Property Insurance Unit 14

breakdown

means the following types of direct physical loss that cause damage to covered equipment, requiring the equipment’s repair or replacement:

• failure of pressure or vacuum equipment

• mechanical failure, including rupture or bursting caused by centrifugal force

• electrical failure, including arcing

the term breakdown does not include any of the following

• malfunction, including but not limited to adjustment, alignment, calibration, cleaning or modification

• defects, erasures, errors, limitations or viruses in computer equipment and programs, including the inability to recognize and process any date or time or provide instructions to covered equipment

• leakage at any valve, fitting, shaft seal, gland packing, joint or connection

• damage to any vacuum tube, glass tube, or brush 

• damage to any structure or foundation supporting the covered equipment or any of its parts

• the functioning of any safety or protective device (such as one that turns off equipment to prevent further damage)

• the cracking of any part of an internal combustion gas turbine exposed to the products of combustion

equipment breakdown insurance

provides coverage for certain types of equipment losses as the result of an accident. lack of maintenance over time is not considered an accident. 

Covered property

means property that the insured owns or that is in the insured’s care, custody or control and for which the insured is legally liable. 

• equipment built to operate under internal pressure or vacuum other than the weight of contents

• electrical or mechanical equipment that is used in the generation, transmission or utilization of energy; communication equipment and computer equipment

• any equipment that is owned by a public or private utility and used solely to supply utility services to the insureds premises 

covered

• boilers, pressure vessels, water heaters

• electrical distribution systems

• heating and cooling systems

• refrigeration

• production equipment

• office equipment

• computer technology

• computer controlled machines such as CNC machines and robotics

• communications systems, including phone and voicemail systems

• security and fire detection systems

• ovens, stoves, furnaces

• elevators, escalators, cranes, hoists, lifts

• cash registers and inventory control systems

• diagnostic equipment

Coverage Provided

This form provides coverage only for that portion of loss or damage that is a direct result of a breakdown to covered equipment. Each of the following is only provided if either a limit or the word “included” is shown for that coverage in the declarations. If neither a limit nor the word “included” is shown, then that particular coverage is not provided. An insured may select from among the following coverages:

• property damage

• expediting expenses

• business income and/or extra expense

• spoilage damage

• utility interruption

• brands and labels

property damage

coverage applies to direct damage to covered property located at a premises described in the declarations. The only difference between this coverage and commercial property coverage is the covered cause of loss; the damage must be caused by a breakdown of covered equipment (rather than fire, lightning, windstorm etc)

expediting expenses

coverage will pay extra costs necessarily incurred by the insured to make temporary repairs and to expedite the permanent repairs or replacement of the damaged property.

business income and extra expense

similar to these same coverage under commercial property coverage part. The only significant difference is the covered cause of loss; the damage must be caused by a breakdown of covered equipment (rather than fire, lightning, windstorm, etc)

spoilage damage

to raw materials, property in process, or finished products may be covered if these items are in storage or in the course of being manufactured at the time of loss, the insured owns or is legally liable for thee items under contract, and the spoilage is due to the lack or excess of power, light, heat, steam or refrigeration. When this coverage applies, the insurer will also pay any necessary expenses incurred by the insured to reduce the amount of the loss, but only to the extent that the expenses do not exceed the amount of loss that otherwise would have been payable.

utility interruption

is an extended coverage to business income, extra expense, or spoilage damage. Losses that result from the interruption of utility services and are the direct result of breakdown to the covered equipment are covered once a waiting period is met.

brands and labels

states that if a covered brand or labeled merchandise is damaged by a breakdown, the insurer will take all or any part of it as salvage and pay the insured an agreed upon or appraise value.

Loss conditions

equipment breakdown protection coverage form includes a number of standard loss conditions that are similar to those found on other commercial coverage forms, including abandonment, appraisal, other insurance, and subrogation.

Additionally, this form includes a provision for paying defense costs. If the insurer elects to defend the insured against suits arising from the owners of property, the insurer will do so at its own expense.

General conditions

this form includes a number of general conditions that are also found on other commercial coverage forms, such as concealment, misrepresentation, fraud, no benefit to bailee and liberalization. It also includes some conditions that are unique to equipment breakdown coverage.

The coverage form includes a suspension provision. One of the unique things about equipment breakdown coverage is that the insurer or any representative of the insurer may immediately suspend the insurance against loss by breakdown for specific equipment whenever that equipment is found to be in, or exposed to, a dangerous condition. Advance notice is not required, but the insurer must mail or deliver written notice of the suspension to the insured’s last known address or the address where the covered equipment is located. Suspension will only apply to the particular equipment.

Actual Cash Value Endorsement

issuers older property on an ACV basis rather than replacement. The payment will be the lesser of the cost to repair or replace the damaged property with property of the same kind, capacity, size or quality, or the ACV of the damaged property. Also, the insurer will not pay for damaged property that is obsolete and useless to the named insured.