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A Guide To Equipment Breakdown Insurance
A GuideTo Equipment Breakdown Insurance
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ContentsEquipment Breakdown Insurance 1
CommercialPropertyFormExclusions 2
InspectionService 3
MandatoryInspections 4
EquipmentHazards 5
WhydoAccidentsHappen 6
Policy Coverage 7
DefinitionofAccident 7
DefinitionofObject 8
CoverageOptions 9
Comprehensive Coverage 9
Production Machines 9
Electronic Equipment 9
PropertyDamageInsurance 11
IndirectDamageCoverage 12
OtherCoveragesandLimits 14
Policy Conditions 16
Policy Exclusions 18
List Of Insurable Equipment 19
List Of Typical Occupancies 20
Quick Reference Chart 21
Typical Factory Layout 22
A Choice Of Policies 23
Equipment Breakdown InsuranceEquipmentBreakdownpremiumvolume,(boilerandmachineryinsurance)inCanadanowexceedsthree hundred million dollarsannually.
Asubstantialshareofthisbusinesscomesfromlargeriskssuchaspublicutilities,petrochemicalplantsandnationalindustrialaccounts.Butwellover90%ofEquipmentBreakdownpolicies—andperhapshalfofthecommissiondollars—willbederivedfromcommercial,institutional,processingandlightmanufacturingrisksjustlikethoseinyourowncommunity.
There’salotofbusinessouttherethatneedstobewritten,butisn’t.Therearethousandsofuninsuredexposures,andcountlessinsuranceprogramsthatareincompletebecausetheylackthisoneessentialcoverage.
There’snothingreallydifficultaboutunderstanding—andplacing—EquipmentBreakdownInsurance.Unfortunately,somebrokersassociatethecoveragewiththetechnicalnatureoftheequipment.Consequently,theopportunitiestomakethisimportantinsuranceavailabletotheirclientsareoftenmissed.
Ifyou’renotplacingasmuchEquipmentBreakdownInsuranceasyoufeelyoushould,thisbookletmaybejustwhatyouneedtogetontherighttrack.We’vetriedtokeepitbrief,factualandeasytounderstand.Youmayalsofindthequick-referenceexhibitshelpfulinrecognizing—andrespondingto—yourclients’EquipmentBreakdownInsuranceneeds.
What’s It All About?
EquipmentBreakdownInsuranceisaformofpropertyinsurance.Itspurposeistoinsureagainstthefinanciallosses—propertydamage,businessinterruptionandspoilagelosses—thatresultfromdefined“accidents”tospecifiedkindsofmechanical,electricalandpressureequipment(called“objects”inthepolicy).
Insuredequipmentmayincludesuchthingsassteamboilers,hotwaterboilers,pressurevessels,refrigeratingandairconditioningsystems,motors,generators,compressors,pumps,engines,fans,blowers,gearsets,turbines,transformers,electricalswitchgear,electronicequipmentandawiderangeofproductionandprocessingequipment.
A Guide To Equipment Breakdown Insurance
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Why the Need?
TherearethreemainreasonswhyEquipmentBreakdownInsuranceisimportant:
1. Itcoversexposuresthatarenormallyexcludedinotherpropertyinsurancepolicies.
2. Insurancecompanyinspections(whicharenotobligatory)mayhelpreducethelikelihoodofaccidentstoinsuredequipment.
3. Insurancecompanyinspectionsofboilersandpressurevesselssatisfytheprovincialinspectionrequirementsinseveralprovinces.
Commercial Property Insurance Policy Exclusions
Withfewexceptions,thekindsofaccidentsthathappentoboilers,pressurevessels,machineryandelectricalequipmentarenotcoveredbymost“AllRisk”policies.
“AllRisk”policiesspecificallyassumeliabilityfortheexplosionofaccumulatedgasesorunconsumedfuelinthecombustionchamberorfluesofaboilerorotherfiredpressurevessels.Thishazardisgenerallyreferredtoasa“furnaceexplosion”.
Thereisanotherboilerexplosionhazard,however,thatisusuallymuchmoreviolentthanafurnaceexplosion.That’sanexplosioncausedbypressureofsteamorwaterwithintheboiler,anditsresultscanbedevastating.
Inthisregard,the“explosion”provisionsofmost“AllRisk”policiesspecificallyexcludelossfromtheexplosionofallboilersgeneratingsteamandpipingorotherequipmentconnectedtotheseboilers.
Tothispointwe’vediscussedboilerexplosions.Butwhataboutthekindsofaccidentsthatmore frequentlyhappentothisequipment:
• burning(overheating)ofboilersorfiredvesselsduetoalackofwater
• crackingofsectionsofcastironboilers,duetoavarietyofcauses
• bulging orbagging,usuallytheresultofthebuild-upofscaleorsediment
They’renotcoveredbymostcommercialpropertyinsurancepolicieseither!
Pressurevesselssuchasairtanks,jacketedsteamkettlesandpropanestoragetanksareobjectsthatalsocanbesubjecttoexplosion.“Allrisk”policywordingsnormallyexcludevesselsandapparatusunderpressurewhichhaveamaximumnormalinternalpressureexceeding103kilopascals(15p.s.i.)withtheexceptionofsmallhotwatertanksunder610millimeterdiameter(24inches)andmanuallyportablegascylinders.
Inaddition,electric arcing isexcludedundermostcommercialpropertypolicies.Thatmeansthattheelectricalburnoutofmotors,generators,circuitbreakers,electricaldistributionboards,cablesandtransformers—fromsuchcausesasshortcircuitsandlinesurges—isn’tcovered,either.Anexceptionisdamagecauseddirectlybylightning.
