Event: North American blackout, 2003
Location: North America
Economic cost: Up to $8.2bn in the US as a whole, including $1bn in New York. The US Department of Energy estimates losses at $6bn. Canadian GDP dropped by 0.7% in August 2003, and there was a net loss of 18.9 million work hours.
Description: On 14 August 2003 overhead transmission lines hit overgrown foliage, and a software bug meant that no alarm was raised. The subsequent overload led to the shutdown of 508 generating units at 265 power plants in the US Midwest and Northeast and in Ontario, Canada.
Damage: An estimated 50 million people were affected across eight US states and the Canadian province of Ontario. The economic impacts were widespread. Airlines had to cancel more than 1,000 flights, and New York’s restaurants lost up to $100m in wasted food and lost business, while theatres on Broadway wrote off $1m due to cancelled performances.
Insight: Physical damage is normally required to trigger property and business interruption policies. Time exclusions and deductibles can also leave losses from brief and relatively minor outages uncovered. Following the 2003 blackout a number of high-profile legal cases attempted to establish liability. It was not until 2009 that the Appellate Division of the New Jersey Superior Court published its opinion that the 2003 event had inflicted “property damage” sufficient to support a property insurance claim. Meanwhile, the potential implications of a cyber attack on the US power grid is a scenario considered in a recent report – Business Blackout – by Lloyd's and the University of Cambridge's Centre for Risk Studies. While remote, such an incident, if it were to occur, could result in economic costs of between $243bn to $1trn, depending on its severity.
Insurance solutions: The Lloyd's market offers cover in relation to Power outage. Examples of this include but are not limited to: Commercial property, home and contents, perishable contents, product liability, professional indemnity (directors' and officers'), workers' compensation, physical and non-physical damage business interruption and contingent business interruption (critical vendor), event cancellation, environmental liability, political violence.
Image: Times Square, New York, is plunged into darkness during the North American blackout of 2003 (Getty Images)
Sources: Electricity Consumers Resource Council; Statistics Canada; US Department of Energy
