Insurance Question: Is my Windmill Covered?

Insurance Question: Is my Windmill Covered?

July 30, 2008 17:18
by J. Wylie Donald

Our neighboring county just revised their zoning ordinance forbidding auxiliary structures higher than 15 feet. The revision permits structures up to 150 feet. The need: windmills.

What if we got one? What about insurance? My first step was to consider the risks and losses I would need to protect against: property loss (it falls down), liability (it falls down on somebody) and business interruption. (I can no longer export power).

As it turns out, only the third is of any real interest, but in so being it impacts the other two. If you pull out your homeowners' policy, it will likely cover Other Structures. For example, my policy provides: "We [the insurer] cover other structures on the residence premises set apart from the dwelling by a clear space or connected to the dwelling by only a fence, utility line or similar connection." Windmills fit the definition of Other Structure --- so absent a windmill exclusion I've got coverage. And there is no windmill exclusion.

But wait, what about this exclusion for commercial activity? Specifically, under my property coverage I am not covered for "Business" property except as provided by a Special Limits provision. As for liability, I have no coverage for liability "arising out of business activities or business property of any insured." There is an exception for "incidental business", which is defined to be self-employment or other employment that generates a gross annual income of less than $5,000 in value. What is the import of this?

The windmill is a viable improvement for a homeowner because of its ability to provide electricity virtually for free once it is installed. It becomes even more viable when the homeowner is being credited by the utility for that electricty. And utilities want these arrangements. Many states have passed laws requiring utilities to enhance their renewable energy portfolios. To accomplish this, utilities are contracting with homeowners to take whatever excess electricity is generated. With the advent of "net metering" small generators, even a single windmill, can be linked to the grid and the owner credited for whatever small or large amount contributed.

Questions arise: would the windmill constitute business property? Would a "net metering" arrangement constitute a business or an incidental business? If only an incidental business, can I still have property coverage for the windmill.  If the windmill is uncovered business property, but falls on my covered home, will I have coverage? Right answers (from a policyholder's perspective) may be more difficult to obtain after a loss has occurred. These are contracts after all and the parties (and ultimately a court) will look to the written word to make a determination. While ambiguities will be construed in favor of the policyholder and the reasonable expectations of the insured should be honored, sometimes the coverage just is not there, even though the insured intended otherwise. This may be the case when, for example, obtaining coverage is as simple as having listed the windmill on an appropriate schedule, or changing the limit on what constitutes an incidental business.

The lesson learned is larger than windmill coverage. A change to one's activities can affect one's coverage. The windmill was covered property and I was protected from liability - until (potentially) I decided to hook it into the grid. Losing coverage would have come as a shock.

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