Andfinally,you’llnotethatthecommercialpropertypolicyspecificallyexcludesmechanical breakdownandexplosionofequipmentduetocentrifugal force.Thesearetheverytypesofaccidentsthathappentoawiderangeofmachinery.
It’simportant,therefore,whenyoureviewyourclients’needsforcoverageontheirheating,cooling,processingormanufacturingequipment,tobearinmindtheverylimitedprotectionthatisofferedunderpropertyinsuranceasrespectsthemostcommonequipmentandmachineryhazards.
Inspection Service
EversinceBoilerandMachineryInsurancewasintroducedinCanadaover130yearsago,inspectionsofinsuredequipmenthaveplayedanimportantroleinhelpingtoreducethelikelihoodofaccidents.
Itshouldbepointedoutherethatanequipmentbreakdownpolicydoesnotguaranteethatinspectionswillbemade.Theyaremadebytheinsurancecompanyinordertohelpreducethefrequencyandseverityofequipmentfailures.Policyholdersbenefitfromimprovedequipmentreliabilityandfewerunexpectedbreakdowns.Theinsurancecompanybenefitsfromareductioninthenumberandsizeofclaims.
Theinsurancecompanyinspectorservesthreebasicfunctions:(1)riskassessment;(2)physicalinspectionofinsuredequipment;and(3)accidentinvestigationandassistanceintheresumptionofbusiness.
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Theinspector,first,isthe“eyes”throughwhichtheunderwriterseestherisk.Thisisaccomplishednotonlybytheinspector’sanalysisofthekindsandtheconditionofequipmentinservice,butalsobytheirreportsonsuchthingsasplantmaintenancephilosophy,operatortraining,productionflow,andexposuretobusinessinterruptionorspoilagelosses.
Theinspector’ssecondfunctionisthatofphysicallyinspectingtheequipmentinanefforttohelpdetectdangerousconditionsbefore troubleoccurs.Inthisactivity,theinspectorsmaydosuchthingsasmakesuretheequipmentissuitedforthejob,overseethetestingofcontrolsandsafetydevices,checkequipmentmaintenanceandreviewoperators’“logs”.Inmanyinstances,theinspectormayalsobeabletooffersuggestionsthatcanhelpreduceoperatingcostsorlengthentheusablelifeofequipment.
Ifan“accident”doeshappen,theinspectoriscalledupontoinvestigatetheoccurrenceanddeterminetheextentofdamageandprobablecauseoffailure.Thelatterstepisparticularlyimportanttohelppreventsimilarfailureofotherequipmentatthelocation.And,theinspectorisoftenabletoassistthepolicyholderintakingthenecessaryactiontoreturntheequipmentorplanttonormaloperationwithaminimum ofdelay.
Note:Brokersareaskednottoreportclaimstoindependentadjusters.BI&Iemploysastaffofin-houseadjusterswhoarespecializedinhandlingEquipmentBreakdownclaims.
Mandatory Inspections
Intheinterestofpublicsafety,theprovinceshaveenactedlawsrequiringtheperiodicinspectionofboilersandpressurevessels.
Undertheselaws—whichvaryfromprovincetoprovince—theequipmentmustbeinspectedbycommissionedinspectorsatspecifiedintervalsandapprovedforcontinuedoperation.
Althoughtheprovincesmaintaintheirowninspectionstaffs,severalofthemacceptinspectionsmadebyinsurancecompanyinspectors in lieuofthosemadebytheirownpersonnel.(Someprovincesactuallyencourageinsurancecompanyinvolvement,becauseoftheirownbudgetaryconstraints.)
Whereinsurancecompanyinspectionsareaccepted,thepolicyholderdoesnothavetopaythelocalinspectionfee.This,inessence,reducesthecostoftheinsurance.
Equipment Hazards
Equipmentexposureshavechangedconsiderablyinrecentyearsbecausetheequipmentitselfhaschanged.Themicroprocessorsandcircuitrythatcontrolthesemoderndevicesarefragileandmoresusceptibletoelectricalinjury,shock,vibration,andheat.Anotherfactorthatcontributestohigherriskistheextenttowhichmicroprocessorsareembeddedinmachineryandequipment.
Electrical System Hazards.Abuilding’selectricalsystemisasignificantsourceofrisktohigh-techequipment.Manypeoplepresumethatairconditioningunitshaveahighpotentialforfailurebecausetheyhavemovingparts—pumps,belts,andfans—thatweardownandbreak.Theyalsobelievethatstationarywiresandelectricalcomponentsdonothavethesamefailurepotential.Thetruthis,afterboilerandairconditionerfailures,electricalsystemfailuresarethemostcommon.
Mostelectricalfailuresarenotcausedbyamajoreventsuchaslightning,butbylooseconnections,moisture,dirt,overloads,andothercommoncauses.Seventy-fivepercentofallelectricalsystemfailurescanbetracedtohumanerror—fromcarelessnessandimproperlytrainedpersonneltoinadequatemaintenanceanddelayedservice.Evenmodernbuildingsdesignedjust10or15yearsagoarevulnerabletoelectricalsystemfailures.
Phones at Risk.Theincreasedriskofhightechnologyisnotconfinedtospecializedequipment.Considerthetelephone,thelifelineoftheday-to-daybusinessoperations.FormostcompaniesaPBXsystem,orprivatebranchexchange,isrequiredtomanagethephonelinesthatfunnelincomingandoutgoingcalls.
