4/H - Boiler and Machinery

Question 1

Equipment Breakdown Protection Coverage Form

Answer 1

Boiler & Machinery Insurance

• Coverage is written on the Equipment Breakdown Protection Coverage Form
• No liability coverage

Question 2

Breakdown

Answer 2

Direct physical damage to covered equipment which necessities repair or replacement and results from accidental pressure failure of vacuum equipment, mechanical failure, electrical failure.

One Covered Peril:
- The “breakdown” of “covered equipment”

“Breakdown” does not include:

• Equipment malfunction resulting from adjustment alignment, calibration, cleaning, or modification
• Computer defects, erasures, errors, limitations, or viruses
• Leaks from valves, connections, joints, seals, or fittings
• Damage from any source to vacuum tubes, gas tubes, or brushes
• Damages to structures or foundations that support the covered equipment
• Damage to safety or protective devices that are not components of the covered equipment
• Cracks in combustion gas turbine parts that are caused by exposure to products of combustion

Question 3

Covered Equipment

Answer 3

“Covered equipment” includes:

• Equipment built to operate under internal pressure or vacuum, other than the weight of its contents
• Mechanical or electrical equipment that generates, transmits, or utilizes energy
• Communication and computer equipment (but not data or storage media)

Coverage provided for:

• Coverage equipment owned by, or under control of, insured business
• Equipment owned by a utility service that exclusively provides the insured with power, heat, light, or communication services

Question 4

Equipment Not Covered

Answer 4

“Covered equipment” does not include:

• Parts of pressure or vacuum equipment not under internal pressure of its contents or vacuum
• Insulating material
• Non-metallic pressure or vacuum equipment
• Catalysts
• Buried vessels, piping, and other equipment
• Structures, foundations, or cabinets used to support or contain covered equipment
• Vehicles, aircraft, self-propelled equipment, or floating vessels
• Dragline, excavation, or construction equipment
• Maintenance property
• Equipment used solely for diagnosis, research, medication, surgical, therapeutic, dental, or pathological purposes

Question 5

Object

Answer 5

Specified piece of equipment covered by the Equipment Breakdown Protection Coverage Form

Question 6

Available Coverages

Answer 6

Up to 10 coverages

• Each coverage may have its own limit, or may be included in overall limit for Property Damage
• Any selected coverage only applies to damage that results from a covered loss

Question 7

Property Damage

Answer 7

Pays for direct damage to covered property at described premises

Question 8

Expediting Expenses

Answer 8

Pays for extra costs incurred by the insured that are necessary to make temporary repairs and expedite permanent repairs or replacement

Question 9

Business Income/Extra Expense

Answer 9

Two Options:

• Business Income and Extra Expense
• Extra Expense Only

Period of Restoration

• Begins at time of breakdown or 24 hrs before insured is notified of breakdown, whichever is later
• Usually ends 5 days after repair or replacement (insured may choose different time frame)
• If delayed, coverage still only applies for the length of time in which the insured should have reasonably been able to repair or replace damaged equipment

Question 10

Spoilage Coverage

Answer 10

Covers spoilage of:

• Raw materials
• Property in process
• Stored finished products

Conditions:

• Spoilage must result from lack or excess of power, light, heat, steam, or refrigeration
• Insured must own the spoiled property, or be legally liable for it under written contract

Question 11

Utility Interruption

Answer 11

Only available if policy also includes at least one of:

• Business Income and Extra Expense
• Extra Expense Only
• Spoilage Damage

Conditions:

• Utility interruption must result from breakdown of covered equipment owned, operated, or controlled by public or private utility service provider
• Covered equipment must provide electric power, communication services, air conditioning, heating, gas, sewer, water, or steam to the insured’s premises
• Interruption must last longer than the waiting period - a predetermined number of hours listed on the Declarations page

Question 12

Newly Acquired Premises

Answer 12

• For a predetermined period of time, newly purchased or leased property gets same coverage already provided to existing property
• Insured must notify insurer and pay additional premiums before the end of this time period for coverage to continue

