Machinery Breakdown Insurance

Why do I need equipment breakdown insurance?

Equipment Breakdown insurance provides coverage for the accidental breakdown of equipment. This type of coverage is different from property/casualty insurance for businesses.

For example, your property coverage would cover property damage in the event of a fire. Your casualty insurance would cover your business if someone tripped in your office or factory. But what would cover your expensive production equipment, or computer hardware should it become damaged?

Scenario:   Everything is going fine with your business. Then a storm blows through and knocks out the power; your production and computer systems all shut down. On start-up a power surge courses through your electrical system and fries the circuitry in two pieces of production equipment, and cooks the motherboard in three of your desktop computers.

You call your broker . . .  and breathe a sigh of relief. Why? Because your broker took the time to explain why you needed “Equipment Breakdown Insurance, and you bought it.” She reminds you that:

“Property/casualty policies only cover damages to your equipment from “external” causes, such as a fire, a flood, hail, windstorm, and earthquake. Property/casualty policies do not cover damage from “internal” causes such as mechanical failure of the equipment, electrical short circuit, motor burnout, centrifugal force, a boiler overheating or cracking, and mechanical breakdown. Coverage for these types of losses requires a “Boiler and Machinery” insurance policy.”

But, I’m not a manufacturer. Why do I need machinery breakdown insurance?

True, you may not be a manufacturer, or even have a boiler in your building, however equipment breakdown insurance (sometimes still sold under the names of “boiler and machinery insurance,” or “machinery insurance,” or “mechanical insurance”), is still a critical component of all small business insurance packages.

For example, breakdown coverage not only provides protection for electrical system failures, but it also provides coverage for air conditioning and refrigeration systems, telecommunications, mechanical equipment, security and fire detection systems, diagnostic equipment, inventory control systems and boilers.

Today more than ever office systems, as well as production equipment, contain fragile electronic components that are subject to more frequent and more costly breakdowns than traditional mechanical equipment. The speed of business (online, “just-in-time” delivery) makes any downtime at all a critical issue.

Computerization means that you and your staff are more often than ever working off-site, and should the mobile equipment that you use breakdown or be stolen, you need a fix or replacement fast. Review all your risk exposures carefully and consult your insurance broker to determine if optional insurance protection is available to meet these needs.

Does equipment breakdown insurance cover me if my software gets a virus?

No. Equipment or mechanical breakdown insurance policies are for “hardware” insurance, and is not “software” insurance. That means that if your production equipment or computers suffer some sort of physical damage, equipment breakdown insurance covers that.

However, if your production equipment’s computer modules, or your desktop computers’ become in-operable due to software problems, such as “bugs” or “viruses,” these situations are not covered by your equipment insurance policy.

This type of loss usually requires a different type of coverage, such as cyber insurance. Cyber insurance also goes by the names of:  e-commerce, e-business, information security, cyber risk, network security, or hackers insurance. (For more details on cyber insurance, please click here .)

Can I buy coverage for loss of income due to production or other equipment failure?

Yes. However, this is not usually covered under an “equipment breakdown” policy. Protection against loss of income due to equipment breakdown requires coverage called “business interruption” or “service interruption.”

Similarly, there is perishable goods coverage (consequential loss) to protect the value of foodstuffs or other materials that spoil as a consequence of a breakdown.

My production equipment is covered by warranties and service contracts. Why do I need equipment breakdown insurance?

Although warranties and service contracts provide some protection, they do not cover many of the common causes of equipment breakdowns. For example, typical maintenance contracts cover routine service such as periodic calibrations and other adjustments, and possibly cleaning, etc. However, such contracts do not pay for damages due to operator error, for example. Your equipment breakdown policy does cover such losses.  Likewise, warranties and maintenance contracts do not pay for loss of income that results from equipment breakdown; nor do they pay for spoilage, damage to surrounding property or extra expenses to restore operations. Buying equipment breakdown insurance is critical as it covers all of these risks.

I don’t own the building, so why do I still need equipment breakdown coverage?

As a tenant you may not be responsible for the building’s electrical, air conditioning or heating systems, but it is important to check your lease to be sure you are not responsible for the equipment that services your premises. If you are not responsible for these systems, your business operations and income are still dependent upon equipment of others. If the electrical, heating or cooling system of your landlord broke down, the interruption of those services can impact you. So, getting the right equipment breakdown coverage is essential to protect you even in contingencies like this.

Okay, so how much boiler & machinery insurance should I buy?

Each business is unique and so your equipment breakdown insurance should be tailored to your precise needs. For example, if the destructive potential of some of your equipment is low, (contrast this with equipment such as boilers, pressure vessels and some water heaters, which can produce enough power to damage huge sections of the building), then less coverage would be needed.

To learn more about equipment breakdown coverage, call us at Park Insurance. We’ll work with you to:

• Assess the risk potential for equipment breakdown
• Determine the precise insurance coverage you need for your business

Park Insurance has access to specialty insurance markets, so contact us today!