PBXsystemsarecomplexdigitalequipment,repletewithsensitivecircuitryandelectronics.Andlikeallcomputers,theyareextremelyvulnerabletoelectricaldisturbance.OneofthebiggestproblemsinPBXsystems—andvirtuallyanymicroprocessor-controlledequipment—isharmonicdistortion.Thisiselectrical“noise”createdbynonlinearpowerloads.Theresultisheatthatburnsoutsensitivecircuitry.
Boilers and Fired Pressure Vesselsaresubjecttoseveraldifferenthazards;
• explosion,duetointernalpressureofsteamorwater;
• burning(overheating),causedbycontinuedfiringafterthewaterdropsbelowasafelevel;
• crackingofcastironsections,duetosuchthingsasexpansionandcontractionstresses,rustgrowthbetweensections,porouscastings,andtierodsthataretootight;
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• bulgingorbagging,usuallycausedbyimproperheattransferduetobuild-upofscaleorsediment;
• collapse(ofthecylindricalfurnaceofascotchmarineboiler),generallydueto“lowwater”.
Unfired Pressure Vessels,suchasairtanks,electricwaterheaters,steamcookers,hydropneumatictanksandprocessvessels,aresubjecttothehazardsofexplosion,bulging,crackingandcollapse(implosion).
Thevessels,coilsandpipingthatformpartofrefrigerating systemscanexplode,collapseorcrack.Themostcommontypeoffailureiscracking,whichisoftencaused,oddlyenough,byfreezingduetocontrolfailure.
Anadditionalhazardisencounteredintheoperationofammonia refrigeratingsystems.Ammoniathatisreleasedbyan“accident”,suchasabrokenpipe,cancauseheavycontaminationlosses,especiallyfoodproducts.
Mechanical Equipment—compressors,pumps,blowers,fans,engines,turbinesandthelike—aresubjecttoavarietyofhazards.Amongthemorecommoncausesoffailureare:metalfatigue,lossoflubrication,overspeed,mechanicalstressandshockloads.Amoredetailedlistingappearsintheseparateexhibitcaptioned“InsurableEquipment”onpage19.
Why Do Accidents Happen?
Manyaccidents—notall ofthem—canbeprevented.Thepreventableones,whichneverthelessoccur,cannearlyalwaysbeattributedtohuman failureinoneformoranother.
Safeoperationalwaysrequirespropermaintenanceofequipment.Butmanyoperatorsorownersofequipmentdon’tknowhow—ordon’ttakethetime—tocarefortheirequipmentproperly.
Consider,forexample,alow-pressuresteamboilerinanapartmentbuilding,officebuildingormanufacturingplant.Goodmaintenancerequirestheperiodictestingofcontrols,particularlythelow-waterfuelcut-off.Ifafloat-typecut-offisn’tdrainedperiodicallytoflushouttheaccumulationofsedimentinthefloatchamber,chancesaregoodthatthecut-offwillfailtoshutofftheburnerwhenthewaterintheboilerdropsbelowasafelevel.Result:abadlyburnedboilerorperhapsevenanexplosion!
Hereareafewother“accident”causesthatcanbeblamedonhumanfailure:
• Operatingequipmentbeyonditsratedcapacity • Misapplicationofequipment • Permittingdustordirttobuilduponelectricalequipment
• Failuretoprotectequipmentagainstvehicleimpact • Deliberatelybypassingsafetydevices • Relyingtooheavilyon“automatic”devices • Failuretotestauxiliaryequipment(forexample,toensureproper
lubricationofalargemachine) • Improperlay-uporstart-upproceduresforseasonalequipment.
Thelistgoesonandon.Nowonderaccidentshappen!
Policy CoverageThereareseveralformsunderwhichBI&IcanprovideEquipmentBreakdownInsurance.TheEquipmentBreakdownBroadFormPolicyandtheAllSystemsGoPolicyaretwo.TheEquipmentBreakdownRiderwhichformspartofmanypropertycasualtyinsurancecompanypackagepoliciesisanother.However,becausetheyareallderivedfromtheEquipmentBreakdownBroadFormPolicy,wewillusethisforminthefollowingdiscussionandexplanation.
Remember,westatedatthestartthatEquipmentBreakdownInsuranceinsuresagainstlossesfromdefined“accidents”tospecifiedequipment,or“objects”.Fortheinsurancetoapply,theremust bean“accident”tooneormore“objects”.
“Accident”
Inlayman’sterms,an“accident”meansasudden and accidental breakdown of an “object” resulting in physical damage to the object, that requires that the “object” be either repaired or replaced.(Exceptasitisamendedformorerestrictiveformsofcoverageappliedtosomeboilerorturbinerisks).
Becausetheinsuranceisnotintendedtocovercertainoccurrences,especiallythoseofamaintenancenature,thefollowingoccurrencesarenotconsideredtobe“accidents”:
• depletion,deterioration,corrosionorerosionofmaterial • wearandtear • leakageatanyvalve,fitting,shaftseal,glandpacking,jointor
connection • vibrationormisalignment • thecrackingofanypartofagasturbineexposedtotheproductsof
combustion • breakdownofanystructureorfoundationsupportingthe“object” • operationofanyprotectivedeviceorsafetydevice(whichwould
merelybedoingwhatitissupposedtodo).
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However,ifanexcludedoccurrenceorcondition(suchaswearandtear)causedadefined“accident”(e.g.abrokenshaftinamotor),thelatteroccurrencewouldbeconsideredan“accident”.
Oneotherexclusionappliestoboilersandfiredvessels—furnaceexplosion.Thathazard,asyouwillrecall,isspecificallycoveredbythe“explosion”provisionsofmostfireinsurancepolicies.
