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Not all wind turbine insurance coverage is the same

Purchasing insurance is one thing—getting an insurer to cover a catastrophic claim is another.

Contributed by Greg Van Houten, Haynes Boone

Wind turbines rarely fail due to physical damage, but if they do the financial losses are significant, hence why operators purchase property damage and business interruption insurance.  But purchasing insurance is one thing—getting an insurer to cover a catastrophic claim (like the TransAlta failure) is another.  This article highlights two ways to increase the likelihood that a wind turbine failure, and the repairs and lost income that come along with it, are covered by insurance.

First, promptly notify your insurer upon the discovery of damage—be it damage caused by a lightning strike, fatigue load, ice accumulation, exposure to airborne particulates, mechanical defects, or some other cause. Prompt notice of damage is critical because, as unfair as it may seem, insurance companies routinely deny claims as “late.”  Insurance companies ground such denials in contract language that requires notice within a certain number of days of the discovery of the damage, by the end of the insurance policy period, or in a seemingly more flexible amount of time, like “as soon as reasonably practicable.” Insurers have leveraged such contract language to deny claims made just days “late” and, unfortunately, some courts have even upheld such denials. For example, in 2021, the Court of Appeals of Kentucky held that it was proper for an insurer to deny coverage when the policyholder provided notice just three days late. Such underscores the need for prompt notice.

It is also critically important to consider providing your insurer with notice of any damage—however big or small—rather than only significant or catastrophic damage. The reason is that what at first may seem like a minor or isolated issue can quickly grow into something significant or widespread.  For example, the discovery of leading-edge erosion on a single blade could, upon further inspection, be a system-wide issue. And, in such a scenario, insurers often argue that the widespread damage relates back to the initially discovered isolated issue, and if that first issue was not timely noticed, then there is no coverage for the entire claim. Although harsh, insurers have denied major claims upon such fact patterns and, in some instances, courts have upheld such denials. Such occurred in 2018 when a federal court in Illinois held that an insurer properly denied coverage for a series of claims because the policyholder’s initial notice was late and all the claims—even though they arose at different times—were “interrelated.”

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Second, carefully document your inspection and maintenance records, including compliance with industry standards and manufacturer recommendations. This is important because insurers can and do deny property damage and business interruption claims upon the argument that the policyholder failed to take adequate measures to prevent or promptly discover the onset of the damage.  Insurers do so upon contract provisions that require the insured to, for example, “use due diligence… in doing all things reasonably practicable to avoid, or diminish any loss herein insured.”  See Allianz Global Corporate & Specialty SE Wind Energy Property All Risks Insurance Form.  Demonstrating how such clauses are leveraged by insurers, in United States v. Eagle Star Ins. Co. an insurer denied coverage for damage to an airplane sustained in a crash upon its argument that the insured failed to use due diligence when it took off with an accumulation of ice, snow, and frost on the wings and fuselage.  196 F.2d 317, 318 (9th Cir. 1952), on reh’g, 201 F.2d 764 (9th Cir. 1953).

In the wind energy context, a similar scenario could arise with ice accumulation.  An insurer could, in theory, deny a property damage and business interruption claim arising out of damage caused by ice accumulation by alleging that the policyholder was not “reasonably practicable” in preventing and promptly discovering the ice-related damage. The policyholder could minimize the likelihood of such a denial by documenting and maintaining, in an easily accessible database or otherwise, compliance with industry standards and manufacturer recommendations with respect to anti-icing technologies, be it a blade heating system, anti-ice blade coatings, or otherwise. 

The policyholder could also minimize the likelihood of such denial by documenting site visits and inspections conducted by, or maintenance and inspection recommendations made by, the insurer or its agents. By doing so, the policyholder can develop an argument that the insurer cannot deny coverage upon the policyholder’s failure to take action or discover damage that the insurer itself did not recommend or discover.  Some sophisticated insurers with significant market share in the wind energy space—Allianz for example—offer public conferences and publish materials on certain cutting-edge issues.  For example, in May 2018, Allianz hosted a conference in which “ice detection” was discussed.   It would be difficult for Allianz to subsequently deny an ice-related claim for the insured’s alleged lack of due diligence when the insured did exactly what was discussed at that conference. 

In conclusion, it is critically important that wind operators understand how to increase the likelihood that a turbine failure, and the repairs and lost income that come along it, are covered by insurance.  Two considerations are particularly important. First, timely notice—it is critically important that policyholders consider notifying their insurer(s) upon the discovery of any damage. Second, careful documentation of inspection and maintenance records—including compliance with industry standards and manufacturer recommendations.  Those two simple steps will significantly increase the likelihood of insurance coverage in the event of a wind turbine failure.  Consulting with an attorney specializing in insurance recovery can increase that likelihood even further.

About the author

Greg Van Houten is a senior associate at Haynes Boone in Washington, D.C. and New York.  He focuses his practice on insurance counseling and recovery and represents clients in a range of industries and sectors, including renewables, industrial manufacturing, food and beverage, healthcare and laboratory sciences, and electronic trading.

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