Equipment Breakdown Insurance 101

Nowadays almost every business relies on computers or phone systems to do everyday tasks. If these were shut down by a sudden off-site power surge, would you be able to continue operations?

Equipment Breakdown Coverage - also known as Boiler and Machinery Insurance - is coverage for loss triggered by a sudden and accidental mechanical or electrical breakdown. Under these policies, the following are covered:

• Boilers and Furnaces

• Computer and Communication Systems

• Phone and Communications Systems

• Heating and Air Conditioning Units

• Refrigeration Systems 

• Electrical Systems including transformers, electrical panels, and cables

So how does this coverage help protect your business?

Equipment breakdown insurance kicks in when an “accident” occurs and covers the cost to repair the above items. It is an extra layer of protection, especially if your business is dependent upon properly functioning equipment owned and operated by a supplier, such as a local power company.

If you’re asking, “Doesn’t my commercial property insurance cover equipment?” the answer would be sometimes. Your commercial property insurance covers any damages caused by perils, like a fire, or water damage, but excludes other perils like an electrical arc/short, artificial power surge, or sudden mechanical failure.

Equipment breakdown insurance can also help cover the financial burden of loss of perished goods, loss of unexpected business income, cost of data restoration, or cost of temporary or permanent repairs.

Equipment Breakdown Insurance in Action

Case Study A: An insured’s office building had a thermostat fail that was part of an HVAC unit. The failure resulted in the entire HVAC unit being destroyed. The insured submitted a claim on their equipment breakdown policy and the policy paid $60,000 for the cost to replace the HVAC unit, but not the $200 cost to replace the thermostat which failed.

If we break this example down, we can see that the insurance claim paid out for the damages that occurred due to the accidental portion of the thermostat failing. It did not pay for the actual thermostat as that was ruled “normal wear and tear”.

Case Study B: An insured’s hotel with an attached restaurant suffered loss of all electricity due to an off-site power surge that blew the building’s main electrical panel. The insured submitted a claim, and the policy paid the total amount to replace the main electrical panel, the food in the restaurant that had spoiled, and the total cost of lost income during the 5-day timeframe it took to replace the electrical panel.

What’s Not Covered?

It’s crucial to know that this type of insurance covers hardware and not software for computers and other communication systems. For example, if you lose all your data due to a computer virus, Equipment Breakdown insurance would not cover this. Additional exclusions include:

●     Deterioration of equipment due to mold, rust, etc.

●     Normal wear and tear on aged equipment.

●     Equipment not properly stored or taken care of.

●     Property damaged by pests.

●     Damages caused by operator errors.

Equipment breakdown insurance can help any business, small or large, that uses equipment of any kind. Two perils often overlooked are electric arcing incidents and mechanical breakdown. A Risk Advisor will be able to assess your portfolio and tell you if equipment breakdown insurance would be beneficial for you, so be sure to connect with them and discuss your options.