Equipment Breakdown Insurance pays for financial loss incurred when equipment breaks down suddenly and accidentally. Equipment is subject to unique hazards such as power surges, short circuits, centrifugal force, motor burnout, and mechanical breakdown. Equipment breakdown insurance covers equipment accidents from these risks of loss.
The coverage is for loss due to mechanical or electrical breakdown of nearly any type of equipment, including photocopiers and computers. Coverage applies to the cost to repair or replace the equipment and any other property damaged by the equipment breakdown. Resulting business income and extra expense loss is often covered as well. Equipment breakdown insurance is increasingly replacing traditional boiler and machinery (BM) insurance, in part simply because the title is more descriptive of the coverage provided. Also, today’s equipment breakdown policies typically provide slightly broader coverage than traditional BM policies, and they usually do not use the specialized terminology found in traditional BM policies.
Simply put, boiler and machinery insurance is equipment breakdown insurance. In fact, many of today’s boiler and machinery coverage forms use the title “equipment breakdown insurance” rather than “boiler and machinery insurance,” because it provides a better description of what the policy covers. Only a few years ago, equipment breakdown coverage was most often provided in traditional boiler and machinery policies granting coverage for “accidents” to insured “objects.” These policies contained lengthy, technical definitions of insured “objects.” Nontraditional policies using everyday terms such as “breakdown” and “equipment” and granting coverage for breakdown of nearly all types of equipment were in the minority.
The switch from the traditional “boiler and machinery” approach to the newer “equipment breakdown” approach was both acknowledged and hastened by Insurance Services Offices, Inc. (ISO), in the last quarter of 2001, when its traditional boiler and machinery insurance policy forms and endorsements were replaced with a new equipment breakdown policy and endorsements in most jurisdictions. (ISO is an insurance advisory organization that provides standard policy forms that insurers may elect to use. Currently, equipment breakdown insurance is usually provided in one of the following ways.
- Under a separate, monoline policy
- By endorsement to a commercial property or package policy
Under a commercial property or package policy that is designed to include equipment breakdown coverage.
Organizations that have a significant equipment breakdown loss exposure are more likely to be offered coverage under a monoline policy, whereas those with less exposure in this area are more likely to be offered coverage as part of a commercial property or property and liability insurance package policy.