A Guide to Equipment Breakdown Insurance

A Guide to Equipment

Breakdown Insurance

The Boiler Inspection and

Insurance Company of Canada

Risk Solutions

CONTENTS

Equipment Breakdown Insurance 1

What’s It All About? 1

Why the Need? 2

Commercial Property Insurance Policy Exclusions 2

Inspection Services 3

Mandatory Inspections 4

Evolving Equipment Risks 5

Equipment Hazards 5

Why Do Breakdowns Happen? 7

Policy Coverage 8

Accident 8

Electronic Circuitry Impairment (ECI) 9

Object 9

Comprehensive Coverage 11

Property Damage Coverage 12

Indirect Damage Coverage 13

Other Coverages and Limits 15

Policy Conditions 18

Policy Exclusions 20

A Choice of Policies 26

EQUIPMENT BREAKDOWN

INSURANCE V

This booklet will help you increase your equipment breakdown

insurance business. At $402

million, it is still a big, underserved

market: more than half

of all commercial property policies

written do not carry equipment breakdown coverage – insurance

you could be placing.

Much of the business comes from large risks, such as public

utilities, petrochemical plants, and national industrial accounts.

But more than 90 percent of equipment breakdown business is

generated by commercial, industrial, agricultural and residential

risks, in and around your own community.

While equipment breakdown insurance often covers complex

equipment, systems and processes, understanding and writing

equipment breakdown insurance isn’t complex. This guide covers

what you need to know, keeping it brief, factual and easy-to-

understand, with lots of quick-reference exhibits that make it

easy to recognize and respond to real-world equipment

breakdown insurance needs.

The Boiler Inspection and Insurance Company of Canada (BI&I),

a member of HSB Group and part of Munich Re’s Risk Solutions

family, is the Canadian leader in equipment breakdown

insurance, loss prevention, and inspection services. We set the

standard for excellence, with unmatched engineering-based

expertise, a long-term view of industry requirements, and

commitment to service excellence in client relationships. We

provide packaged products that can be adapted easily to your

customers’ needs and seamlessly integrated with your way of

doing business.

Partnering with BI&I will strengthen your competitive position,

increase your proﬁtability, and enhance your customer

relationships with comprehensive equipment breakdown

insurance solutions.

What’s It All About?

Equipment breakdown insurance is a form of property coverage.

Its purpose is to insure against the ﬁnancial losses – property

damage, business interruption and spoilage – that result from a

deﬁned Accident (often referred to as a breakdown), or Electronic

Circuitry Impairment (ECI), to speciﬁed kinds of mechanical,

electrical, and pressure equipment, referred to as Objects.

OSFI Consolidated Premiums, 2016.

BI&I Estimate

Insured equipment may include such things as steam boilers, hot

water tanks, pressure vessels, refrigeration and air conditioning

systems, motors, generators, compressors, pumps, engines, fans,

blowers, gear sets, turbines, transformers, electrical switchgears,

electronic equipment, and a wide range of production and

processing equipment.

Why the Need?

There are three main reasons why equipment breakdown

insurance is important:

1) It covers exposures that are normally excluded in other

property insurance policies.

2) Insurance company inspections (which are not obligatory) may

help reduce the likelihood of breakdowns to insured equipment.

3) Insurance company inspections of boilers and pressure vessels

satisfy the provincial inspection requirements in several

provinces.

Commercial Property Insurance Policy Exclusions

With few exceptions, the kinds of breakdowns that happen to

boilers, pressure vessels, machinery, and electrical equipment are

not covered by most property policies.

Property policies speciﬁcally assume liability for the explosion of

accumulated gases or unconsumed fuel in the combustion

chamber or ﬂues of a boiler or other ﬁred pressure vessels. This

hazard is generally referred to as a combustion explosion.

There is another boiler explosion hazard, however, that is usually

much more violent than a furnace explosion. That’s an explosion

caused by steam or water pressure within the boiler, and its

results can be devastating.

In this regard, the explosion provisions of most property policies

speciﬁcally exclude loss from the explosion of all boilers

generating steam, and piping or other equipment connected to

these boilers.

Apart from boiler explosions, there are other kinds of breakdowns

that more frequently happen to this equipment, yet are not

covered by most commercial property policies, such as:

- burning (overheating) of boilers or ﬁred vessels due to a lack of

water

- cracking of sections of cast iron boilers, due to a variety of causes

- bulging or bagging, usually the result of the build-up of scale or

sediment

Pressure vessels such as air tanks, jacketed steam kettles, and

propane storage tanks are objects that can also be subject to

explosion. Property policy wordings normally exclude vessels and

apparatus under pressure which have a maximum normal internal

pressure exceeding 103 kilopascals (15 p.s.i.) with the exception of

small hot water tanks under 610 millimetre diameter (24 inches)

and manually portable gas cylinders.

