What is Equipment Breakdown Insurance? Equipment breakdown, mechanical breakdown and boiler and machinery coverage are all terms used to describe the same type of coverage which is intended to protect a manufacturing company’s machinery and equipment from sudden and accidental breakdowns causing that machinery, equipment or other systems to cease to operate.
In this article, we’re going to talk about Mechanical Breakdown insurance. If you have other questions or issues on this topic or anything regarding business insurance I’d love to hear from you.
So, when it comes to breakdown policies there is a key word that coverage hinges on and it’s “accident”. An accident is defined as sudden and accidental breakdown of an object or covered equipment.
Often the words “fortuitous event” are used in a policy which imply that the event happens by chance or accident, it wasn’t an expected event, and the reason that’s in the policy is to exclude claims that occur from wear, tear, and neglect, which we’ll talk more about in a minute.
So what does Equipment Breakdown Insurance Cover?
- The cost to repair or replace damaged equipment in a covered loss
- Lost Income from a covered claim
- Spoiled Inventory and WIP from loss of refrigeration or directly associated with an equipment breakdown.
- Necessary expenses incurred during the repair period – such as expediting temporary equipment to the site.
- Hazardous substances – many policies will include a sublimit for the contamination caused by hazardous substances and clean up.
The types of equipment covered can include:
Process machinery, Refrigeration and freezer systems, Air conditioning systems, heating systems, industrial boilers, electrical distribution panels, computer & telecommunication equipment, etc.
Why is Equipment Breakdown Important coverage for Manufacturers?
The costs involved in a breakdown can be significant between repairs, downtime, lost productivity and income, and consequential loss, so this specialized coverage is needed.
Your property policy does not cover claims resulting from breakdown so without including it in a manufacturer’s insurance program is problematic. It’s a “must have” coverage part.
What does Mechanical Breakdown Insurance Not Cover?
Mechanical Breakdown insurance does not cover every form of a breakdown. As mentioned earlier the breakdown must be sudden, accidental and unforeseen. The most common excluded claim for breakdown is wear and tear and gradual deterioration. It also does not cover direct damage to equipment from perils outside of breakdown. For example, you still need to insure this property under your commercial property policy for perils such as fire.
What are the top Equipment Breakdown Claims for Manufacturers?
- Electrical surges, short circuiting, arching, malfunctions and failures is the leading cause of damage to machinery and equipment in manufacturing plants.
- Mechanical failure of motors, production machinery and boilers
- Pressure vessel failures and bursting
- Damage to electronic equipment and computers, mostly electrical.
- Damage to HVAC, Refrigeration and Freezer Systems.
Business Interruption – isn’t this covered by my property policy?
Business Income or Business Interruption is covered by your property policy but not for claims which arise from breakdowns, that’s why having a breakdown policy is critical to cover the consequential loss that results following a breakdown or failure.
I have seen situations where the direct damage costs to a manufacturing or processing machine were only a few thousand dollars, but the consequential claim for lost income was hundreds of thousands of dollars which can happen in specialized manufacturing environments and parts need to be shipped from Asia or Europe or fabricated overseas and then shipped causing delays that can go on for weeks.
How do you prevent breakdowns?
Having breakdown insurance is critical but preventing losses from occurring is more critical. Yes, regular maintenance and inspections of key operating machinery, equipment, boilers, electrical panels and such are very important, but there are other inspection tools that can enhance normal maintenance operations. We’ve used thermography in manufacturing facilities to identify “hotspots” in electrical equipment panels and connections that could lead to imminent failure.
Here’s the bottom line
A breakdown is going to happen when you least expect it or when it’s possibly the worst time for it to happen during a peak operating season. Insurance is going to cover the costs to repair that machine or equipment on an expedited basis, cover the lost income that may result from that breakdown as well as cover the work in progress, or finished product in storage (if it’s a refrigeration claim).
That’s why I think it’s an absolute must have. Now an important consideration is to craft your Equipment Breakdown coverage correctly with the right options, limits, sub-limits and endorsements and this is where the role of the skilled broker comes into play to make sure you’re getting the right protection.
If you need help in crafting the right protection for your manufacturing firm, I welcome your call. Call me, set up a time to chat, or email me – I’d love to hear from you.
Thanks!
