Equipment breakdown is the new name for boiler and machinery insurance. Many people inside and outside of the insurance industry do not understand this insurance coverage and why not carrying it can create a significant coverage gap.
Born of Exclusions that Lead to Business Income Losses
Boiler and machinery insurance is necessary as standard property insurance policies have specific exclusions for losses caused by electrical arcing or electrical currents other than lightning. A failure of a circuit breaker in a panel that causes damage to the breaker and panel but does not create a fire outside that enclosure may be denied under your property policy. Since the underlying event is not covered, there is no coverage for the resulting production interruption while the electrical panel is repaired or replaced.
Boiler, steam pipe, steam turbine or steam engine explosion are also excluded under most property policies. While these explosions are rare, the most significant result of a steam power related loss is business interruption. If the initial failure is not covered, no business income is available.
Mechanical failure related to centrifugal force is a standard exclusion. This applies to rotating equipment and can include any motor driven process or piece of machinery. A rotating part failure on a production line that causes the line to stop but does not cause any other damage may be excluded under a standard property form. Again, the business income exposure is a magnitude more significant than the initial part failure.
Born of Technology Changes
Modern buildings have a significant technology backbone. Many of these systems are computer driven but are not considered as traditional business computer equipment. Building management systems that control HVAC, lighting and other comfort systems are not included on most EDP (electronic data processing) policies. Telephone systems and their associated controls and wiring are not considered by most EDP policies. The wiring network that connects your computers, printers and controls access to the internet can cause significant damage if a non-lightning electrical current is induced onto the system. The hardware may be covered but is the infrastructure that supports the system? Modern equipment breakdown policies address these exposures.
Losses to the HVAC system may impact more than your comfort. In many buildings, the HVAC system is dual purpose, comfort cooling and maintaining Electronic Data Processing equipment at proper temperature. Failure of pressure vessels and rotating equipment associated with modern HVAC systems need to have the proper coverage. The equipment breakdown policy provides this.
Renewable and alternative energy systems bring with them a more complex electrical system. Loss to a component of this system can trigger lost income from the systems.
Production equipment complexity
The exclusions in a property policy can leave a manufacturer a significant coverage gap if these events affect their production machinery. As computer-controlled equipment is the norm, the sensitivity to electrical disturbance losses increases. The concern is that traditional EDP policies are not intended for production equipment. A different type of insurance program was needed.
Equipment that relies on process heating or cooling is vulnerable to loss from ancillary system failures. The modern equipment breakdown policy can include production equipment and the associated business income exposures.
Jurisdictional Inspections
One of the most common benefits of an equipment breakdown policy is the carrier provides the jurisdictional inspections required by your state for pressure vessels and boilers. The regulations vary by state, so this is not a simple undertaking. The equipment breakdown carrier has the staff to schedule and conduct these required inspections.
Facilities that are subject to MSHA regulations may need equipment breakdown coverage to provide inspections of air compressor tanks. MSHA has requirements for these tanks to be regularly inspected. In addition to the insurance protection, the provision of the jurisdictional inspections is a benefit.
The Driehaus Difference
We want our customers to carry the right coverage. Therefore, we evaluate your operations, equipment and business income exposures to identify the right coverages. Equipment breakdown is part of this evaluation. We can help you place this coverage, so you have the right protection. Reach out to us on the internet at www.driehausins.com or call us at 513-977-6860