One summer evening the power goes off in the neighbourhood, and by morning the contents of the chest freezers have thawed; or one weekend the cold room's compressor quietly stops, and on Monday the butcher's, the pharmacy or the corner shop has to throw out a week's worth of stock. As a broker, what I see is that company managers assume two things in such cases: that the property insurance for their premises will “obviously” pay for this, and that if there was a power cut, the electricity company will reimburse the loss anyway. Neither is automatically true. In Hungarian property insurance conditions, spoiled chilled and frozen stock is a separate risk that needs its own clause, and so is electrical damage without fire (power surge), while the electricity company's liability depends on conditions and on proof. This article sets the three questions side by side: what the insurer pays and under what conditions, when the electricity company is liable, and what you need to document so that you have a chance on either route.
- The basic cover of property insurance for your premises typically does not pay for spoiled chilled or frozen stock: for that you need a separate refrigerated goods clause, which covers the unexpected breakdown of the refrigeration equipment and mains power cuts – above a minimum duration that varies from insurer to insurer.
- Electronic damage without fire caused by a power surge, induction or short circuit (the controls of a refrigerated display counter, the compressor, the cash register) is likewise paid only under separate cover; a planned disconnection that was properly announced in advance is typically not a loss to be compensated either by the insurer or by the electricity company.
- The electricity company pays a flat-rate penalty for breaching the service levels prescribed by the regulator; compensation for the actual loss has to be requested as a separate damage claim – with proof of the cause of the fault and the duration of the outage, and with documentation of the steps taken to mitigate the loss.
Why doesn't the basic cover pay?
The basic cover of property insurance for your premises is built on named perils: fire, explosion, lightning, storm, water damage, burglary. The insurer pays only for what is an insured event under your contract – and the spoiling of refrigerated goods is not one in itself. It is not fire, not storm, not burglary; the loss arises without anything spectacular happening – only the temperature shifts. Machinery breakdown insurance does not solve this either: it pays for damage to the refrigeration equipment itself (compressor, controls), but typically not for the goods stored in it, unless there is a separate extension for that. I wrote about this boundary in the article on machinery breakdown and business interruption. That is why the spoiling of refrigerated and frozen goods appears in policy conditions as a separate clause or module – and if this line is not in your policy, the loss stays with the company not because the insurer rejected the claim, but because there was never any cover for it. The logic of the article what business insurance covers applies here word for word.
The refrigerated goods clause: what it covers and what it does not
The refrigerated goods clause in Hungarian business insurance packages – under different names and with different content from insurer to insurer – typically covers two triggers: an unexpected technical breakdown of the refrigeration equipment, and an unannounced interruption of the mains electricity supply. For the latter, policy conditions typically stipulate a minimum continuous duration: the insurer pays only if the outage exceeds the number of hours fixed in the contract – market examples range from a few hours to a dozen or so, and the figure has to be read from your own policy, not from experience. A planned disconnection announced in advance does not fall within this: you can prepare for it, so it is not an insured event. Compensation is typically based on the purchase price of the stock, not the selling price, and the clause has its own limit – often a fraction of the total stock value or a fixed amount – which a seasonal peak can easily exceed; this is why the article on seasonal operation argues for a temporary increase in the insured stock value.
The exclusions are just as important. Policy conditions typically do not pay for the loss if the equipment stopped because of wear and tear or a lack of maintenance; if the goods were already past their use-by date or spoiled before the loss; if the refrigerator was operated beyond the age specified in the policy conditions (some conditions also limit the age of the equipment); or if the loss stems from a fault in the business's own electrical installation – in this last case, whether it is covered varies from insurer to insurer. A fridge door left open, an alarm switched off, maintenance put off – these raise the question of negligence: in cases of simple negligence some policy conditions pay, while in cases of gross negligence the insurer may be released from paying – the burden of proof is then on the insurer, but avoiding a dispute is simpler than winning it. After an official order to destroy the goods (for example, a decision by the food chain safety authority), the cost of destruction is also paid only if the clause extends to it.