“Object”
BoilerandMachinery“objects”canbedescribedandinsuredinanumberofways.Thevarietyofoptionsavailablepermitstheinsuredtoselectthosekindsofobjectsuponwhichcoverageisdesired.Thecategoriesare:
Pressure Objects:Boilers,firedorunfiredpressurevessels,refrigerationsystems,pipingandpressurevesselsnormallysubjecttovacuumorinternalpressureotherthanstaticpressureofcontents.
Mechanical Objects:Mechanicalmachinesusedforthegeneration,transmissionorutilizationofmechanicalpower.
Electrical Objects:Electricalequipmentorapparatususedforthegeneration,transmissionorutilizationofelectricalpower.
Production Machines:Machineswhichprocess,form,cut,shape,grindorconveyaproductorrawmaterialsormaterialsinprocess.
Electronic Equipment:Equipmentusedforthegeneration,control,transmission,reception,recording,reproduction,playbackorotheruseoftelevision,radioortelephonesignals;anyelectronicequipmentusedforresearch,diagnostic,treatment,experimentalorothermedicalorscientificpurposes;anyelectronicequipmentusedforcomputing,dataprocessing,duplicating,inventorycontrol,monitoring,scanningorotherelectronicofficeequipmentincludingassociatedfibreopticcable.
Comprehensive Coverage
ThistermhasgrownpopularasthedescriptionusedtocoverallPressure,MechanicalandElectricalEquipment.Anothertermwhichisusedbymanyinsurersis“Pressure,MechanicalandElectricalCoverage”.
Comprehensivecoverageprovidesinsuranceunderasingle,broaddefinitionof“object”andasingledefinitionof“accident”.Asufficientpropertydamagedeductibleisrequiredtoeliminatepaymentofsmallerlossesthatshouldnormallybeassumedbythepolicyholder.Theamountofthedeductibledirectlyaffectsthepolicypremium,inthattheinsurancecompanydoesnotchargeforthose“objects”thatwouldnotlikelycausealossinexcessofthedeductible.
Production Machines and Electronic Equipment Extensions of Coverage
Comprehensivecoveragemaybemodifiedtoincludeorexcludetwodistinctivesub-groupsofobjectswithinthescopeofmechanicalandelectricalequipment.
ThefirstisProduction Machines,whicharedistinctiveinthattheyareusedinapplicationsinvolvingtheinsuredsproductsasopposedtomachinesthatareusedinapplicationsinvolvingpowerorenergy.ProductionMachinesarespecificallydesignedtocut,shape,conveyormoldaproductorrawmaterialormaterialinprocess.
Thesecondsub-groupisElectronic Machines,whicharedistinctiveinthattheyaremadeofatechnicallysophisticatedselectionofelectroniccondensers,transistorsandintegratedcircuits.ElectronicEquipmentiscommonlyknownforcontainingmicroprocessorsandtodaytheyareusedinawidevarietyofcommercialandinstitutionalapplications(i.e.officeequipment,retailstoreequipment,researchequipmentandtelecommunicationsequipment.)
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Comprehensive Coverage Overview Property Damage InsuranceIntheeventofan“accident”toadefined“object”,whiletheobjectisinuseorconnectedreadyforuse,theinsurancecompanyagreestopay:
(a)forlosstothe“object”(b)forlosstootherInsuredPropertydirectlydamagedbythe“accident”.
OtherinsuredpropertyisdefinedaspropertyownedbytheInsuredandpropertyofothersinthecare,custodyorcontroloftheInsuredforwhichtheInsuredislegallyliable.
Losssettlementismadeonthebasisofthelesserofcosttorepairdamagedpropertyorcosttoreplacedamagedpropertywithpropertyofsimilarkind,capacity,size,qualityandfunction.Ifdamagedpropertyisreplacedwithsomethingbiggerorbetter,thecostofthe“betterment”isbornebytheInsured.
ThisinsuranceissubjecttoaPropertyDamageLimit(alsocalledLimitperAccidentorLimitofLiability)stipulatedinthepolicydeclarationsforthelocationwherethe“accident”occurs.
Pressure EquipmentGroup:Boilers,unfiredpressurevessels,piping.
Examples:Castironboilers,firedcoilwaterheaters,autoclaves,airreceivers,refrigerationsystems,etc. Optional
Extensions to Coverage
Electronic EquipmentGroup:Television,radioortelephoneequipment;medicalorscientificequipment;dataprocessing,computing,duplicating,orofficeequipment
Examples:Televisiontransmitters,x-raymachines,computers,barcodescannersetc.
Electrical EquipmentGroup:Equipmentusedtogenerate,transmitorutilizeelectricpower.
Examples:Electricmotors,generators,transformers,miscellaneouselectricalapparatus(switchboards,cables,circuitbreakers).
Mechanical EquipmentGroup:Equipmentusedtogenerate,transmitorutilizemechanicalpower.
Examples:Compressors,pumps,gears,turbines,fans,blowers,internalcombustionengines,etc.
Production MachinesGroup:Machinesorapparatuswhichprocess,form,cut,shape,grindorconveyproductandmaintenancemachines.
Examples:Hydraulicpresses,extruders,papermachines,lathes,mills,etc.
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Indirect Damage CoverageThereareseveralformsofIndirectDamageCoverageavailableunderEquipmentBreakdownpolicies.Allformsareoptionalandmaybeaddedtothebasicpolicybyendorsement.BusinessInterruptioncoveragesonEquipmentBreakdownpoliciesaresimilartothePropertyBusinessInterruptioncoverages.
