Insurance for Commercial Users
Developing a commercial wind installation is a costly venture. A single one-megawatt wind turbine costs more than $1 million to construct and install. It is important for a company to protect its investment with the proper insurance coverage. The unique insurance needs of a commercial wind installation make it challenging to anticipate and address the installation’s exposures.
All-Risk insurance covers damage to property and time delays. All-Risk covers turbines, foundation, transmission, substation and balance of plant. Property coverage usually includes machinery breakdown, wind, storm, and fire. Additional catastrophic coverage for installations in areas of high risk of hurricanes, earthquakes, floods or other natural disaster can be purchased; however, deductibles and premiums for this coverage are usually separate and much higher. It is common for installations with catastrophic insurance to be insured at less than the cost to replace the project.
The most common mechanical damage to wind turbines is to gears and bearings. Damage is usually the result of material defects, overloading, use of the wrong oil, or oil temperature.
Even though wind turbines are designed to capture wind power, the wind can still damage or even destroy a wind turbine. High wind speed, gusts and quick direction changes put enormous strain on the gearbox and rotor blades of a turbine resulting in fractures or catastrophic failure.
Fires are a large risk to wind turbines. Fires are usually caused by technical faults, but component defects and failures can also cause turbine fires. Even if the source of the fire can be traced to part failure that is covered under your turbine warranty the full cost of the turbine will not be covered. Without the proper property coverage your company could be stuck with the full cost to replace a turbine in the event of a fire.
Lightning damage is the most common reason for property claims filed by wind farms. Lightning does not only damage the electronic control systems in a turbine lightning strike to the blade of a turbine causes the air inside the blade to super heat and rapidly expand. This expansion exerts enormous outward force that can result in the carbon fiber in the blades de-laminating or fracturing. The cost of replacing even a single turbine blade can be in the hundreds of thousands of dollars.
There are two types of all-risk coverage, construction all-risk and operating all-risk. Construction all-risk covers the development of a wind project from the time the components begin transportation to the work site to the delivery of the project. Operating all-rick coverage activates once a wind project is delivered and commercial production starts. In addition to the property coverage listed above, all-risk includes time delay coverage. Time delay protects against lost revenue due to transit delays, construction delays and interruptions in operations.
Property insurance coverage does not provide warranty coverage. Property policies often have ambiguous language for coverage exclusions and claims are subject to underwriter’s review and acceptance. The majority of property coverage policies exclude coverage for:
- Defects in materials or design
- Wear and tear
- Gradual deterioration
- Inherent vice
- Latent defects
Wind farms should purchase warranty coverage to avoid the gap in coverage left by property alone. There are two options for warranty insurance after the original equipment manufacturer’s (OEM) warranty has expired. Purchase an extended warranty from the OEM or purchase warranty insurance from a third party insurance provider. Extended OEM warranties are generally sold per-turbine, per-year, and fully cover the turbine with no deductible. Third party warranty insurance is sold in “chunks” of limits that are good for five years. The limits for third party insurance are required to be calculated using a maximum profitable loss basis. Under expected conditions the policy will be able to cover the foreseeable loss. Third party policies will also have an annual deductible comparable to a property policy. Third party warranty insurance can usually be purchased much cheaper than an extended OEM policy; the trade-off is that the limits of the coverage are much lower than with an OEM policy.
Other Insurance Coverage
The unique insurance needs of wind farms are mainly in the property and warranty coverages. The other insurance needs of a commercial wind farm are very similar to the needs of any other business. Like any other business a wind farm is required to carry workers’ compensation, commercial auto, general liability, professional liability and employer’s liability. Umbrella and excess liability coverage should also be considered.
Insurance for wind farms is highly specialized. We can help you get the correct coverage for your commercial wind installation.