What Is Equipment Breakdown Coverage on a Commercial Policy?

Businesses rely on equipment, and its failure can disrupt operations and impact revenue beyond simple repair costs. Standard commercial property insurance covers external events like fires or storms, but not internal equipment failures. Equipment breakdown coverage fills this gap, providing specialized protection for operational assets.

Defining Equipment Breakdown Coverage

Equipment breakdown coverage protects businesses from unexpected mechanical or electrical failures of essential equipment. Unlike standard commercial property insurance, which covers external perils, this coverage addresses losses from internal operational failures, such as power surges or mechanical malfunctions.

This protection extends to a wide array of equipment categories fundamental to modern business operations. Covered items include heating, ventilation, and air conditioning (HVAC) systems, electrical distribution systems, production machinery, refrigeration units, communication equipment, computer systems, and boilers or pressure vessels. This broad scope means the coverage applies across diverse industries, from manufacturing plants to hospitality businesses.

Common Causes of Covered Equipment Breakdowns

Equipment breakdown coverage addresses sudden and accidental failures from internal causes within machinery or systems. It does not cover issues from normal wear and tear or a lack of routine maintenance. Instead, it focuses on unforeseen incidents that cause equipment to cease functioning.

Common covered causes include mechanical breakdowns, such as motor burnout, bearing failures, or a broken bolt causing gears to fail. Electrical issues, including power surges, short circuits, or electrical arcing, are also covered perils that can damage sensitive electronic components. Additionally, the policy can respond to explosions or ruptures of boilers and other pressure vessels, as well as breakdowns due to centrifugal force, like a turbine overspeed. Even operator error, if it leads to a sudden and accidental internal breakdown, can be a covered event.

Financial Safeguards Provided by the Coverage

Beyond repairing or replacing damaged equipment, equipment breakdown coverage offers several financial safeguards to help a business recover swiftly. It covers the direct costs of restoring equipment, including parts, labor, or full replacement. This helps absorb unexpected capital outlays.

Businesses can also be reimbursed for expediting expenses, such as overtime wages or express shipping, to speed up repairs. These are aimed at minimizing downtime. The coverage extends to business interruption losses, compensating for lost income when operations halt due to a covered failure. This includes extra expenses to maintain operations, such as renting temporary equipment or relocating services.

Coverage for spoilage or contamination applies when perishable goods are damaged due to an equipment breakdown, such as a refrigeration unit failure. This can prevent substantial losses for businesses dealing with temperature-sensitive products. Finally, some policies include service interruption coverage, which helps with lost income or expenses if an off-site utility provider breakdown disrupts business operations.