PropertyDamagecoverageisrequiredbeforetheInsuredcanpurchaseindirectcoverage.SomeoftheIndirectDamageCoveragesavailableonEquipmentBreakdownpoliciesare:
1. Business Interruption — Actual Loss Sustained.—ThisformisintendedtoreimbursetheInsuredforlossofprofitsand/orcontinuingexpensesasaresultofanEquipmentBreakdownaccident,onaproofoflossbasis,untilbusinessasspecifiedintheform(Production,Sales,RentsorIncome)canberesumed;subjecttothelimitoflossspecified.
2. Rent or Rental Value—ThisformisintendedtoreimbursetheInsuredforthelossofrentson:
i) theportionofthepremisesrentedout,
ii) thefairrentalvaluefortheportionoccupiedbytheInsured,and
iii) therentalvalueoftheunoccupiedportionofthepremises,resultingfromanEquipmentBreakdownaccident.
3. Loss of Profits—LossofProfitscoverageisprovidedtoreimbursetheInsuredforlossofgrossprofits(thedifferencebetweenthecostpriceandthesellingpriceoftheInsured’smerchandise)resultingfromanEquipmentBreakdownaccident,untilthegrossprofitsarebacktothelevelwhichtheywereimmediatelybeforetheaccidentoccurredbutnotexceedingtheSumInsuredandIndemnityPeriodspecified.
4. Gross Earnings—GrossEarningscoverageisprovidedtoreimbursetheInsuredforlossduetothenecessaryinterruptionofbusinessasaresultofanEquipmentBreakdownaccident,untilthedamagedpropertyoftheInsuredisrebuilt,repairedorreplacedbutnotexceedingtheamountofinsurancespecified.
5. Extra Expense Coverage—ExtraExpensecoveragecanbeprovidedtooffsettheadditionalcostofconductingbusinessduringtheperiodofrestorationoverandabovethecostthatnormallywouldhavebeenincurredtoconductbusinessduringthesameperiod,hadnoaccidentoccurred.Suchbusinessesasnewspapers,hospitals,schools,collegesandnursinghomesmayhaveneedforthiscoverage.
6. Spares Mitigation Clause —AllbusinessinterruptionformshaveaSparesMitigationClauseincluded.ThisprovidesInsuredswhohavetakenthestepsofcarryingaspare,adeductiblewaiverintheeventthesparefailswhileoperatingtomitigateapotentialloss.
7. Spoilage - Broad Form—Thiscoverageprovidesindemnityforlossorexpenseduetospoilageresultingfromanaccident.Lossfrom“lackofpower,light,heat,steam,orrefrigerationisexpandedtocovereither“toomuch”oftheseelementsor“toolittle”oftheseelements.Thiscoverageisdesignedforfoodprocessingriskswhere“toomuch”heatorcoldmayspoiltheinsuredsproduct.
8. Spoilage - Enhanced Coverage —ForanadditionalpremiumanEnhancedSpoilageCoverageisofferedthatwillprovidecoverageforspoilageresultingfromthenormaloperationorfailureofsafetyorprotectivedevices.Thesedeviceswouldincludefuses,electricalbreakersetc.
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Other Coverages And LimitsThefollowingadditionalcoveragesareprovidedforinthepolicy,inmostcasestoaspecificsublimit.Thelimitprovidedforeachcoveragewillvarydependingupontheindividualneedsofeachinsuredandtheinsurerorreinsurer’sdesiretolimittheamountofexposureinspecificareas.
Automatic Coverage—providesinsuranceatnewlyacquiredlocationsforaperiodupto90days,onequipmentsimilartothatinsuredatexistinglocations.Coverageappliestobothdirectdamageandbusinessinterruptionorotherindirectcoveragesifinsuredatexistinglocations.Thecoverageterritoryincludesthosecountrieswhereoneormoreinsuredlocationsalreadyexists.
Demolition and Increased Cost of Construction—providesinsurancetocovertheextracostsassociatedwithdemolishing,repairingorreplacinginsuredpropertyasaresultofcurrentlawsorregulations.Liabilityislimitedtonotexceedthecosttoreplacepropertyonthesamesitewithpropertyofsuchkind,capacity,size,qualityandfunctionrequiredtosatisfytheminimumrequirementsrequiredbytheregulations.
Denial of Access —providesBusinessInterruptionorExtraExpensecoverage,ifany,intheeventaccesstoaninsuredlocationisdeniedduetoanAccidenttoanObject,ofatypethatwouldbecovered,attheInsuredlocationoranadjacentlocation.
Hazardous Substances—coverageprovidesinsurancefortheincreasedcosttorepair,replace,cleanupordisposeofaffectedinsuredpropertyasaresultoftheinvolvementofasubstancewhichhasbeendeclaredbythegovernmenttobehazardous.Ahazardoussubstanceis(a)anypollutant,contaminantorothersubstancedeclaredbyagovernmentalauthoritytobehazardoustohealthortheenvironment,or(b)anymould,yeast,fungusormildewincludinganysporesortoxinscreatedorproducedbyoremanatingfromsuchmould,yeast,fungusormildew,whetherornotallergenic,pathogenicortoxigenic.
Water Damage—wherenotcoveredunderthepropertypolicy,providescoverageforlosstoinsuredpropertywhichisdamagedbywaterasaresultofanaccident.
Ammonia Contamination—providescoveragefromdamagecausedbyammoniacontactingorpermeatinginsuredpropertyasaresultofanaccident.
Professional Fees—providesinsuranceforreasonableandnecessaryfeespayabletoauditors,accountants,lawyers,architects,engineersorotherprofessionalsforproducingandcertifyinginformationtoestablishtheamountofliabilityintheeventofanaccident.Theinsured’sownemployeesarenotincluded.
