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@example.com or (949) 553-9700.