Why do I need equipment breakdown coverage?

If you don’t have backup equipment, you may need to find alternate facilities or rent equipment, which will increase your costs.

What if customers can’t wait? Orders may be cancelled. Which means you will suffer loss of revenue, and possible damage to your reputation.

Personal injury could also result from the equipment breakdown.

Your property policy excludes loss or damage caused by electrical arcing, mechanical breakdown, and explosion of boilers and pressure vessels.

It applies to equipment in the following categories:

Electrical, air conditioning and refrigeration, boiler and pressure vessel, computer and communications, mechanical, renewable and alternative energy production systems.

Electrical systems represent up to 15% of a building’s value. Components include transformers, panels and cables, and because these are interconnected, excessive voltage in one component can lead to significant damage to others. For example, arcing can cause damage to a panel, as well as completely shut down an operation.

As an example of a loss, arcing caused a power outage to 80% of a shopping mall for 5 days. Losses exceeded $230,000.

‘Air Conditioning and Refrigeration’ represents the number one source of breakdown claims, as it contains a variety of equipment such as pressure vessel, mechanical, electrical and electronic.

And, because many air conditioning units are located on the roof, a crane or helicopter may be required to remove or replace a unit. 

As an example of a loss: the rupture of a pipe from the condensing unit of a meat store’s walk-in freezer caused refrigerant to escape and temperature to rise to 10 degrees Celsius. Total losses exceeded $23,000, which included over $22,000 in spoilage.

‘Boiler and Pressure Vessel’ is defined as any vessel operating at an internal pressure different to static pressure. These vessels are commonly used for heat, hot water, steam production and processing. Cookers, sterilizers and some types of cleaning equipment are other common types of pressure vessels.

‘Computer and Communications’ includes network, telephone, retail point of sale, security and fire alarm systems. These systems rely on very sensitive electronic technology, now found in almost every risk. Common causes of computer and communications failure include power surges, loose connections, vermin, foreign objects, excessive moisture and improper use.

Microelectronics are now the brains that control equipment, from boilers to computers. This microscopic and fragile technology is more prone to damage, and that damage is invisible to the naked eye.

A new cause of loss has been added - Electronic Circuitry Impairment - for failures when physical damage is so small, it is not detectable.  If replacing circuitry makes equipment work again, Electronic Circuitry Impairment is triggered, even if there is no physical evidence of damage.

As an example of a loss, an online retailer experienced a sudden shutdown of its website. The problem was isolated to a circuit board in a computer server. A visual examination revealed no evidence of detectable physical damage. However, when the circuit board was replaced, the computer server and website were restored. Losses amounted to $19,200, including $18,000 in business interruption.

“Mechanical” is defined as any equipment used for generation, transmission or utilization of mechanical power. Mechanical equipment includes elevator and escalator motors, ventilation fans, water pumps and motors & combustion engines.

This equipment is mission-critical to most buildings and businesses. Common causes of mechanical failure include:

Vibration, metal fatigue, seizing, misalignment or simple human error.

Today, more types of mechanical equipment are driven by sophisticated but fragile computer technology, making them even more prone to breakdown.

As an example of a loss, a furniture maker’s automated saw broke down when microprocessors were damaged by a short circuit caused by movement of the saw. Losses, including business interruption expenses, exceeded $20,000. 

“Renewable and alternative energy” technology can take many forms, including solar, wind, geothermal and bio-fuels. It typically employs a wide range of electrical and mechanical equipment.

As an example of a loss: a transformer on a revenue-generating solar power system was damaged by an electrical breakdown. Total losses, including business interruption, amounted to $140,000.

“Production systems” include: CNC manufacturing equipment, robotics, machining tools, food processing equipment. These machines are the heart of any manufacturer and a breakdown can bring a company to a halt. 

As an example of a loss: an electrical event melted the motherboard and numerous switch cards of a circuit board maker’s testing machine. Total losses amounted to $185,800.

Equipment breakdown insurance covers gaps found in most property policies.