Expediting Expenses—arethosereasonableextracoststomaketemporaryrepairs,speeduppermanentrepairsortospeeduppermanentreplacement.Overtimelabourandexpresstransportationaretwoexamples.Coverageisprovidedtoanamountequaltothatwhichispayableforthedirectdamageunderthepolicy.
Service Interruption—providescoveragewhereequipmentnotownedoroperatedbytheinsuredcauseslosstotheinsuredasaresultofanaccident.Thecoverageisforbusinessinterruptionandotherindirectcoveragesprovidedthesecoveragesareincludedinthepolicy.Theaccidentmustbetoanobjectlocatedonorwithin1000metersoftheInsured’spremises.Theobjectmaybeownedbythebuildingowneratthelocationorbyapublicutilityorothercompanyandusedtosupplysteam,gas,water,refrigeration,electricityortelephoneservicestotheInsured.
Data Restoration—providescoveragefortheadditionalcostsofrepairingorreplacingDataasaresultofanaccident.Thecostofgatheringorassemblingtheinformationisalsoincluded.Damagecausedbyprogrammingerrorsisnotcovered.
Errors and Omissions —providescoveragetoInsured’slocationsthathavebeenomittedorcancelledfromthepolicyduetoanerrororunintentionalomissionbytheinsuredintheareassuchasreportingordescribingthelocation.
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Policy ConditionsThefollowingbriefexplanationsarethosewhicharesomewhatunusualoruniquetoEquipmentBreakdownInsurance.Wehavenotincludedthosewhichareclearlystatedandfoundtobecommontomosttypesofinsurancepolicies.
Inspection
Sinceengineeringandlosspreventionaremostimportant,theinsurancecompanyispermitted,butisnotobligated,toinspecttheInsured’sequipmentatanyreasonabletime.
Suspension
Thisconditionallowsanyrepresentativeoftheinsurancecompanytosuspendcoverageonlossfromanaccidenttoanyinsuredobjectimmediatelyupondiscoveryofadangerouscondition.
Mortgagee Interest
Ifthereisamortgageenamedinthepolicy,intheeventofloss,thechequewillbemadepayabletoboththeInsuredandthemortgagee.Themortgageemustbegiven15dayswrittennoticeifthepolicyiscancelled.Theinsurancecompanyalsoagreestonotifyanymortgageeshowninthepolicyifcoverageissuspended.
Notice of Loss
Whenanaccidentoccurs,theInsuredmustnotifytheinsurancecompanyimmediately.Writtenconfirmationbye-mail,letterorfacsimileisrequiredassoonaspossible.
Duties in the Event of Loss or Damage
AfteralosstheInsuredisrequiredtoprotectpropertyfromfurtherdamageandallowtheinsurancecompanyreasonabletimeandopportunitytoexaminedamagedproperty.Also,theInsuredmustassistthecompanyintheprocessofinvestigatingandadjustingtheclaimincludingmakingrecords
andemployeesavailableforquestioningonanymatterrelatingtotheclaim.TheInsuredisrequiredtosendtheinsurancecompanyasignedStatementofLosscontainingtheinformationthecompanyneedstosettletheclaim.
Subrogation
TheinsurancecompanyhastherighttotakeovertheInsured’srighttocollectfromathirdparty.TheInsuredmustnotdoanythingaftertheaccidenttoharmsuchrights.
Other Insurance
Thisisthestandard“jointloss”provisionregardingthesharingoflosswheremorethanonecarrierisliableforpaymentfordamagetotheInsured’sproperty.
Insurer’s Agreement
ThisistheDisputedLossAgreement.Ifthereisadisputebetweentheequipmentbreakdowninsurerandthepropertyinsureroverwhichinsurerisliableortheproportionofeachcompany’sliability,thisconditioncomesintoeffect.TheInsuredinsuchacasemaywriterequestingthatthelossbesettledinaccordancewiththeInsuranceBureauofCanada’sDisputedLossAgreement.
Action Against the Company
LegalactionmustbecommencedbytheInsuredwithin14monthsfromthedateofaccident,orperlocalrequirements.
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Type of Equipment Typical Failures Some of the Causes
Boiler and fired pressure vessels Explosion Overpressure; inadequate or inoperativerelief valves; structural weakness
Burning Control failure; low water due to leakage or feedpump failure; flame impingement
Bulging Scale or sediment buildup; flame impingementCracking Thermal stresses; rust buildup; overtightened tie
rods; porous castings; vandalism
Unfired vessels (hot water tanks, Explosion Overpressure; chemical reaction; inoperative orair tanks, cookers, process vessels) inadequate relief devices; structural flaws
Bulging Thinning of metal due to erosion, corrosionImplosion Sudden loss of pressure; control failureCracking Vibration; structural flaws; poor welding
Centrifugal compressors, pumps Explosion (centrifugal) Loss of load; control failure; metal fatigue infans, blowers element
Burned bearings Misalignment; loss of lubricationShaft, blading, impeller Misalignment; metal fatigue; foreign material;breakage overload; progressive crack
Refrigerating and air conditioning Cracking (piping) Vibration; support failure; vehicle impact (forkliftvessels, piping trucks); chipping ice off piping
Cracking (vessels) Failure of flow switch; improper lay-up; freeze upExplosion Overpressure; control failure; corrosion
Piping (steam, air, etc.) Explosion Vibration; support failure; vehicle impactCracking Support failure; freeze-up; vibration
Electric motors, generators and Electrical burnout Arcing; line surge; excessive moisture; dirty other rotating electrical windings; brittle insulation; vermin; lightningequipment Burned bearings Misalignment; inadequate lubrication
Shaft, frame or rotor Overspeed; metal fatigue; foreign material;breakage overload; progressive crack
Reciprocating compressors, pumps Cylinder damage Liquid slugging; contaminated oil; seizing or internal combustion engines scoring due to inadequate lubrication
Shaft, rod breakage Misalignment; shock load; progressive crack; loosening of parts
Jacket, frame, engine Freeze-up; loosening of bolts; progressive crack;block damage loss of cooling medium
Gears, gear sets Broken teeth Vibration; misalignment; misapplication; progressive crack; metal fatigue
Burned bearings Misalignment; inadequate lubrication
Production machines (paper Breaking of moving Metal fatigue; thinning of parts under pressure;machines, presses, extruders, parts loosening of bearings; foreign materialetc.) Frame or column Misalignment; shock load; progressive crack;
damage metal fatigue
Transformers Electrical burnout Lightning; line surge; excessive moisture;deterioration of insulation; overload; contaminatedinsulating liquid
Miscellaneous electrical apparatus Electrical burnout Lightning; line surge; excessive moisture; poor(switchboards, cables, bus ducts, maintenance of relays and contactors; loosecircuit breakers) connection; overload; carelessness
Air conditioning units, small (refer to comments relating to particular refrigerating and compressing components of the units; motors, compressors,units vessels, etc.)
