What Is Equipment Breakdown Coverage?
Equipment breakdown insurance is a policy that covers the cost to repair or replace equipment or machinery damaged by a sudden mechanical or electrical failure. It applies when equipment suddenly breaks down due to an internal cause like a short circuit or cracked rotor.
Equipment breakdown insurance covers most commercial and industrial equipment, such as generators, elevators, boilers, air conditioners, and production machinery. This insurance is available on both commercial and personal insurance, such as on a homeowners' policy.
Key Takeaways
- Equipment breakdown insurance covers property damage caused by a sudden and accidental breakdown of mechanical, electrical, or pressurized equipment.
- This coverage protects your business from losses that standard commercial property insurance doesn’t.
- Equipment breakdown insurance is a broader, more modern version of boiler and machinery insurance.
- Many equipment breakdown policies include extra coverages like loss of income, spoilage, utility interruption, and building ordinance.
How Equipment Breakdown Coverage Works
Equipment breakdown insurance covers property damage caused by a sudden and accidental breakdown of mechanical, electrical, or pressurized equipment. It pays the cost of repairing or replacing equipment that has stopped working due to an internal cause like a cracked bolt or broken valve.
For example, suppose the compressor in your walk-in refrigerator overheats and then fails, causing the refrigerator to shut down. Your equipment breakdown insurance should cover the cost of repairing or replacing the compressor, and if the compressor can’t be fixed or replaced, the cost of replacing your refrigerator.
Equipment breakdown policies often include extra coverages such:
- Business interruption: Covers income you lose from the time the equipment breaks down until repairs are completed.
- Extra expense: Covers additional costs you might incur for keeping your business going until your equipment is repaired.
- Spoilage: Covers the value of food and other perishable items that spoiled due to an equipment breakdown.
- Utility interruption: Covers income you lose, extra expenses you incur, and spoilage losses you sustain due to a service interruption caused by a breakdown of utility-owned equipment.
- Building ordinance: Covers increased costs imposed by building codes that require you to repair or reconstruct property damaged by an equipment breakdown.
You can buy equipment breakdown coverage as a separate policy or as an endorsem*nt to your commercial property policy.
Equipment Breakdown Insurance Fills in Property Insurance Gaps
Machinery and equipment are vulnerable to damage by the perils that most commercial property policies exclude. Equipment breakdown insurance typically covers these perils, filling in the gaps of commercial property insurance.They include:
- Mechanical breakdown
- Electrical currents or charges, arcing, or electromagnetic energy
- Steam explosions involving boilers, pipes, or turbines
Note
Some states, like California, require boilers and pressure vessels to be inspected every year. Many insurers that offer equipment breakdown insurance will perform the required inspections for their policyholders.
Examples of Covered Losses
Here are examples of losses that equipment breakdown insurance covers.
- A boiler is badly damaged after its feed pump fails and the boiler runs without water.
- A power surge damages the electrical panel in a building, causing the building to losepower.
- A refrigerator containing fresh produce freezes after a temperature sensor fails. All of the produce is destroyed.
- A broken bolt damages gears inside a printing machine, causing the machine to break down.
Equipment breakdown insurance doesn’t apply only to damaged equipment. It also covers buildings and personal property damaged during an equipment breakdown. If a boiler explosion destroys a boiler and an adjacent wall, equipment breakdown insurance will cover the cost of replacing the boiler and the wall.
History of Equipment Breakdown Coverage
Equipment breakdown insurance dates back to the mid-1800s when steam was the primary power source for industrial equipment. Boiler explosions were common and caused deadly accidents. In 1866, a group of business people created the Hartford Steam Boiler Inspection and Insurance Company, which still exists today. Eventually, other insurers began selling boiler and machinery insurance.
By the late twentieth century, most commercial machinery was powered by electricity rather than steam. While some businesses still used boilers, many utilized equipment like computers and electronic machinery that wasn’t covered by boiler and machinery insurance. Insurers responded by updating and expanding their boiler and machinery policies, creating a new product called equipment breakdown insurance.
Frequently Asked Questions
What Type of Equipment Does Equipment Breakdown Insurance Cover?
Equipment breakdown insurance covers most commercial and industrial equipment. Covered equipment includes electrical or mechanical equipment, boilers and other pressurized equipment, computers (but not software or data), communications systems, and heating and cooling equipment.
Equipment breakdown insurance also covers property owned by a utility and used exclusively to deliver services to your premises. Some examples of covered equipment are refrigerators, air conditioners, lathes, milling machines, ovens, autoclaves, fans, transformers, and steam generators.
What Is an Example of an Equipment Breakdown Insurance Claim?
Suppose your commercial bakery uses a motorized machine to package baked cookies. The motor inside the machine contains a faulty drive shaft. The drive shaft breaks, causing the machine to break down. Your equipment breakdown insurance covers the cost of replacing the broken drive shaft. If the broken shaft has damaged the motor, your policy should cover the cost of repairing or replacing the motor.
What Isn’t Covered Under Equipment Breakdown Insurance?
Equipment breakdown insurance covers breakdowns caused by internal damage to equipment, such as a cracked valve or broken gear. It excludes damage by external causes such as fire, flood, earthquake, windstorms, or hail. Equipment breakdown insurance also excludes damage caused by rust, erosion, corrosion, settling, or wear and tear. Those types of damages occur over time and are considered preventable losses by insurance companies.
The Bottom Line
Equipment breakdown insurance pays the cost of repairing or replacing electrical, mechanical, or pressurized equipment that has broken down due to sudden and accidental damage caused by a covered reason. Equipment breakdown insurance covers damage caused by things that commercial property policies don’t.
You should consider buying equipment breakdown insurance if your business relies on refrigerators, computers, production machinery, or other equipment in its daily operations.
