Productivity motivates today’s business owners, which includes purchasing the latest computer-driven equipment and machinery. To help protect their investment, most companies purchase property insurance coverage. However, the sophistication of today’s equipment may leave businesses underprotected if they only take a traditional approach to their property coverage.
Equipment breakdown coverage pays for losses that arise from mechanical or electrical breakdown of almost any type of equipment. Once referred to as “boiler and machinery” coverage, equipment breakdown insurance protects businesses when their valuable equipment sustains physical or financial damage resulting from a variety of causes. Equipment breakdown also covers equipment like computers, telephone systems, or mechanical or plant machinery when damaged by, for example, electrical arcing or short circuits. Equipment breakdown coverage fills the gap left by traditional insurance policies, that cover equipment for external events like a fire or a windstorm.
What Equipment is Usually Covered?
These types of equipment are normally covered:
- Electrical or mechanical equipment that utilizes or generates energy
- Communication equipment like telecommunications systems
- Computer equipment, although failures from computer viruses and data failures are not covered
- Damage to photocopiers
- Boilers and pressure vessels
- Transformers, pumps, electrical switch boxes, motors, voltage regulators, generators and other similar equipment
Coverage includes the cost to repair or replace the damaged equipment or any other property that the equipment may damage during the failure. Your policy may cover the resultant loss of business income or extra expense incurred, for example the cost to rent replacement equipment, as well.
What Coverages are Available?
Working with your carrier, you can often tailor coverage to your specific needs. Here are a few of the coverages that may be available on an equipment breakdown policy.
- Physical damage to your equipment
- Extra costs incurred to temporarily repair the equipment
- Lost business and service income and the extra expenses your business incurs as a result of the breakdown
- Spoilage resulting from the breakdown, for example, food in freezers
- Utility interruption arising from a machine breakdown
- Service interruption losses that may result from your inability to provide services, for example, if your website crashes and you lose sales as a result
Very often, equipment breakdown losses go unreported to insurance carriers because line supervisors and managers who handle equipment replacement do not understand the nuances of this coverage. One public entity recouped over $20,000 when a seasoned adjuster located the organization’s forgotten breakdown policy after an electrical surge damaged a sophisticated lift station pump.
While there may be some overlap between manufacturer warranties and equipment breakdown coverage, warranties often exclude operator error. Typical warranties are also quite short and once expired, equipment repairs can be cost-prohibitive.
You can purchase equipment breakdown coverage as a standalone policy; however, it is usually less costly to add the coverage to your property coverage. For more information on this important coverage, contact me at 732.395.4251 or at [email protected]
