PHOENIX, AZ – In 2024, Phoenix experienced an unprecedented 113 consecutive days with temperatures above 100°F. While Arizonans are accustomed to extreme heat, 2025's relentless temperatures exposed a critical problem for commercial property owners: insurance policies written for "normal" heat don't cover damage from extraordinary heat.
HVAC systems fail under prolonged strain. Roofs crack and warp from thermal stress. Solar panels lose efficiency or sustain damage. Pipes expand and burst. Yet when Phoenix business owners file claims, many discover their "named peril" policies explicitly exclude heat-related damage—or insurers deny claims arguing the damage resulted from "gradual deterioration," not a covered event.
As climate change pushes Phoenix summers into territory insurance policies were never designed to address, commercial property owners face a stark choice: accept growing exposure to uninsured losses or fundamentally rethink their coverage strategies.
Four Heat-Related Scenarios Where Insurance Fails Phoenix Businesses
Scenario 1: HVAC System Failure Under Extreme Heat
Your commercial building's HVAC system runs constantly during a heat wave, trying to maintain tolerable interior temperatures. After weeks of 110°+ days, the compressor fails. Repair cost: $12,000.
You file a claim, expecting coverage. The insurer denies it.
Their reasoning:
- "The system failed due to wear and tear from normal use, not a sudden, covered event."
- "Extreme heat is a foreseeable condition in Arizona. Equipment failure from heat is excluded."
- "Your policy covers sudden mechanical breakdown only if caused by a covered peril. Heat is not a covered peril."
The gap: Most commercial property policies are written as "named peril" policies, meaning they only cover damage from specifically listed causes (fire, wind, hail, explosion, etc.). Heat—even record-breaking, system-destroying heat—often isn't named.
What would have helped: Equipment breakdown coverage (also called boiler and machinery insurance) specifically covers mechanical failures, including those caused by heat stress.
Scenario 2: Roof Damage from Prolonged Thermal Stress
Phoenix roofs endure surface temperatures exceeding 160°F during summer. Your flat commercial roof develops cracks, warping, and membrane failure after 2024's record heat. Water begins infiltrating during monsoon rains. Repair cost: $45,000.
The claim is denied.
Insurer's argument:
- "Damage is consistent with normal roof deterioration, not a sudden event."
- "Roofs are expected to withstand Arizona heat. This is a maintenance issue."
- "The policy excludes 'wear, tear, deterioration, and latent defect.'"
The reality: While roofs are designed for heat, they're not designed for 113 consecutive days of 100°+ temperatures. The 2024 heat wave pushed materials beyond their engineered tolerances, causing premature failure.
The gap: Policies distinguish between "sudden" damage (covered) and "gradual" damage (not covered). Heat-accelerated roof failure often falls into the "gradual" category—even when extraordinary conditions caused it.
What would have helped: "Open peril" (or "all-risk") policies that cover all causes of loss except those specifically excluded. These policies shift the burden—insurers must prove an exclusion applies rather than policyholders proving the cause is covered.
Scenario 3: Solar Panel Efficiency Loss and Damage
Your commercial building's solar panels lose 15-20% efficiency during the extreme heat, then suffer permanent degradation. Production drops permanently, affecting your energy costs and sustainability goals.
The claim is denied or underpaid.
Insurer's position:
- "Solar panels are designed to operate in heat. Efficiency loss is normal."
- "Your policy covers physical damage, not loss of performance."
- "Any damage is from prolonged exposure (gradual deterioration), not a sudden event."
The reality: Solar panels lose efficiency as temperatures rise (the "temperature coefficient" effect). But sustained 110°+ temperatures can cause permanent damage: micro-cracks in cells, delamination of protective layers, and accelerated aging.
The gap: Insurance policies struggle with "loss of performance" versus "physical damage." If panels still function but at reduced capacity, insurers argue there's no covered loss.
What would have helped: Specialized solar equipment coverage with performance guarantees, not standard commercial property coverage.
Scenario 4: Pipe Expansion and Burst from Heat Stress
Pipes in your attic or walls expand during extreme heat. After weeks of stress, joints fail and pipes burst, causing water damage when you run water through the system.
The claim is complicated.
Insurer's questions:
- "Was this a sudden burst, or gradual deterioration?"
- "Were the pipes properly installed and maintained?"
- "Did heat cause the failure, or was it normal wear?"
The challenge: Proving heat—not age or installation defects—caused the burst is difficult. Insurers default to blaming age/maintenance.
What would have helped: Pre-loss engineering inspections documenting that plumbing was sound before the heat wave, plus documentation of temperature extremes.
Understanding "Named Peril" vs. "Open Peril" Policies
Most commercial property insurance falls into two categories:
Named Peril Policies
How they work: Coverage only applies if damage is caused by a specifically listed peril.
Common named perils:
- Fire or lightning
- Windstorm or hail
- Explosion
- Riot or civil commotion
- Aircraft or vehicles
- Smoke
- Vandalism
- Theft
Notice what's missing: Heat, temperature extremes, equipment strain, thermal stress.
