While not all property insurance policies are alike, one commonality that
exists in polices is a section titled “Exclusions.” Many times, appearing under
such a heading is an often overlooked and
misunderstood boiler and machinery (B&M)
exclusion, which takes away coverage for
mechanical breakdown, electrical injury and
steam explosion.
Many businesses do not realize their property policy does not protect against property
damage caused by sudden or accidental
equipment failure, says Ken Harrison, commercial insurance broker with Westland
Insurance Brokers. Taking a few minutes to
understand boiler and machinery coverage
can save business owners a lot of time and
hassle in the event of a triggered loss.
Smart Business spoke with Harrison about
boiler and machinery insurance and how
business owners and risk managers can be
assured they are buying a comprehensive
policy that maximizes coverage and protects
their business when it’s needed most.
What is boiler and machinery insurance?
Today, boiler and machinery insurance is
an integral part of most insurance programs.
Boiler and machinery coverage fills in the
gaps created from exclusions in a standard
property insurance policy. B&M provides
coverage for three causes of loss, including
electric arching, mechanical breakdown and
steam explosion. Business owners often do
not realize that without B&M coverage, they
are not buying an ‘all-risk’ policy. Whether a
small office or a large production plant, B&M
coverage provides protection needed to mitigate significant costs and potential catastrophic revenue losses in the event of a sudden or accidental equipment breakdown.
Why is boiler and machinery coverage
excluded from property policies?
Traditional B&M is excluded from property
policies because of the underwriting, claim
and engineering expertise typically required.
In addition, steam boilers and pressure vessels require jurisdictional inspections and
permit certifications that vary by state.
Without B&M coverage, business owners are
required to pay fees to state engineers for inspection services that would otherwise be
included with an insurance policy.
Who needs boiler and machinery protection?
Every business has B&M exposure. Most
business owners think because they do not
own any steam boilers or production
machinery that they don’t need such coverage. In fact, any company with a heating and
cooling system or even just simple electrical
outlets needs B&M coverage. Equipment or
electrical failure can occur in water heaters,
cookers/kettles, presses, refrigerators, compressors, generators, transformers and even
switchboards. As equipment and electrical
lines age, accidents and failures will happen.
All businesses should have coverage either
included with their property section or purchased as a stand-alone supplemental policy.
What causes boiler and machinery losses?
Losses occur from a variety of causes.
Some typical reasons for B&M failures
include:
- Old or fatigued equipment and electrical
panels - Lack of proper maintenance
- Machinery/circuits used beyond capacity
- Lack of safety devices
- Operator error
- Dirty or dusty operating environment
To help prevent such losses, business owners should routinely inspect equipment and
provide continuous education to employees
who operate or maintain machinery.
Why is boiler and machinery coverage
important?
Boiler and machinery insurance covers
sudden and accidental failure of equipment
and any resulting damage, such as spoilage
or loss of income due to unexpected temporary business shutdown. Some of the most
significant costs associated with equipment
failure are not so much the direct cost of the
failed machine but rather the indirect costs,
such as downtime, product spoilage or utility
interruption.
For example, let’s say a power surge causes electric arching in a server room control
panel housing a telecommunications system,
and a company’s phone and computer systems go down. As a result, revenue is lost
while the system is restored. With B&M coverage, the cost to repair the control panel and
phone system and any loss of income suffered would likely be restored.
What should business owners be aware of
when considering B&M coverage?
Business owners and risk managers should
review their insurance policies closely with
their agent or broker to determine whether
or not B&M coverage exists within their program. Insurance buyers should be advised
about their coverage and feel confident they
are making informed decisions. When purchasing a B&M policy, business owners
should remember to choose a policy that
includes not only direct physical loss to property but also any loss of income or consequential loss, known as spoilage. There are
very few businesses, if any, that do not have
a B&M exposure. For a fraction of the cost of
a property policy, no company should be
without B&M coverage.
KEN HARRISON, MBA, is a commercial insurance broker with Westland Insurance Brokers. Reach him at [email protected]
or (949) 553-9700.
