A Look at Equipment Breakdown Insurance

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Equipment breakdown insurance covers damage to your business property caused by a breakdown of certain types of equipment. The term breakdown includes perils like boiler explosion and mechanical breakdown. These perils are excluded under a typical commercial property policy.

As explained in Part One of this discussion many insurers provide equipment breakdown (EB) insurance using a standard form published by ISO.

Other insurers have developed their own EB forms using the ISO form as a starting point.

To be covered under equipment breakdown insurance, property damage must be caused by a breakdown to covered equipment. This article will explain what types of machines and equipment qualify as covered equipment.

Covered Equipment

The standard ISO EB form covers four categories of equipment.

  • Pressure Vessels and Vacuum Equipment Equipment built to operate under internal pressure or vacuum. Examples are boilers, hot water heaters, vacuum pumps, autoclaves, steam cookers and pressurized storage tanks.
  • Electrical or Mechanical Equipment  A broad category that includes a wide variety of electrical or mechanical equipment. Examples are transformers, circuit breakers, electrical panels, furnaces, air conditioners, generators, compressors, refrigerators, freezers, ovens, production machinery and elevators.
  • Communication Equipment and Computer Equipment Examples of communication equipment are telephone systems, fire alarm systems and security systems. Computer equipment includes computers and peripheral devices like external hard drives and printers.
  • Utility-owned Equipment  Includes equipment in any of the above categories if it is owned by a utility and used solely to supply utility services to your premises. The property must be located at premises described in your policy. An example is a utility-owned transformer   located on your premises and used by the utility to deliver electricity to your business.

    The description of covered equipment in an EB form may contain numerous exclusions. You should review these exclusions carefully. If you don't understand them ask your agent for assistance.

    Examples of Covered Losses

    Here are examples of losses that would likely be covered by an equipment breakdown policy:

    • A motor inside an ice cream freezer burns out, causing the freezer to shut down. All of the ice cream melts.
    • A pressure control mechanism inside a boiler fails and the boiler explodes. The explosion severely damages a building and its contents.
    • A bolt inside a grinding machine breaks and damages the interior of the machine.
    • A short circuit damages a utility-owned transformer located at a factory. The short causes a power surge that damages a computer used to operate production equipment.

    Coverage Options

    A number of coverage options are available under EB insurance. Some of these may be included automatically at specified limits. Others are available for an additional premium.

    • Ammonia Contamination Covers spoilage of food or other covered property that is contaminated with ammonia (often used as a refrigerant) due to a breakdown of covered equipment (such as a refrigerator or freezer).
    • Expediting Expense Covers extra costs you incur to make temporary repairs or to speed up the process of repairing or replacing damaged property.
    • Business Income and/or Extra Expense These are essentially the same coverages that are available under your commercial property policy. However, they apply only if the loss of income or extra expense results from damage to covered property caused by ​a breakdown of covered equipment.
    • Spoilage Covers spoilage damage to raw materials, products being manufactured or finished products. To be covered, the spoilage must result from the lack (or excess) of power, light, heat, steam or refrigeration due to a breakdown of covered equipment located on your premises.
    • Utility Interruption Extends business income and extra expense coverages (if you have purchased these) as well as spoilage coverage to cover loss resulting from a breakdown to covered utility-owned equipment that is located away from your premises. For instance, a breakdown occurs at a utility-owned switching station located at a site owned by the utility. The breakdown causes a power outage at your restaurant and the contents of your refrigerator spoils. If you have purchased utility interruption coverage under your EB insurance the loss should be covered.
    • Newly Acquired Premises Covers premises you acquire or lease after the policy begins.
    • Ordinance or Law This coverage applies to losses caused by the enforcement of building codes if a building has suffered damage due to a breakdown of covered equipment.
    • Errors and Omissions Protects you against accidental mistakes you make in describing your property or its location. For example, you inadvertently omit a location or provide the wrong address.
    • Brands and Labels Products you make or sell may contain your brand or label. If the products are damaged due to a covered loss, your insurer may pay you for the loss and then sell the damaged products. This coverage enables you to protect the reputation of your brand. It covers the cost of removing your brand or label from the damaged products or labeling them as salvage.
    • Water Damage Covers water damage that results from a covered breakdown. For instance, a water pump breaks down and causes water to accumulate in your warehouse. The water damages your stock.
    • Mold Coverage Covers damage caused by mold that results from a covered breakdown. Also ​covers the cost of cleanup and testing.