Regardless of the size of your business, equipment and technology are critical pieces that keep your business operations humming. While standard commercial property coverage protects you against losses like fires, it doesn’t cover you for equipment failures. This is when Equipment Breakdown coverage steps in…
What is Equipment Breakdown Insurance?
Formerly referred to as Boiler and Machinery coverage, Equipment Breakdown Insurance provides coverage for loss when your business equipment suffers a sudden and accidental mechanical or electrical breakdown. This includes Artificially Generated Electrical Currents (power surges), as well as explosion of steam boilers and steam pipes which can lead to Workers Compensation issues.
What Equipment is Covered?
Virtually ANYTHING that generates, transmits, or utilizes energy. It also includes anything that normally operates under vacuum or pressure. Here are a few examples:
- Video camera systems
- Motors and generators
- Pumps and compressors
- Pressure vessels
- Diagnostic equipment
- Production machinery
- Computer-controlled machines
- Retail “point of-sale” systems (POS)
- Hot water heaters
- Air conditioning
- Heat pumps
- Electrical equipment
- Circuit boards
- Computer chips
- Business equipment
What Does Equipment Breakdown Pay For?
- Cost to Repair or Replace—if it can’t be repaired, it will pay to replace it
- Extra Expenses– any reasonable additional expenses you incur to continue business operations during recovery. Examples: cost to rent additional equipment while yours is being repaired/replaced, cost for temporary repairs, overtime paid to workers to get the equipment back up and running, cost of additional labor required to compensate for equipment going down, cost to expedite the repair/replacement, cost to relocate, and more…
- Additional Property Damage—resulting property damage caused by the equipment breakdown. Example; the refrigeration system at a grocery store fails, causing all of the refrigerated items to spoil.
- Loss of Income—if an equipment breakdown results in your inability to make your product or perform your service, it will pay for your loss of income.
What About My Commercial Property Policy?
There is a distinct difference between commercial property coverage and equipment breakdown coverage.
Think of property insurance covering your equipment from damage caused by external forces:
- Water (limited)
Equipment breakdown covers your equipment from damage caused by internal forces:
- Broken pump
- Failed compressor
- Motor burnout
- Ruptured pipe
- Electrical failure (artificially generated electrical current/power surge)- VERY COMMON loss!
What About Warranties?
Warranties are a promise from the manufacturer or seller that the product is free from defects. But what happens when the equipment breaks down because of an accidental, outside force, like a power surge? A warranty may not be obligated to respond, leaving you with the repair bill to pay out of pocket.
Common warranty limitations/exclusions:
- Cost of labor to repair or replace equipment
- Cost of extra expenses you incur as a result of the breakdown
- Resulting damage to other property
- Loss of income
- Time (30 days, 1 year, 2 year warranties, etc.)
You should never exclusively rely on warranties to protect your equipment or your bottom line!
Watch Out for Wear and Tear!
No insurance will respond to equipment damaged by lack of maintenance or ‘wear and tear’. Warranties won’t even cover this. Wear and tear is damage that occurs naturally and inevitably as a result of normal wear or aging.
Common evidence of wear and tear (which could deny commercial property AND equipment breakdown claims) include:
- Shrinking or expanding
Free Equipment Inspections: An Added Policy Advantage
Nearly every state requires that boilers and other pressure equipment be inspected to ensure safe operation. Inspections depend on the type of boiler (hydro pneumatic, high pressure, miniature/hot oil, heating/hot water supply/water heaters) but range from annually to every 4 years. Even though inspections are required, the state will still charge you an inspection fee. The fee depends on the size, type, and number of boilers and/or pressure vessels to be inspected.
As an equipment breakdown policyholder, your insurance company can actually do the inspection for you, saving you the inspection fees!! (You may still be responsible to pay state mandated certificate fees.)
For more info on the NC boiler and pressure vessel inspection process, check out the North Carolina Department of Labor website.
Equipment Breakdown Examples
A turbine generator supplying power to a piece of proprietary production machinery failed when blades broke and penetrated the engine. Without this machinery, the production line ceased. Replacement parts needed to be custom built overseas. It took 3 months before the parts arrived.
Total loss: $178,342
An ammonia line in an ice cream factory ruptured after a compressor crankshaft broke. All of the ice cream was contaminated with ammonia. Rental units were needed temporarily to continue production while the new compressor was installed.
Total loss: $45,345
An air conditioning motor burned out in a high-rise luxury apartment building. Countless mobile AC units were rented to restore temperatures back to tolerable while the motor was replaced.
Total loss: $29,217
A power surge corrupted and destroyed the computer and telephone systems of a CPA firm during the height of tax season. It took 3 weeks to restore everything. As a result, their clients were forced to conduct their taxes elsewhere.
Total loss: $74,878