It is becoming more and more common that consumers install solar systems on their homes for the purpose of providing electricity to the home. This is often referred to as “net metering.” While solar panels have been around for a long time, most were used to provide hot water to houses. Solar electric systems are now popular. Under a net metering arrangement, the consumer receives a credit on their electrical bill based on the power generated by the solar panels. If there is excess power generated some arrangements actually provide a refund check to the customer annually.
In speaking with someone who had just such arrangement, she and her husband spent $27,000 on solar panels for their home. The system generated enough power so that their electrical bill was zero. For two years, they actually received a refund check of about $600 for the excess power generated by their system. Not all solar arrangements will result in an actual payment back to the customer. Several utility company websites stated that any excess power generated would be credited to the account, but no payment would be made to the customer.
Nothing in life seems simple at times, and these net metering arrangements always involve insurance implications. The two main issues are coverage for the solar panels and liability for any bodily injury or property damage caused by the solar system. The coverage analysis that follows is based on the standard ISO homeowners policy. Of course, policies differ so it is critical to read the specific policy.
In almost all cases, the solar panels are attached to the roof of the building. As such, they fall under Coverage A. The limit of insurance should then be increased by the cost of the solar panels. Under the standard HO-3 policy, Coverage A items are on an “open peril” (All risk) basis. There are no unique exclusions for solar panels in the policy. That said, FAIA members have reported that insurers are “all over the map” relating to coverage for solar panels. Some insurers have no limitations or exclusions, while others exclude solar panel for damage caused by wind or hail. Some insurers totally exclude solar panels, and some agencies reported that some insurers decline to write a policy for a house with solar panels. The loss settlement method for Coverage A is on a replacement cost basis, assuming Coverage A is at least 80 percent of the replacement cost and actual replacement is made. In the unlikely event that the solar panels were not attached to the house, perhaps in the back yard of the house, they would fall under Coverage B. It may be necessary to adjust the Coverage B if the 10 percent provided in the form is inadequate. Remember that many insurers default Coverage B to just two percent. Since the solar panels would be considered an “other structure that is not a building,” the loss settlement method would be on an Actual Cash Value basis.
Turning to liability, the ISO homeowners forms provide coverage for bodily injury and property damage if an insured is “legally liable” for the damages. Some insurers have taken the position that there is no liability coverage because the arrangement is a “business” as defined in the policy. The appropriate portion of the policy is here, emphasis added:
3. “Business” means:
a. A trade, profession or occupation engaged in on a full-time, part-time or occasional basis; or
b. Any other activity engaged in for money or other compensation, except the following:
(1) One or more activities, not described in (2) through (4) below, for which no “insured” receives more than $2,000 in total compensation for the 12 months before the beginning of the policy period;
(2) Volunteer activities for which no money is received other than payment for expenses incurred to perform the activity;
(3) Providing home day care services for which no compensation is received, other than the mutual exchange of such services; or
(4) The rendering of home day care services to a relative of an “insured”.
Certainly, installing solar panels is not a “trade, profession, or occupation.” Then we have to ask the question of, “Is installing solar panels on a home to receive an electrical credit an “activity?” If installing solar panels to receive a credit from the power company is a “business,” then can’t the argument be made that when a customer spends $15,000 for shutters for their home in return of a premium credit on their insurance policy from the insurance company that is also a “business”? Note, too, the reference to $2,000 of “total compensation” for the 12 months before the beginning of the policy. If the credit provided by the system is no more than $2,000 then it is not a business. Even if the position is taken that this is a business, the insured could receive over $2,000 under the current policy term and the exclusion would not apply until the renewal policy.
I ran this question by five of the best insurance educators in the country, with experience levels between 30 and 52 years. To a person, they all agreed that installing solar panels for a credit from the power company is not a “business” and liability coverage applies. That said, if an insurer takes the position that there is no coverage before a loss takes place, you could fully expect them to take the same position after a loss. Ultimately, it is likely going to be decided in a courtroom. Remember the concept of ambiguity in an insurance policy; if an issue is ambiguous then case law says that the ambiguity is decided in the favor of the insured. As is often the case, two people can read the same policy and reach a different conclusion in a coverage issue.
I have seen several contracts with power companies who utilize these systems. All of them require a liability limit of $1 million. Some specifically require a CGL policy and some require the power company to be an additional insured under the policy. One contract references a CGL or homeowners policy. Finding a homeowners insurer that provides a liability limit of $1 million is rare in Florida. Since the contract requires a homeowners policy, an umbrella might not be sufficient in the view of the power company.
One agency reported that AmWins will write a CGL policy at a $1 million limit for a premium of $750, and that is fully earned. Check with your surplus lines agent to see what they might have available.
While it is a “lofty goal,” consumers should consider the insurance implications of a solar system prior to signing the contract.
Copyright FAIA. 12/20