Electronic equipment (personal Electronic breakdown Power spikes or surges; dust or dirt; moisture; telephone systems, computers, extreme temperaturesx-ray machines, transmitters,photocopiers, etc.)
Policy ExclusionsSeveralstandardexclusionsapplytoEquipmentBreakdownpolicies.Theyaregroupedintoeightgeneralcategoriesasfollows:
1. TheNuclearExclusion:Nuclearreaction,nuclearradiationorradioactivecontaminationetc.
2. TheWarExclusion:War,bombardment,invasion,insurrection,rebellion,revolution,operationsofarmedforceswhileengagedinhostilities,sabotageetc.
3. TheDemolitionandIncreasedCostofConstructionExclusion:Itshouldbenotedthatcoverageforthisexclusionmaybeaddedasanadditional“OtherCoverage”uptoaspecificsublimitasspecifiedinthepolicy.
Theexclusionappliestoanyincreaseinlossnecessitatedbyanyordinance,laworregulation.Italsoexcludesincreasedcostsduetocontaminationbyasubstancedeclaredtobeacontaminant,aswellasincreasedcostsofcleanupordisposalofcontaminatedorpollutedproperty.
4&5. TheexclusionsthatavoidorpreventduplicationofcoveragebytheEquipmentBreakdownpolicyandthePropertyInsurancepolicy:Earthquake,Wind,FireandSmoke,Waterorothermeanstoextinguishfire,Lightning,FloodandEscapeofWater.
6. TheIndirectLossesorCausesofLosses:BusinessInterruption,Spoilage,etc.IndirectcoverageforBusinessInterruption,SpoilageandExtraExpenseareofcourseavailableasadditionalcoveragesthatmaybeaddedbyendorsementtothepolicy.
7. TheCyberExclusions:Dataerasure,errorsincreatingdata,inabilitytotransmitdata,impactofvirusetc.
8. TheTerrorismExclusion:Terrorismincludinganyacttocombatterrorism.
Note: Theseexplanationsofpolicyexclusionsareintendedasaguidetounderstanding.Pleaserefertothepolicyitselfforanexactdescriptionofwhatisexcluded.
Insurable Equipment
Canada’s Most Reliable Source for Engineering Based Insurance
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Apartmentbuildings ● ● ❍ ❍ ❍ ❍ ❍ ● ❍Autosales ● ● ● ● ● ❍ ● ●Bakeries ● ● ❍ ● ❍ ● ❍Banks ● ● ● ❍ ● ●Bottlingplants ● ● ❍ ❍ ❍ ❍ ● ❍ ● ●Bowlingalleys ● ● ❍ ❍ ● ●Breweries ● ❍ ● ● ● ● ● ❍ ● ● ●Canneries ● ● ● ● ❍ ❍ ● ❍ ● ●Carwashes ● ❍ ● ● ● ● ●Chemicalplants ● ● ● ❍ ● ● ● ● ● ●Churches ● ● ❍ ❍ ❍ ● ❍Clubs ● ● ● ❍ ● ●Cocktaillounges ● ● ● ● ● ●Coldstorageplants ● ● ● ● ❍ ● ●Colleges ● ● ● ❍ ❍ ❍ ❍ ● ● ●Condominiums ● ● ❍ ❍ ❍ ❍ ❍ ● ●Convalescenthomes ● ● ● ● ❍ ● ❍ ❍ ● ●Countryclubs ● ● ● ❍ ● ● ❍ ● ●Dairies ● ● ● ● ● ● ❍ ● ●Drycleaners ● ❍ ● ● ❍ ● ●Foodprocessing ● ● ❍ ❍ ● ● ● ● ❍ ● ●Foundries ● ● ● ❍ ● ● ● ● ● ●Funeralhomes ● ● ● ● ●Garages ● ● ❍ ❍ ● ●Greenhouses ● ● ❍ ❍ ● ●Hospitals ❍ ● ● ● ● ● ● ● ● ❍ ● ● ●Hotels ● ● ● ❍ ❍ ● ● ❍ ● ❍ ● ●Laundries ● ❍ ● ● ● ● ● ❍ ● ●Manufacturing,heavy ● ❍ ● ● ● ● ● ● ● ●Manufacturing,light ● ● ❍ ❍ ❍ ● ❍ ● ● ❍ ● ●Motels ● ● ● ❍ ❍ ❍ ❍ ● ●Municipalbuildings ● ● ● ❍ ❍ ❍ ❍ ● ●Officebuildings ● ● ● ❍ ❍ ❍ ❍ ● ●Papermills ● ● ● ● ● ● ● ● ●Printing,publishing ● ● ❍ ● ● ● ❍ ● ●Professionalbuildings ● ● ● ❍ ❍ ❍ ❍ ❍ ● ●Publicbuildings ● ● ❍ ❍ ❍ ❍ ❍ ● ●Pumpingstations ● ● ● ❍ ● ● ● ●Refineries(oil) ● ● ● ❍ ● ● ● ● ●Restaurants ● ● ● ❍ ❍ ❍ ● ●Schools ● ❍ ❍ ❍ ❍ ❍ ❍ ● ●Servicestations ● ❍ ❍ ● ●Stores ● ● ❍ ❍ ❍ ❍ ❍ ● ●Textileplants ● ● ● ● ● ● ● ● ● ●Theatres ● ● ❍ ❍ ❍ ● ●Utilities(electric) ● ● ● ● ● ● ●Warehouses ● ❍ ● ●
Hea
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Ref
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Ele
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● Usuallyfound❍ Occasionallyfound
Typical Occupancies Quick Reference Chart Equipment Insurance vs. Warranties and Contracts
Typical “Full”Type of occurrence or Service Manufacturer’s Maintenance Equipment
Warranty Contract Insurance
Pay for breakdown caused by faulty YES NO YESmaterials or workmanship
Pay for Business Income Losses NO NO YES(optional)