Power surges: the other gap
A power cut often causes damage not through the outage itself but when the power comes back on: the voltage spike destroys the control electronics of the refrigerated display counter, the cash register, the cold room's temperature controller. The basic cover pays for fire caused by electric current, but typically not for surge, induction or short-circuit damage without fire – for that, Hungarian policy conditions require a separate add-on (secondary effects of lightning, surge cover, or all-risks insurance for electronic equipment), with its own limit and deductible. Two conditions are worth keeping in mind in advance: both the insurer and the electricity company may ask for an expert opinion on whether the failure was really caused by a surge, and some policy conditions stipulate, or at least examine, whether there was surge protection at the premises. The lack of protection is not necessarily a ground for exclusion in itself, but it may play a role in assessing whether the duty to mitigate the loss was met.
When is the electricity company liable?
This is where most of the misunderstandings lie. Under Act LXXXVI of 2007 on electricity (Vet.) and the quality requirements prescribed by the Hungarian Energy and Public Utility Regulatory Authority (MEKH), the distribution licence holder undertakes the so-called “garantált szolgáltatások” – statutory service standards, for example restoring the electricity supply within a specified time – and if it fails to meet them, it pays the customer a penalty. This penalty, however, is a flat rate: it is not linked to the size of the loss and does not replace the value of a week's frozen stock. Compensation for the actual loss – the ruined equipment, the spoiled goods – has to be lodged as a separate damage claim with the network licence holder (the distribution system operator, not the electricity trader that sends you the bill). In practice, the operator examines whether the fault arose on its network, whether the outage was announced in advance, whether the voltage stayed within the permitted limits when the power came back on, and whether the customer had surge protection; it also asks for a specialist's certificate and the repair invoice. If the fault arose in the company's own network (distribution board, wiring, its own generator), the operator is not liable. And if the insurer has paid under the clause, the claim against the liable party passes to the insurer up to the amount paid, under the insurance rules of the Hungarian Civil Code (Ptk.) – so the company should report the loss to both the insurer and the operator, and should not conceal either one from the other.
Mitigation and documentation: both routes depend on them
Under the insurance chapter of the Civil Code, the insured must act as can generally be expected in the given situation to prevent and mitigate the loss – with refrigerated stock this is very concrete. During a power cut, do not keep opening the fridges; if possible, move the goods to another fridge or a rented refrigerated vehicle (some policy conditions pay this cost, charged against the limit); for a planned disconnection, prepare in advance. And when a loss occurs, the order is: photos and video of the fridge, the thermometer and the goods before you throw anything away; an itemised list of the discarded stock with purchase prices, together with the purchase invoices; a disposal report; the service engineer's report on the cause of the breakdown; a certificate requested from the electricity company on the start and duration of the outage; the maintenance log and the temperature records, if you keep them. These items supplement the general list in the article on documenting a loss. The primary route for reporting is the insurer's claims line or online portal, within the short deadline set in the policy conditions; under Section 6:453 of the Civil Code, a delay has legal consequences only if, as a result, an essential circumstance can no longer be established – but with stock that has thawed and been thrown away, it is precisely this essential circumstance that disappears, so here promptness is not a formality.
What should you do now?
Take out your policy and look for the refrigerated goods or frozen goods line: whether it is there at all, with what limit, what minimum power-cut duration and what age limit for the equipment. Check whether electrical damage without fire (surge, induction) is covered, and with what limit. Compare the limit with your actual stock value at peak times. Put the maintenance paperwork in order and, if the equipment allows it, set up a temperature alarm – this reduces both the loss and the scope for dispute. If you contact me with these questions and the cover is narrow, I request quotes for the clause and prepare the comparison of the offers; in a claim that gets stuck or disputed, I help where I can – the decision and the reporting remain yours.
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Sources
- Act LXXXVI of 2007 on electricity (Vet.)
- Hungarian Civil Code (Ptk.) Section 6:453 – legal consequences of late notification of a claim; the insurance chapter's rules on loss prevention and mitigation
- MVM Next – “Garantált szolgáltatások” (statutory service standards: the universal service provider's service levels subject to penalty payments, and the penalty amounts; the distribution operators' standards for restoring supply are set out in the information published by the relevant distributor – E.ON, MVM Démász, MVM Émász)
- Vállalkozói biztosítás kalkulátor (business insurance calculator site) – Frozen goods insurance for SMEs (knowledge centre)
- biztositas.hu – Damage caused by a power cut: whose responsibility is it?
