Equipment Breakdown

Equipment Breakdown is sometimes referred to as Boiler and Machinery. It is part of a commercial insurance policy. It can include items such as your telephone system, air conditioning, heating system and is not just limited to boiler and machinery for your large commercial building or apartment block.

The insurance you buy will pay for loss to the insured equipment and to other property that you have named on the policy which is directly damaged by the breakdown. Most business needs to be in continuous operation to have an income stream and to retain their customers. It is a good idea to carefully consider the situation you would find yourself in after such a breakdown has happened to your business.

You can choose to include perishable property that spoils as a result of the breakdown. Examples of spoiled property could be the flowers in the cooler at a retail or wholesale flower shop, the meats and cheeses stored at a sandwich shop or the bull semen kept at a farm for artificial insemination of the cows.

The equipment breakdown includes expediting expenses. This expense comes into play when you need to make temporary repairs, expedite permanent repairs or expedite permanent replacement of the equipment or property that has been directly damaged from the breakdown.

You can also buy Business Interruption and Extra Expense for the costs or reduction of your income stream as a result solely from the breakdown. This amount is separate from and in addition to the limit of the liability for the Equipment Breakdown but only up to the limit specified on the policy. So you need to consider carefully what amount you will need.

If you have this type of claim then it is very important that you immediately give notice to your broker, agent or directly to the insurance company. The notice has to be confirmed in writing. The coverage that you have purchased will start the later of the time of the breakdown or 24 hours before the notice that the breakdown was received, whichever one is later.

If you now need to repair or rebuild your property you may run into issues with by-laws. A law, by-law, regulation, ordinance, rule or regulation that restricts alteration, use, repair, operation, construction or installation of your property will increase costs. This can also result in delays and your income stream is going to slow or stop. So your need the Business Interruption/Extra Expense coverage for dealing with this revenue issue.

Another area that you should consider is the cost of professional fees and for auditing fees. Any time that you are trying to reconstruct records it will be time consuming and very expensive. At a time when your business is not functioning normally this can be a financial hardship. So do consider carefully your need for this extra coverage which is normally included in the Equipment Breakdown package.

You can purchase service interruption coverage if the equipment is of a type that is described in the the definition of Insured Equipment on your policy. Also it has to be located within 1000 metres of your premises. Usually there is a further requirement that the services are owned by the building owner at your premises or by a public utility company and these services be used to supply gas, steam, water, air, refrigeration, air conditioning, electricity, heating or communication services to your premises.

What about Hazardous Substances? If your equipment uses such a substance and it is involved in or released by the breakdown of the insured equipment then there are going to be costs involved. These costs will include the cost to repair, clean up or dispose of, replace the property and the costs of business interruption or extra expense due to the presence of these substances. There is usually a limit on these losses, a common example would be $100,000.

Have you thought about Data Coverage? Equipment Breakdown will address the data that is lost or damaged and coverage is available for reproducing or gathering the data and the business interruption and extra expense that can arise from the loss or damage of that data. This is usually limited to about $25,000 and will not provide coverage for programming errors. The cost of forensic accounting is very high. Good Risk Management would like backing up records on a regular basis and keeping a copy of the back up off site.

It is very important to keep your insurance company well informed of any changes to your operation. If there was a condition that was perceived as dangerous then you could lose this insurance. Communication is key! Talk to your broker or agent and keep files up-to-date.