Question 13

Ordinance and Law

Answer 13

• Pays for increased demolition and construction costs, and loss to undamaged portion of building, as a result of enforcement of ordinances or laws
• These losses are typically excluded, but this optional coverage overrides the exclusion

Question 14

Errors and Omissions

Answer 14

Provides coverage for losses that would otherwise not be covered because of:

• Error or unintentional omission in the way the insured property was described
• Unintentional failure to include any premises owned or occupied by the insured at the policy’s inception date
• Error or unintentional omission that leads to the insurer cancelling coverage of the insured premises

Question 15

Brands and Labels

Answer 15

Pays to remove brands and labeling from damaged products, as long as doing so does not harm the salvage value

Question 16

Contingent Business

Answer 16

Two Options:

• Contingent Business Income and Extra Expense
• Contingent Extra Expense Only

Covers insured’s losses that result from a covered loss at a key supplier’s location that prevents the supplier from delivering services or materials to the insured

Question 17

Exclusions

Answer 17

Some losses are excluded because they’re:

• Standard exclusions in all property insurance policies
• Already covered in the commercial property policy

Some exclusions only apply if the policyholder does not purchase coverage for those types of losses

Question 18

Standard Exclusions

Answer 18

• War or military action
• Nuclear hazards
• Earth movement
• Depletion, deterioration, corrosion, erosion, or wear and tear
• Water
• Post-loss neglect

Question 19

Covered by Other Insurance

Answer 19

• Windstorm or hail
• Explosion
• Fire or combustion explosion
• Internal furnace explosion
• Fire extinguishing methods

Question 20

Unless Coverage is Selected

Answer 20

• Ordinance or law
• Business interruption
• Indirect breakdown
• Power, light, heat, steam, or refrigeration

Question 21

More Exclusions

Answer 21

• Utility interruption
• Pressure or electrical testing
• Other Insurance

Question 22

Additional Coverages and Limits of Insurance

Answer 22

• Minimum limit on most Equipment Breakdown policies = $500,000
• Unless otherwise stated, the following additional coverages have a sublimit of $25,000

Additional Coverages:

• Ammonia contamination
  
  • Pays for ammonia contamination to covered property
• Consequential loss
  
  • Reduction in value when damaged part of a product makes the rest unusable
• Data and media
  
  • Pays for actual losses during time needed to research, restore, or replace lost data
• Hazardous substances
  
  • Pays expenses for cleanup, repair, replacement, or disposal of contaminated property
• Water damage
  
  • Pay for water damage, but not that caused by leaking sprinklers or domestic water pipes

Question 23

Overview of Deductibles

Answer 23

• $500 base deductible
• Applicable to each occurrence
• May be applied to each line of coverage, or one combined deductible for all coverages
• If multiple deductibles are involved in a single covered breakdown, only the highest will apply per line of coverage

Question 24

Dollar and Time

Answer 24

• Dollar Deductible: a set dollar amount that applies to each loss
• Time Deductible: also known as a waiting period: a set amount of time after a loss before the insurer will pay for covered damage

Question 25

Percentage of Loss

Answer 25

Percentage of Loss Deductible
- Set percentage of the total loss amount

Note: This is different than typical percentage deductibles in other policies

Question 26

Multiple of Daily Value Deductible

Answer 26

• Applies to Business Income coverage
• Daily Value is calculated by dividing the amount of income loss by the number of days in the restoration period
• Daily Value is multiplied by a predetermined number of days on the Declarations page
• The result is the deductible

Question 27

Minimum or Maximum Deductible

Answer 27

• Sets a predetermined range for the deductible
• Used with either a Percentage of Loss Deductible or a Multiple of Daily Value Deductible
• If calculated deductible falls below the minimum, insured must pay the Minimum Deductible amount
• If calculated deductible is more than the maximum, insured only pays the Maximum Deductible amount

Question 28

Selected Endorsements

Answer 28

Business Income - Report of Value:

• Requires insured to report business income to insurer every year
• Failure to report or inaccurate reporting could lead to coinsurance penalty on covered loss

Actual Cash Value:

• Changes loss settlement from RC to the lesser of:
  a. actual cash value
  b. amount needed to repair or replace with like kind and quality