Equipment BreakdownPosted On August 2, 2016
When it comes to Equipment Breakdown Coverage, there are two primary questions that you need to ask. The first is whether your property has an exposure to equipment breakdown and second, whether you currently have coverage in place for this potential exposure.
With respect to the first question, if your property has any of the following equipment then you definitely have an exposure to loss:
- Electrical: Equipment used for the generation, transmission or utilization of electrical power. Components may include panels, cables and transformers.
- Mechanical: Any equipment used for generation, transmission or utilization of mechanical power. Examples include elevator and escalator motors, water pumps and motors, ventilation fans and combustion engines.
- Air Conditioning and Refrigeration units: These systems contain a variety of pressure vessel, mechanical, and electronic equipment.
- Computer & Communications equipment: These include network, telephone, point of sale, fire and burglar alarm systems. Today’s technology contains highly sensitive and sophisticated electronics that can be vulnerable to power surges, for example.
- Boiler and Pressure Vessels: Equipment that operates under high internal pressure and includes vessels used for heat, hot water, steam production and processing.
Virtually all businesses have equipment mentioned above, so you need to consider the financial risks should any of this equipment fail. Not only is there the cost to repair or replace the faulty equipment, but also the additional expenses and lost revenue incurred as a result of the breakdown. If you don’t have a backup unit, will an order be cancelled? Will the business be shut down? Will you have to find alternative facilities for your tenants? These are important questions to consider.
This leads to the second question regarding whether your current insurance program provides coverage for these exposures. Most property policies typically exclude losses resulting directly from mechanical breakdown, electrical arcing and explosion of boilers and pressure vessels. If you don’t have a separate policy or can’t locate an extension on your property policy that lists this specific coverage, there is a good chance you don’t have it.
Equipment breakdown coverage fills this gap by providing insurance to cover the sudden and accidental, physical damage that requires its repair or replacement. The policy can also provide coverage for the loss of revenue associated with the equipment breakdown loss.
A few actual claim examples to demonstrate the importance of this coverage might be helpful.
- In a high rise senior’s complex an air conditioning motor broke down in 32 degree plus weather. The total cost for repairs and rental coolers exceeded $100,000
- Electrical switchgear in an apartment shorted out due to deterioration of the insulation, causing property damage of $48,000.
- A power surge caused total telephone system failure for a real estate developer with losses exceeding $39,000.
- A high voltage underground cable shorted to ground causing damage to the transformer cutting off power to an entire condominium complex. Damages exceed $66,000.
It is highly recommended that you review your operations to identify the various equipment breakdown exposures facing your property, and then carefully review your current insurance program to determine if you have the coverage.
Your A.P. Reid Commercial Insurance representative can tailor the best coverage for your business.
Talk to us today to learn more.