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FIL350 - Chapter 10

Equipment Breakdown Insurance

BPP Exclusions relating to mechanical breakdown - Artificially generated electrical, magnetic, or electromagnetic energy - Explosion of steam boilers, steam pipes, etc. - Mechanical breakdown including rupture or busting
Five categories of equipment subject to breakdown 1. Boilers and pressure vessels 2. Electrical equipment 3. Mechanical equipment 4. Air conditioning and refrigeration equipment 5. Business equipment & systems
Boilers and Pressure vessels - Fire pressure vessels burn fuel under pressure (e.g., boiler) - Boiler losses include: steam pressure explosion, overheating if insufficient water, cracking - Unfired vessels may not be heated, but generate pressure
Electrical Equipment Examples: transformers, circuit breakers, generators, motors. Causes of loss: moisture, overload, faulty repairs, deterioration of insulation, surges - BPP only covers lightning
Mechanical Equipment Examples: Compressors/pumps, engines/turbines - Losses include: breaking of rotating elements, gears, moving parts - Causes: maintenance, overuse & stress, metal fatigue
Air conditioning & refrigeration equipment - Include electrical and mechanical components (fans, compressors, switchboards) - Similar breakdowns to electrical and mechanical systems
Business Equipment & Systems Includes: computer systems, phone systems, copiers/fax - These items have elements of electrical and mechanical equipment
Ten Insuring agreements (coverages) available (1-5) 1. Property damage 2. Expediting expenses 3. Business income and extra expense 4. Spoilage damage 5. Utility interruption
Ten Insuring agreements (coverages) available (6-10) 6. Newly acquired premises 7. Ordinance or law coverage 8. Errors & omissions 9. Brands and labels 10. Contingent business income (dependent properties)
Definition of "Breakdown" - Direct physical loss that to "Covered Equipment" and necessitates repair or replacement
Define "Covered Equipment" 1. Equipment built to operate under pressure or vacuum 2. Electrical or mechanical equipment 3. Communication equipment and "computer equipment" 4. Equipment in any of 1-3 above used to supply utilities to insured premises
Property damage coverages - Includes building, business personal prop, personal prop of others
Expediting Expenses They are for costs incurred to temporarily repair or speed up permanent repairs for damaged property - Not as broad as extra expense coverage
Spoilage Damage - Covers raw materials, work in process, finished goods. - Must result from lack or excess of heat, steam, light, or refrigeration. Includes ammonia losses & extra expense to help reduce spoilage loss
Time Element Coverages - Business Income Pays for: (1)actual loss of BI (2)during period of restoration (3)due to suspension of operations (4)caused by breakdown of covered equipment (5)as well as extra expenses (note that these are the 5 elements of BI coverage)
Time Element Coverages - Utility Interruption - Extends business income and extra expense to include breakdown of equipment of utility companies - Includes spoilage protection
Time Element Coverage - Contingent Business Income - Adds business income loss (or extra expense) from equip breakdown at dependent properties (supplier or end user) - Must specify location of non-owned property
Other Coverages - Newly acquired premises - Extends all equipment breakdown coverages (property and BI) to newly acquired properties - Unlike other coverage forms, number of days must be specified
Other Coverages - Ordinance or law coverage - Pays for increased cost of construction to repair damaged buildings according to ordinance or law - Also pays for demolition of undamaged portion of building
Other Coverages - Brands & Labels - Similar to brands and labels endorsement in property insurance - Insurer pays expenses to remove labels or stamp "salvage" to resell
Other Coverages - Errors & Omissions If insured makes an error or omission listing property or premises
Equipment Breakdown exclusions similar to BPP - Ordinance or law(if no coverage under equip breakdown) - Earth movement or water - Nuclear hazard, war, military - Wear and tear - Mold & neglect
Equipment Breakdown exclusions because of other available coverage - Combustion explosion (covered under BPP) - Breakdown caused by other perils (lightning, windstorm, etc. covered by other forms)
Equipment Breakdown Insurance Limits - Usually one limit applies for all coverages per breakdown - Suggestion is to set limit to value of all property - Separate limits may also be shown for each insuring agreement
Equipment Breakdown $25,000 limits - Spoilage caused by ammonia - Consequential loss for undamaged property (one part missing, whole product can't function) - Restoring, replacing computer data - Cleanup of hazardous substances - Water damage - $15,000 limit for mold caused by breakdo
4 types of deductibles for Equipment Breakdown 1. Dollar deductible 2. Time deductible for business income and extra expense 3. Multiple of daily value is alternate to fixed elimination periods (daily value is lost income per day of shutdown) 4. Percentage of loss (subject to a minimum)
Joint and Disputed Loss Agreement - Applies when multiple insurers - When policy language includes this agreement, each insurer pays the amount that is covered under contract plus 1/2 the disputed amount immediately. The insurers then settle the differences through arbitration
Created by: FIL350