservation Law Foundation, the governors of Maryland, New Jersey, Massachusetts, Rhode Island, Delaware and New York, national policy and national opinion polls.).
But let’s return to our exploding wind turbine. It goes without saying that there must be insurance for these projects. The key is in identifying the risks and recognizing what can be insured, what requires indemnification or hold harmless agreements, and what risks must be minimized because they cannot be eliminated or transferred. This is no more than the usual risk management paradigm.
A failed wind turbine is an obvious risk and we can be confident that our Danish wind entrepreneurs procured property insurance. The description accompanying the video identifies high winds during a storm and a failed braking mechanism as the cause of the calamity. Two technicians barely managed to escape. Debris was hurled 500 meters. While the cause of the loss might seem obvious (high winds and covered), one can be sure the applicable policy was reviewed closely to ensure a "wear and tear" exclusion was not applicable or an anti-concurrent causation clause did not apply. Less certain is the scope of business interruption insurance available. While certainly the output of one turbine is now absent, is that enough to trigger business interruption coverage, which often requires a “necessary interruption” of one’s business? Perhaps more significantly, who bears the risk if the wind does not blow, or the design is not as efficient or productive as anticipated. Similarly, what are the implications for promises of startup by a certain date or contractual obligations to deliver a certain quantity of power or that certain tax credits will be available.
Another side of the operation is liability exposure. Are individuals or property likely to be injured by a failure? What is the kind of injury? Again, it is highly unlikely the Danes did not obtain coverage for an individual or vehicle injured or damaged by the failing structure (whether it was the turbine, the blades or the mast). Other issues are not so obvious. In England claims have been asserted that infrasonic waves are dangerous. Low frequency noise complaints or “strobe effects” are claimed to cause injury. We may expect assertions of loss of property values when windmills disturb high-priced views. Will a general liability policy pick up these claims?
The decision on Cape Wind is laudable and necessary for wind energy to become a robust contributor to the nation’s energy mix. Coverage needs to keep up.