What is power surge damage?
A power surge is a sudden spike in electrical voltage that can overwhelm circuit boards and damage sensitive equipment.
Common causes include:
- Lightning strikes. A direct or nearby strike can send excess electricity through power lines causing a surge.
- Utility grid issues. Transformer failures, power outages and sudden restorations can create dangerous surges.
- Internal power surges. High-powered machinery (such as HVAC units) cycling on and off within a business can generate internal power fluctuations that accumulate over time.
- Faulty wiring. Old or damaged wiring can increase the risk of electrical spikes.
Power surge damage occurs when a sudden voltage increase overwhelms electrical systems and creates serious issues.
How can power surge damage hurt my business?
Signs of a power surge include:
- Burnt-out circuit boards in computers, cash registers or industrial equipment.
- Data corruption in servers, POS systems and cloud-based storage.
- Malfunctioning air conditioner or refrigerator units, leading to inventory loss.
- Permanent equipment failure, requiring expensive replacements.
Even a minor surge can weaken electronic components over time, increasing the risk of sudden failure.
Beyond the cost of replacing damaged equipment, power surges can create severe operational disruptions such as:
- Lost revenue. If a point-of-sale (POS) system, computer network or production line goes down due to a power outage, business grinds to a halt. That kind of unexpected business interruption can be devastating to a small business.
- Spoiled inventory. Lots of businesses rely on equipment like refrigeration to maintain inventory. If you run a small business like a restaurant or grocery store or even a small medical office, you could face thousands of dollars in losses if a power surge knocks out your refrigerator units.
- Data loss and security risks. Lots of small businesses rely on business-critical data like customer accounts and financial records. If a power surge leads to lost or corrupted business data, the negative impact could be immediate (like failing to meet a compliance obligation) and long-term (like loss of customer trust and a blow to your business reputation).
- Increased machine maintenance costs. Repeated surges can degrade equipment over time, leading to higher repair and replacement costs.
Who pays for power surge damage caused by a power outage?
Determining responsibility for power surge damage can be complex.
Financial responsibility could fall to:
- Utility providers. If the surge resulted from a utility company’s negligence, there may be legal recourse — but proving that an electric company is liable can be difficult.
- Equipment manufacturer. If a device fails due to a manufacturing defect, warranties may cover repairs or replacements.
- Business owners. Without adequate insurance, business owners may need to cover repair or replacement costs out-of-pocket.
What kind of business insurance can help cover power surge damage?
To avoid hefty costs, consider business insurance policies that may offer surge protection. For example:
Commercial Property insurance
Commercial property insurance can protect against power surge damage to your building, goods and gear that’s caused by a named peril, like a lightning strike. But it may not cover some specific damages unless specifically added as an insurance endorsement, such as surges from utility grid failures.
Equipment Breakdown insurance
Equipment breakdown coverage is an extension of commercial property insurance. If you get struck by an electrical surge, it can help protect you from unexpected costs and disruptions. It can also help cover repairs or replacements of damaged equipment such as HVAC systems, computers, refrigerators, electrical panels and water heaters. It can even help protect against lost business income that results from equipment failure.
Business Income insurance
Business income insurance, also known as business interruption insurance, can help cover lost income if a power surge disrupts your day-to-day business operations. Business interruption may require commercial property insurance or tools & equipment coverage to trigger a claim.
Cyber insurance
Cyber liability insurance can help cover data recovery and system restoration if a power surge damages critical IT infrastructure. It can be a good add-on for small businesses that store digital customer data, rely on e-commerce systems, or use cloud-based operations.
Can a business make a claim for damage after a power surge?
If you have small business insurance, you can file a claim if your business experiences power surge damage. But whether or not your claim will be approved depends on what kind of surge protection coverage you have and the cause of the surge.
To help smooth out the claims process, take these steps:
- Document the damage. Take photos, keep maintenance records and save repair invoices.
- Identify the cause. For example, if a utility company is responsible, you may need proof of their negligence.
- Review your policy. Understand your coverage limits, exclusions and deductible requirements.
- Act quickly. Many insurers require claims to be filed within a specific timeframe — and the sooner you submit a claim the faster it can potentially be resolved.
8 surge protection tips for your business
Having the right insurance can help mitigate financial losses from power surge damage, but prevention is still key.
According to NEXT claims data from small restaurants, power outages and lightning claims are most frequent from June to August. That said, voltage spikes can happen at any time, so you should prepare accordingly.
Here are some ways to help safeguard your business:
1. Install surge protectors
Use point-of-use surge protectors for individual computers, POS systems and other sensitive electronics. Install whole-building surge protection devices (SPDs) at your main electrical panel to block large surges from reaching critical systems. Replace surge protectors periodically as they degrade over time — most last three to five years.
2. Invest in an uninterruptible power supply (UPS)
A UPS provides a buffer against power surges by maintaining a steady flow of electricity and allowing devices to safely shut down during outages. It’s an ideal solution for servers, security systems and industrial machinery that rely on continuous power.
3. Schedule regular electrical system inspections
Have a licensed electrician inspect wiring and electrical panels for outdated components. Ensure that grounding systems are properly installed to divert excess voltage safely into the ground. And check wiring, wall outlets and circuits for wear and tear to identify overloaded connections that could contribute to power fluctuations.
4. Review your business insurance policies
Consult with your insurance provider to confirm your coverage for power surge damage. You can get an instant quote to identify your risks and identify additional coverage you may need to ensure adequate protection.
5. Invest in a backup generator
A backup generator with automatic transfer switches can prevent power interruptions and voltage spikes when switching between grid and generator power. With a back-up generator, your business can continue operating during a power outage. Regularly test and maintain the generator to ensure it functions properly when needed.
6. Ensure proper grounding
Work with an electrician to ensure your business has a reliable electrical grounding system that meets modern safety standards. A well-grounded electrical system can help protect computers, POS systems and other business-critical equipment from power surges. For businesses using large appliances, refrigeration, or industrial equipment, grounding is even more critical to prevent power fluctuations from disrupting operations.
7. Protect your data
Frequent power surges can corrupt data on hard drives and servers. Use cloud storage or external hard drives to prevent permanent data loss and help keep critical business information safe. Schedule regular back-ups and implement an automatic backup system to minimize downtime in case of a surge-related failure.
8. Educate employees on surge protection practices
Train staff to properly shut down equipment during storms or sudden power fluctuations. Encourage unplugging non-essential devices overnight or during severe weather events. Post guidelines near workstations to remind employees of best practices.