Pay for extra expense of rental NO NO YESequipment, rental facilities (optional)and temporary repairs
Pay for spoilage of perishables NO NO YES(optional) (optional)
Pay for direct damage to surrounding NO NO YESproperty
Provide required jurisdictional inspection NO NO YESservices
Oil, clean, adjust, change filters, etc. NO YES NO
Repair and replace worn parts NO YES NO
Pay for lost refrigerant from breakdown NO NO YES
Pay for labour cost to repair/replace parts NO Sometimes YES
Pay for accidental breakdown NO YES YES(see exclusions)
Pay for Ammonia Contamination NO NO YESof product
Pay for operator error or misuse of NO NO YESequipment
Pay for full replacement cost of parts and NO NO YESproperty
Pay for refrigerant lost through leakage NO NO NO
Pay for expediting expenses of overtime, NO NO YESlabour, fast freight, etc.
Canada’s Most Reliable Source for Engineering Based Insurance
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Equi
pm
ent
Exp
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Foun
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n A
Typ
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Fac
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Mis
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Ref
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A Choice Of Policies Equipment Breakdown Broad Form
TheEquipmentBreakdownBroadFormisthepolicygenerallyusedonadirectbasistoprovidecoverageonlargerrisks,particularlythoseengagedinprocessingormanufacturing.Thestandardformisadaptabletoawiderangeofexposures.Propertydamage,businessinterruptionandothercoveragescanbe“tailored”tosuitthespecificneedsofeachinsured.
All Systems GoTM Equipment Breakdown Insurance
Thisuniquepolicyisdesignedforsmallbusinessesthatarenon-manufacturingandnon-processingaccountshavinginsurablevaluesnotexceeding$15,000,000forbuildingownersand$1,500,000fortenants.Itcombinesthebroadestcoveragewitheaseofhandling.Premiumsarebasedonpropertyvaluesratherthanactualobjectssoastopermitbrokerstoquoteratestotheirclientswithouthavingtowaitforacompanysurvey.
The Equipment Breakdown Rider
BI&Imakesthisproductavailableexclusivelythroughitsreinsurancearrangementswith150propertycasualtyinsurerswithin40insurancegroupsinCanada.TheriderissimilartoAllSystemsGoinbotheligibilityandcoverage
TheEquipmentBreakdownRiderhastheaddedflexibilityofthreecoverageoptionsfromwhichtochoose.
Note
Itshouldbeunderstoodthatthecommentsinthisguidearemerelyanefforttosummarizepolicycoverage,exclusionsandconditions.Pleaserefertothepolicyitselfforexactdetailsofcoverage.ForfurtherinformationorassistancecontactyourlocalBI&IOffice.
Canada’s Most Reliable Source for Engineering Based Insurance
Head Office
Toronto250YongeStreet30thFloorToronto,ONM5B2L7Phone:416.363.5491Fax:416.363.0538E-mail:[email protected]
Branch Offices
Toronto250YongeStreetSuite3101Toronto,OntarioM5B2L7Phone:416.362.1203Fax:416.362.6601E-mail:[email protected]
Montreal800ReneLevesqueBoulevardW.Suite1735Montreal,QCH3B1X9Phone:514.861.8261Fax:514.861.6922E-mail:[email protected]
Hamilton25MainStreetW.Suite1700Hamilton,ONL8P1H1Phone:905.528.8751Fax:905.528.3636E-mail:[email protected]
Regional Offices
HalifaxPurdy’sWharf#1611Box101969UpperWaterStreetHalifax,NSB3J3R7Phone:902.423.6276Fax:902.422.6942E-mail:[email protected]
Québec City1245CheminSainte-FoySuite316Québec,QCG1S4P2Phone:418.681.7857Fax:418.681.6099E-mail:[email protected]
Calgary UnitedPlace8084thAvenueS.W.Suite400Calgary,ABT2P0K4Phone:403.265.2813Fax:403.264.9024E-mail:[email protected]
Vancouver470GranvilleStreetSuite814Vancouver,BCV6C1V5Phone:604.683.0341Fax:604.683.1799E-mail:[email protected]
The Boiler Inspection And Insurance Company Of Canada
