To prevent business shutdowns or slowdowns, an organization might want to cover other kinds of valuable equipment from mechanical breakdown, too.
The typical equipment breakdown insurance policy includes the following coverages:
1. Damage to “covered property” at the location named in the policy.
2. Expediting expenses, to cover the costs needed to get insured equipment operational as fast as possible, such as expedited shipping and making temporary repairs.
3. Business income and extra expense. Similar to the coverage you should have under your property or business owners policy, many equipment breakdown policies will cover income lost due to the slowdown or stoppage caused by the breakdown of the insured equipment. Extra expense coverage reimburses the insured for extra charges you incur to keep your business running while the equipment is not functioning, such as outsourcing or renting equipment. If your policy only lists extra expense coverage, it does not cover lost business income.
4. Utility interruption, which extends the policy’s business income coverage to losses or spoilage caused by interruption of any utility service to the insured’s premises, rather than just losses or spoilage caused by a breakdown of equipment at the insured premises.
5. Newly acquired premises, or premises unnamed in the policy, for the number of days shown in the policy’s declaration page. The coverage only applies if the equipment at the new location is of the same type covered by the policy.
6. Errors and omissions, which covers the insured for unintentional errors or omissions in describing or naming the insured property or location, and errors that cause cancellation of covered premises.
7. Contingent business income and extra expense, which apply business income and extra expense coverage to breakdowns of equipment at a named “contingent location” not owned or operated by the insured. It can also include coverages to meet special needs, such as spoilage coverage, “brand and label” coverage, hazardous substance cleanup, and more.
Insurers typically write equipment breakdown coverage under a stand-alone policy; however, some will include the coverage under highly protected risks (HPR) policies or in business package policies. Most policies provide seven typical coverages.
Equipment breakdown policies are designed to cover your equipment from mechanical failure only, so they typically exclude damage from earth movement, flood, nuclear hazard, windstorm or hail. They also exclude “causes of loss” typically covered by other property policies, such as aircraft, vehicles, freezing, lightning and vandalism. Many other exclusions apply; however, you can modify many of these by adding an endorsement to your policy.
Equipment breakdown coverage is highly specialized and should be handled by an experienced broker. For more information on equipment breakdown coverage, please contact us.