Equipment Breakdown Insurance
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.
It pays the cost to repair or replace damaged equipment. It can also cover business income losses and the costs you incur to speed restoration of business operations when breakdown interrupts your operations. Many of our customers buy spoilage coverage to protect substantial values of perishable goods that spoil as a consequence of a breakdown.
Because the costs of breakdown can be significant and these breakdowns occur often enough for there to be a legitimate risk to your organization’s financial health or to the profits of your business.
If your business or organization owns, operates or depends upon some type of equipment to generate revenue, you need equipment breakdown insurance. Do you use electricity? Do you heat, cool or refrigerate your premises? Do you have communication networks? Do you manufacture or process goods? Do you use equipment to sell, deliver service or help you keep track of sales? Do you use a lot of hot water? If so, you need equipment breakdown insurance.
Organizations that have steam equipment on their premises usually recognize their need for this coverage. Most states and many local governmental entities require regular inspection of various types of boiler equipment. While a few require the inspections to be performed by state inspectors, most will accept inspections performed by insurance company boiler inspectors. For this type of equipment, insurance is sometimes purchased as much for the inspection service as for the insurance protection.
Organizations that do not own or operate steam equipment do not have an exposure to loss from explosion of steam equipment, and thus may not recognize the applicability of “boiler and machinery insurance” to their operations—especially when it is called by its traditional name. But nearly every organization owns or operates mechanical and electrical equipment, even if it is only a photocopy machine. Therefore, virtually all organizations have at least some exposure to loss due to mechanical or electrical breakdown of their equipment. For many organizations, this loss exposure is significant enough to warrant the purchase of equipment breakdown coverage, particularly when the potential for resulting business income and extra expense losses is considered.
Some organizations elect to rely on equipment maintenance contracts as an alternative to equipment breakdown insurance. Depending on the cost of the maintenance contract versus the cost of the equipment breakdown insurance, there may be some organizations that are well served by that approach. But a business that owns equipment that could potentially damage other property is much better off with equipment breakdown insurance. The same is true of businesses that have a business income or extra expense loss exposure associated with their equipment. Maintenance contracts seldom, if ever, provide compensation for loss of use.
Property insurance covers many standard perils, such as fire. But even “all risk” property coverage wasn’t designed to pay for equipment accidents from the unique causes of equipment failure such as short circuits, centrifugal force or mechanical breakdown. Equipment breakdown coverage is specially designed to pay for damage caused by these risks. Because standard property policies don’t cover equipment breakdown you need to ask to make sure it is included.