The problem: If heat causes damage and "heat" isn't listed as a covered peril, the claim is denied—even if the damage is catastrophic.
Open Peril Policies (All-Risk)
How they work: All causes of loss are covered except those specifically excluded.
Common exclusions:
- Flood
- Earthquake
- Wear and tear
- Mechanical breakdown (unless equipment breakdown coverage is added)
- Gradual deterioration
The advantage: The burden shifts to the insurer. They must prove an exclusion applies—not you proving a covered peril caused the damage.
The catch: "Gradual deterioration" and "wear and tear" exclusions still apply. Insurers will argue heat damage falls under these exclusions.
Four Strategies Phoenix Businesses Must Adopt
Strategy 1: Add Equipment Breakdown Coverage
Standard property policies exclude mechanical breakdown. Equipment breakdown (EB) coverage fills this gap.
What it covers:
- HVAC system failures
- Electrical system failures
- Boiler and machinery breakdowns
- Computer and electronic equipment
- Production equipment
Why Phoenix needs it: When HVAC systems run constantly for months, mechanical failures become inevitable. EB coverage ensures repairs are covered regardless of the cause.
Cost: Typically 5-15% of your property premium—a small price for critical coverage.
Strategy 2: Switch to "Open Peril" Coverage Where Possible
Named peril policies force Phoenix businesses to argue that "heat" should be considered part of covered perils (like fire or thermal events). This is an uphill battle.
Open peril policies require insurers to prove heat damage falls under excluded "gradual deterioration"—a more favorable starting point.
The trade-off: Open peril policies cost 10-30% more than named peril. But for Phoenix businesses, the extra coverage may be worth the cost.
Strategy 3: Document Extreme Conditions When They Occur
If damage occurs during record-breaking heat, document it:
- National Weather Service temperature records
- Local news coverage of extreme conditions
- Photos/videos showing environmental stress
- Expert statements that conditions exceeded engineered tolerances
Why it matters: This evidence helps you argue the damage was a "sudden and accidental" event caused by extraordinary conditions—not gradual deterioration from normal Arizona heat.
Strategy 4: Conduct Pre-Summer Engineering Assessments
Before each summer, have systems professionally inspected:
- HVAC systems
- Roofing
- Plumbing
- Electrical systems
- Solar panels
Get written reports stating everything is in good condition. Store these reports off-site.
Why it matters: When insurers deny claims citing "pre-existing conditions" or "lack of maintenance," you can produce recent professional assessments proving systems were sound before the heat wave.
The 2025 Insurance Market Reality in Phoenix
Arizona's extreme heat is forcing insurers to re-evaluate how they price and structure commercial property coverage.
What's changing:
- Higher deductibles for summer claims: Some insurers now apply separate deductibles for heat-related claims
- Specific equipment exclusions: Policies may exclude HVAC or roofing claims from June-September
- Mandatory maintenance requirements: Insurers require proof of annual system maintenance or claims are automatically denied
- Capacity reductions: Some insurers are limiting exposure in Phoenix by writing fewer policies or reducing coverage limits
The trend: Insurers are trying to avoid catastrophic losses from widespread heat damage by shifting more risk onto policyholders.
What this means for businesses: Coverage that existed last year may not renew this year—or may come with significantly worse terms.
Five Questions to Ask Your Insurance Agent Today
Don't wait for the next heat wave to discover coverage gaps. Ask these questions now:
1. Is my policy "named peril" or "open peril"?
- If named peril: Is "heat" or "temperature extremes" listed? (Probably not.)
- If open peril: What exactly is excluded?
2. Do I have equipment breakdown coverage?
- If no: Add it immediately.
- If yes: What's the coverage limit? Is it adequate for full HVAC replacement?
3. How does my policy define "sudden and accidental" damage?
- Can heat damage after weeks of extreme temperatures qualify as "sudden"?
- Or does the insurer interpret "sudden" to mean "instantaneous"?
4. What documentation will the insurer require if I file a heat-related claim?
- Maintenance records?
- Engineering reports?
- Proof the damage wasn't pre-existing?
5. What are the deductibles for equipment, roof, and mechanical system claims?
- Are they higher than your standard property deductible?
- Can you afford them?
The Uncomfortable Truth About Climate Change and Insurance
Phoenix's 2024 heat record won't stand forever. Climate projections suggest even hotter summers are coming. Insurance policies written for "normal" Arizona heat—even the extreme heat Phoenicians are accustomed to—may not cover damage from the new normal.
The challenge: Insurance is based on historical data and actuarial projections. When conditions exceed historical norms, policies fail.
What this means:
- More denied claims as "unprecedented" heat becomes routine
- Higher premiums to reflect increased risk
- More exclusions and limitations
- Potential market exits by insurers unwilling to cover heat risk
The bottom line: Phoenix businesses must adapt their coverage strategies to match changing realities. Policies adequate five years ago may be dangerously insufficient today.
Review your coverage now. Add equipment breakdown protection. Document extreme conditions when they occur. And prepare for an insurance market that's struggling to keep pace with Phoenix's changing climate.
Source: Arizona Insurance Group, ASNOA Insurance, Wilde Wealth Insurance