Insuring Solar Panels
Question: Our board is considering installing solar panels in our community and we’re wondering: Will the association’s master policy cover the cost of repairing or replacing them if they are damaged or destroyed, or will we have to obtain a separate policy to provide that coverage?
Answer: Don’t you hate it when we begin an answer to a question with “that depends?” Unfortunately, that’s the unavoidable response to almost any question dealing with insurance. In this case, Gregory Pierce, LIA, CPA, vice president and director of business development at NorthStar Insurance Services, Inc., says, the answer depends in part on where your panels are installed.
If they are on building roofs, the most common arrangement, he explains, the property damage coverage for “buildings” would probably cover the panels. The standard policy language defines buildings to include: “fixtures, including outdoor fixtures and signs,” “permanently installed machinery and equipment,” and “personal property owned by you that is used to maintain or service the building or structure or its location.” Absent language excluding them, Pierce says panels installed on your roof would seem to fit comfortably within that definition.
If the panels aren’t attached to the building, however – if they are installed in a common area field or parking lot – master policy coverage is less clear. While the panels might “technically” qualify as “permanently installed machinery or equipment,” or as “personal property” under the building definition, Pierce cautions, “There is a difference between covered and technically covered.” He sees enough room for interpretation — and disputed coverage — in the policy language to suggest that you should probably obtain what is known as an “Inland Marine” policy, providing separate coverage specifically for building equipment.
Regardless of whether the panels are installed on the roof or planted in a field, Pierce advises, you should check with your insurance agent or your underwriter to verify the coverage. You want your insurer to be aware that you have the panels, he says, so they won’t be surprised (or resistant) if you file a claim related to them.
Verifying coverage for the panels is only one concern, Pierce points out; you also want to be sure the policy limit reflects the cost of repairing or replacing them. If your master policy limit is set at $10 million and the panels you add cost $500,000 (including purchase and installation), Pierce suggests, you will want to increase you coverage limit to $10.5 million.
Insuring the panels may or may not increase your premium, Pierce says, depending (that word again) on how your underwriter feels about covering solar panels. Some companies may not increase your premium at all, Pierce notes, while others may increase it a lot, and some may refuse to insure the panels at all. If your insurer says no, (or if you don’t like the cost,) you can obtain the separate “Marine Inland” policy described earlier to provide the protection you need.
Either your master policy or that Marine Inland policy would insure your panels for damage resulting from storms, fires, water leaks, or other specifically covered events; but neither would provide coverage for mechanical failures unrelated to those events. An electrical surge that severely damages the panels or fries them completely, for example, would not be covered. To get that protection, which Pierce says you should have, you will need an “equipment breakdown” policy, which would cover specified “accidents,” including: “artificially generated electrical current, including electrical arcing, that damages electrical devices, appliances or wires.”
Pierce has one additional entry on the list of issues your board should consider, and it applies to the installation of your panels: Make sure you employ appropriate “risk transfer strategies,” by which he means, “include all the protections you can get” in your contract with the installation company. At a minimum, he says, you will want to require the company to provide proof of adequate insurance, indemnify the association from claims resulting from damage for which the contractor is responsible. You also want to make sure there is nothing in the contract that would prevent the association’s insurance company from suing the contractor to recover the cost of a covered claim resulting from something the contractor did, failed to do, or failed to do properly.