Equipment Breakdown insurance — formerly called Boiler & Machinery insurance — covers much more than boilers and machinery.
Insurers introduced boiler and machinery coverage in the mid-1800’s to cover valuable steam-powered machinery from explosion or breakdown, and to cover the equipment’s owner from liability for resulting property damage or bodily injury. Today, few businesses use steam-powered machinery for business operations, but some still use steam-powered equipment for generating heat or power. Many states require these boilers to be inspected annually. If your boilers fall into this category, you may find equipment breakdown coverage a bargain, as coverage includes an inspection by the insurer along with protection from loss due to property damage or bodily injury.
If you are relying solely on a governmental inspection for compliance, you may end up paying more and not have the insurance protection.
To prevent business shutdowns or slowdowns, an organization might want to cover other kinds of valuable equipment from mechanical breakdown, too. In addition to boilers, today’s equipment breakdown insurance can cover these types of equipment:
- Equipment designed to operate under internal pressure or vacuum.
- Equipment designed to generate, transmit, or use energy.
- Communications equipment and computers.
- Equipment owned by a utility and used to provide service to an insured’s location.
Don’t think you need this coverage? Consider the following examples of claims from Hartford Steam Boiler, an insurer that specializes in boiler and machinery insurance and equipment breakdown insurance:
1. Owners of an office building had to spend nearly $1.6 million to restore power to tenants — including an accounting firm on tax season deadlines—after electrical arcing destroyed three electrical panels, leaving the building without power.
2. A medical clinic had to discard more than $21,000 worth of drugs when they froze after a controller on its refrigerator malfunctioned.
3. A printer spent more than $136,000 to repair a high-speed press after a bolt came loose and jammed the cylinder and gears.
Insurers typically write equipment breakdown coverage under a stand-alone policy; however, some will include the coverage under highly protected risks (HPR) policies or in business package policies. Most policies provide seven typical coverages.
Equipment breakdown policies are designed to cover your equipment from mechanical failure only, so they typically exclude damage from earth movement, flood, nuclear hazard, windstorm, or hail. They also exclude “causes of loss” typically covered by other property policies, such as aircraft, vehicles, freezing, lightning, and vandalism. Many other exclusions apply; however, you can modify many of these by adding an endorsement to your policy.
What’s Covered in a Typical Equipment Breakdown Insurance Policy?
The typical equipment breakdown insurance policy includes the following coverages:
1. Damage to “covered property” at the location named in the policy.
2. Expediting expenses, to cover the costs needed to get insured equipment operational as fast as possible, such as expedited shipping and making temporary repairs.
3. Newly acquired premises, or premises unnamed in the policy, for the number of days shown in the policy’s declaration page. The coverage only applies if equipment at the new location is of the same type covered by the policy.
4. Business income and extra expense. Similar to coverage you should have under your property or business owners policy, many equipment breakdown policies will cover income lost due to the slowdown or stoppage caused by breakdown of the insured equipment. Extra expense coverage reimburses the insured for extra charges you incur to keep your business running while the equipment is not functioning, such as outsourcing or renting equipment. If your policy only lists extra expense coverage, it does not cover lost business income.
5. Utility interruption, which extends the policy’s business income coverage to losses or spoilage caused by interruption of any utility service to the insured’s premises, rather than just losses or spoilage caused by a breakdown of equipment at the insured premises.
6. Errors and omissions, which covers the insured for unintentional errors or omissions in describing or naming the insured property or location, and errors that cause cancellation of a covered premises.
7. Contingent business income and extra expense, which apply business income and extra expense coverage to breakdowns of equipment at a named “contingent location” not owned or operated by the insured. It can also include coverages to meet special needs, such as spoilage coverage, “brand and label” coverage, hazardous substance cleanup, and more.
Equipment breakdown coverage is highly specialized and should be handled by an experienced broker. For more information on equipment breakdown coverage, please contact us.