What Does Equipment Breakdown Insurance Cover?

Equipment breakdown insurance offers specialized financial protection for businesses and individuals against the sudden and accidental failure of mechanical and electrical systems. This coverage is distinct from standard property insurance, which typically addresses external perils like fire or theft. Its primary purpose is to safeguard against the unexpected costs associated with equipment malfunctions that can disrupt operations or cause significant financial setbacks.

Covered Equipment Types

Equipment breakdown insurance generally covers a broad spectrum of critical machinery and systems essential for daily operations. This includes heating, ventilation, and air conditioning (HVAC) systems, such as commercial chillers, boilers, and large air conditioning units. Electrical systems are also a significant category, encompassing transformers, switchgear, generators, and electrical panels.

The coverage extends to various types of production machinery common in manufacturing or industrial settings, including presses, extruders, motors, and manufacturing assembly lines. Refrigeration units, such as walk-in freezers, display cases, and ice machines, are also typically included, especially for businesses dealing with perishable goods. Other covered items can include office equipment like servers, telecommunication systems, and large-scale copiers. Elevators, escalators, and some medical diagnostic equipment like X-ray machines may also fall under this protection.

Covered Causes of Loss

This insurance specifically addresses failures stemming from internal forces or operational issues. Mechanical breakdowns are a primary covered cause, including issues like motor burnouts, bearing failures, or gear breakages. Electrical disturbances such as power surges, short circuits, and electrical arcing are also frequently covered.

Boiler explosions and pressure vessel ruptures represent another significant category of covered events. Accidental damage resulting from operator error, where equipment malfunctions due to improper handling, may also be included. This type of policy bridges a gap, as standard property insurance policies typically exclude losses from electrical arcing, mechanical breakdown, and internal explosions of boilers and pressure vessels.

Covered Financial Losses

When a covered equipment breakdown occurs, the policy aims to mitigate various financial impacts. It typically covers the direct cost to repair or replace the damaged machinery, including necessary parts and labor. Additionally, it can provide coverage for business income loss, compensating for revenue lost due to the interruption of operations caused by the breakdown. This helps businesses manage financial stability during unexpected downtime.

Extra expenses incurred to minimize the period of business interruption are also commonly covered. This might include costs for renting temporary equipment, outsourcing services, or expediting shipping for replacement parts. For businesses handling perishable goods, spoilage coverage is often included, reimbursing for losses resulting from items that spoil due to a refrigeration system failure. Some policies may also cover utility service interruption if the breakdown of utility-owned equipment affects the insured’s premises.

Common Exclusions

While equipment breakdown insurance offers broad protection, it does not cover every scenario where equipment ceases to function. Normal wear and tear, gradual deterioration, rust, corrosion, and erosion are typically excluded, as these are expected over time and are generally considered maintenance issues rather than sudden accidents. Damage resulting from a lack of proper maintenance or neglect may also not be covered.

Perils traditionally covered by other types of property insurance are usually excluded from equipment breakdown policies, including damage caused by external factors such as fire, theft, flood, earthquake, windstorm, or other natural disasters. Intentional acts or pre-existing conditions known before the policy’s inception are also not covered. The policy is specifically designed for sudden and accidental breakdowns, and not to address issues that fall under routine upkeep or perils already addressed by broader commercial property coverage.