6 ADJUSTINGTODAY. COM A D J U S T I N G T O D A Y damage, time element and other coverages, is the concern over pandemic or other unorthodox transmission of infectious material that may generate claims in the future. This exclusion, in other words, is being added as a precautionary step. If a breakdown occurs, however, such a resulting breakdown is considered to be covered. 10. Explosion within the furnace of a chemical recovery type boiler or within the passage from the furnace to the atmosphere. Furnace explosion is a covered cause of loss under commercial property policies. 11. Damage to covered equipment undergoing a pressure or electrical test. This type of a hazard requires an additional premium to the extent that the insurer is willing to cover it. 12. Water or other means used to extinguish a fire, even when the attempt is unsuccessful. This exposure is covered by commercial property policies. 13. Depletion, deterioration, corrosion, erosion or wear or tear. But a resulting breakdown is covered. These are considered to be losses that are not fortuitous. It also is a potentially very troublesome exclusion. 14. A breakdown caused by the listed causes of loss, if covered by another policy: aircraft, vehicles, freezing, lightning, sinkhole collapse, smoke, riot, civil commotion, vandalism, weight of ice, snow or sleet. These causes of loss are commonly covered in relation to the broad and special causes of loss forms. 15. Breakdown caused by windstorm or hail. These are covered perils of the broad and special causes of loss forms. Importance Because it ranks high among the more exotic and frequently misunderstood property and casualty coverages, equipment breakdown coverage is often not adequately addressed in insurance programs. Yet it is too important to ignore in planning a comprehensive insurance program because not only does such a policy provide broad valuable protection, it complements a well-designed general commercial property insurance program to help ensure that a business or organization will survive and continue to prosper after a major loss. Pricing Unlike most property and casualty coverages—where payment of losses and claim expenses is the largest part of the cost—with equipment breakdown insurance, if the inspection services are done properly and followed up to assure the correction of hazards, the largest cost factor is the underwriting, inspection and loss prevention service. Key Considerations Key factors to consider in integrating this coverage into an overall insurance program are: — Except when the same insurer is providing both the general commercial property coverage and equipment breakdown insurance (and not reinsuring the equipment breakdown elsewhere), the need can best be met through the use of a joint loss agreement on both the commercial property and equipment breakdown insurance. This attempts to eliminate joint coverage situations. — The equipment breakdown declarations page is an important part of the policy, and the data on this page should be checked carefully to make sure it is correct and complete. There are references to the data shown on the declarations page throughout the other portions of the policy, so any errors or omissions on the declarations page can be damaging to the intended coverage. Limits How much equipment breakdown insurance should be carried? The amount and limits of coverage can only be estimated by examination of the particular situation and making a “worst case” evaluation or loss projection. Avoid the common practice of insuring only for the value of the object being covered. For most items, a covered loss can also cause damage to property beyond the object itself. The cost of the additional coverage does not rise proportionally with the increased risk, so it is better to estimate on the high rather than the low side—and insure accordingly. Equipment Breakdown Insurance Coverage in Brief
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