Author: Nancy Germond
Let's look at the three geothermal technologies frequently installed in homes and commercial buildings.
- Ground source heat pumps
- Direct use geothermal systems
- Deep geothermal systems
What is Geothermal Energy?
According to the EPA, “Geothermal energy is considered a renewable resource. Ground source heat pumps and direct use geothermal technologies serve heating and cooling applications, while deep and enhanced geothermal technologies generally take advantage of a much deeper, higher temperature geothermal resource to generate electricity."
Let's explore (excuse the pun) the ways your clients may utilize geothermal in their homes and businesses.
1. Ground source heat pumps
For your personal lines customers, the ground source heat pump can replace the traditional gas-powered or electric heating/cooling systems, as well as water heaters.
A ground source system, also called a geoexchange system, is a heat pump that connects to a series of buried pipes. Installers bury pipes just below the ground in either horizontal trenches or vertical “boreholes" that can go several hundred feet below ground. A heat-moving fluid circulates through the pipes to move fluid from Point A to Point B.
Some issues in commercial lines coverage for these pipes may occur as outlined below.
2. Direct Use Geothermal
According to the EPA, “Direct use geothermal systems use groundwater that is heated by natural geological processes below the Earth's surface."
Commercial builders may use water coming from direct geothermal systems in many applications, including heating large swimming pools, space heating, cooling, and even furnishing hot water for large buildings or in multiple buildings.
Organizations may use direct use geothermal to heat roads, melt snow and in industrial and agricultural uses.
Some issues for commercial insurance coverage would apply as outlined below.
3. Deep and Enhanced Geothermal
Deep geothermal systems utilize steam far below the Earth's surface for applications requiring high temperatures, usually of several hundred degrees. According to the EPA, “These systems typically inject water into the ground through one well and bring water or steam to the surface through another."
Some issues for commercial insurance coverage would apply as outlined below.
Insurance Coverage for Geothermal Technology
The homeowners policy should cover the system's piping (depending on the cause of loss), but on the commercial side there is a specific limitation within the “Property Not Covered" section that excludes underground pipes, flues, or drains. Thus, the unendorsed commercial property policy does not appear to cover the system's piping. Agents would need to endorse the policy to add this property as covered property.
Further, according to David A. Walker, President of Hartland Insurance Agency in Michigan, even if endorsed, coverage can be doubtful.
“The unendorsed ISO commercial property policy is not going to provide any coverage for that exposure because of the “Property Not Covered" language. You could endorse the commercial property policy using CP 14 10, but here is the problem that I always try to point out when I am teaching commercial property classes," Walker says.
The CP 14 10 is a blank-form endorsement that allows your insureds to list property they wish to take off the "property not covered" list, including it by endorsement as “covered property." However, Walker has words of warning.
“Just because you amend the “Property Not Covered" section to include coverage for these types of 'property,' it does not change the perils covered by the Cause of Loss form attached to the CP policy.
“I point this out because the Cause of Loss form (think earth movement, hydrostatic pressure, etc.) excludes most of the 'bad things' that trigger loss or damage to these types of property. While the CP 14 10 endorsement does have its place, it really 'struggles' when you start to put things underground," according to Walker.
Walker had this thought. “While not an ISO form (yet), we are seeing companies beginning to offer 'service line' coverage (coverage they have essentially stolen from the personal lines folks), offering some limited coverage in a broadening endorsement and as a standalone, with some but limited flexibility in limits."
Bear in mind, however, that not all service line coverage forms cover geothermal energy piping. It might be possible, assuming agreement and confirmation from underwriting, to include these items in service line coverage, according to Walker.
Don't assume the underwriter considers geothermal piping a “service line."
With unusual loss exposures, always ask for clarification in writing from your underwriter. If you're emailing, retain those email documents in your agency management system. If you receive verbal confirmation by phone, write an email to that underwriter to memorialize the conversation, saving the email in your agency management system.
Underground Piping Hazards
Just like a sewer or any water line, buried pipes can cause problems from these hazards.
- Normal aging
- Wear and tear
- Lack of regular maintenance
- Ongoing pipe issues, such as tree roots in geothermal lines
It's always best to discuss with your insureds any underground piping they have that may be unusual, such as piping for geothermal energy sources. Then, it's a matter of reading the policy form and if necessary, talking to your underwriter, to determine if you need to endorse the policy, or you can safely assume there will be coverage if a covered peril triggers a loss.
Last Updated: January 27, 2023
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