Boiler & Machinery Insurance: The Flood Effect

How is Boiler & Machinery Insurance & The Flood Effect Similar & Various Facts About Each.

Boiler and Machinery Insurance Coverage.
What is it and what does it cover?

The fact that flood is an noted exclusion on a homeowners policy was a little known fact before Hurricane Katrina hit the Eastern and Southern shores of the US. Similar to flood insurance, another little known fact among the insurance industry is that:

"Boiler and Machinery Insurance Coverage is a standard exclusion on most Property and Business Owners Insurance Policies."

So what does Boiler and Machinery Insurance cover?

Boiler and Machinery Insurance Coverage, or the most prevalently used industry term, and, for the purposes of this article, we will use the term equipment breakdown, is provided for loss of or damage to steam boilers, pressure vessels, steam pipes, steam engines, steam turbines, electrical equipment, air conditioning, refrigeration systems, PC’s, production and mechanical equipment. It covers mechanical failure, motor burnout, short circuits and electrical arcing. Many Mechanical Breakdown Insurance policies will also cover operator error, which accounts for 35% of all equipment breakdowns. Not even a warranty or service maintenance contract will cover these types of losses.

If you take a closer look at the language of your Property Insurance Policy you will notice the following exclusion “we will not pay for loss of or damage to property, as described and limited in this section. In addition, we will not pay for any loss that is a consequence of loss or damage as described and limited in this section:

A.  Steam boilers, steam pipes, steam engines or steam turbines caused by or resulting from any condition or event inside such equipment.  But we will pay for loss of or damage to such equipment cause by or resulting from an explosion of gases or fuel within the furnace of any fired vessel or within the flues or passages through which the gases of combustion pass.

B.  Hot water boiler or other water heating equipment caused by or resulting from any condition or event inside such boilers or equipment, other than explosion.
Conclusion:

It appears obvious that virtually every commercial business has some type of Boiler and Machinery Insurance exposure.

Boiler and Machinery Insurance Coverage A.K.A. “Mechanical Breakdown Insurance Coverage” encompasses much more than just boilers and pressure vessels. Boiler and Machinery Insurance can include refrigeration equipment, air conditioning equipment, various types of piping, turbines, engines, pumps, compressors, blowers, gearing, shafting, electric motors, generators, transformers and assorted other types of mechanical and electrical equipment.

In fact, many policies are written for insureds who do not own or operate boilers or pressure vessels, but yet have mechanical and electrical exposures. Examples this would be a printing company, restaurant (refrigeration equipment) and publishers.  But it's not just the physical damage caused by the explosion or breakdown that's of concern. While repairs are being made, valuable time and profits are lost. Business Interruption coverage protects against this. Often Extra Expense coverage is required to keep the business in operation regardless of cost. Consequential Damage and Refrigeration Interruption insurance protect against spoilage as the result of a breakdown. Many times these business interruption, extra expense and spoilage losses can be much more extensive than the damage to the equipment itself.

Another little known fact of Boiler and Machinery Insurance:

Boiler and Machinery Insurance Coverage provides coverage with respect to property of others in the care, custody or control of the insured for which the insured may be liable. Property coverage forms typically exclude coverages for property held in the care custody and control of the insured. When there is a B&M loss, this excluded exposure is picked up under B&M protection.

One Final Boiler and Machinery Insurance "Did You Know?"

Many jurisdictions mandate that all building Boilers be inspected. This inspection costs money to hire an inspector and file the inspection with the jurisdiction. In addition to the coverage that B&M provides, it also provides a very important and valuable inspection service. Not only does this service satisfy most jurisdictional inspection requirements, but it also can benefit the insured by providing sound loss control recommendations that can help assure efficient operation and longer equipment life.  This inspection service easily satisfies the cost of the Boiler and Machinery Insurance Coverage.

Boiler and Machinery Insurance

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