In addition, electric arcing is excluded under most commercial

property policies. This means that the electrical burnout of

motors, generators, circuit breakers, electrical distribution boards,

cables, and transformers – from such causes as short circuits and

line surges – is not covered. An exception is damage caused

directly by lightning.

And ﬁnally, you’ll note that the commercial property policy

speciﬁcally excludes mechanical breakdown and explosion of

equipment due to centrifugal force. These are the very types of

breakdowns that happen to a wide range of machinery.

It’s important, therefore, when you review your clients’ needs for

coverage on their heating, cooling, processing, or manufacturing

equipment, to bear in mind the very limited protection that is

oered under property insurance with respect to the most

common equipment and machinery hazards.

Inspection Services

Ever since equipment breakdown insurance was introduced in

Canada, inspections of insured equipment have played an

important role in helping to reduce the likelihood of breakdowns.

It should be pointed out that an equipment breakdown policy does

not guarantee that inspections will be made.

They are made by the insurance company in order to help reduce

the frequency and severity of equipment failures. Policyholders

beneﬁt from improved equipment reliability and fewer

unexpected breakdowns. The insurance company beneﬁts from a

reduction in the number and size of claims.

The insurance company inspector serves three basic functions:

1. Risk Assessment

The inspector is the ‘eyes’ through which the underwriter sees the

risk. This is accomplished not only by the inspector’s analysis of

the types and the condition of equipment in service, but also by

their reports on such things as plant maintenance philosophy,

operator training, production ﬂow, and exposure to business

interruption or spoilage losses.

2. Loss Prevention

The inspector physically inspects the equipment in an eort to

help detect dangerous conditions before trouble occurs, such as

making sure the equipment is suited for the job, overseeing the

testing of controls and safety devices, checking equipment

maintenance, and reviewing operators’ logs. In many instances,

the inspector may also be able to oer suggestions to help reduce

operating costs or lengthen the usable life of equipment.

3. Accident Investigation and Assistance in the Resumption

of Business

If a breakdown does happen, the inspector is called upon to

investigate the occurrence, and determine the extent of damage

and probable cause of failure. The latter step is particularly

important to help prevent similar failure of other equipment at

the location. And the inspector is often able to assist the

policyholder in taking the necessary action to return the

equipment or plant to normal operation with minimum delay.

Note: Brokers are asked not to report claims to independent

adjusters. BI&I employs a sta of in-house adjusters who are

specialized in handling equipment breakdown claims.

Mandatory Inspections

In the interest of public safety, the provinces have enacted laws

requiring the periodic inspection of boilers and pressure vessels.

Under these laws – which vary from province to province – the

equipment must be inspected by commissioned inspectors at

speciﬁed intervals and approved for continued operation.

Although the provinces maintain their own inspection sta,

several of them accept inspections made by insurance company

inspectors in lieu of those made by their own personnel. Some

provinces actually encourage insurance company involvement,

because of their own budgetary constraints.

Where insurance company inspections are accepted, the

policyholder does not have to pay the local inspection fee. This,

in essence, reduces the cost of the insurance.

Evolving Equipment Risks

Equipment exposures have changed considerably in recent years

due to the advancement of technology:

Technology continues to get smaller. Microelectronics have

become the brains that drive equipment, with components so tiny

that 10 million transistors could ﬁt on the period at the end of this

sentence. Microcircuits are extremely fragile and sensitive to

electrical injury, shock, vibration, and heat. This combination of

minute size and high sensitivity means equipment may simply

stop working, without showing any evidence of visible damage.

Cloud computing is now an integral part of business

operations, providing critical services such as data storage,

software, payroll, accounting, marketing, point-of-sale, and

customer relationship management.

As the result of the miniaturization of technology, business

equipment has become more portable and more frequently

used o-premises, where it is exposed to greater risk of damage.

Equipment Hazards

Electrical System Hazards. A building’s electrical system is a

signiﬁcant source of risk to high-tech equipment. Many people

presume that air conditioning units have a higher potential for

failure because they have moving parts – pumps, belts, and fans –

that wear down and break. They also believe that stationary wires

and electrical components do not have the same failure potential.

The truth is, after boiler and air conditioner breakdowns,

electrical system failures are the most common.

Most electrical failures are not caused by a major event such as

lightning, but by loose connections, moisture, dirt, overloads, and

other common causes. Thirty-ﬁve percent of all electrical system

failures can be traced to human error – from carelessness and

improperly trained personnel, to inadequate maintenance, and

delayed service. Even modern buildings designed just 10 or 15

years ago are vulnerable to electrical system failures.

Phones at Risk. The increased risk of advanced technology is not

conﬁned to specialized equipment. Consider the telephone, the

lifeline of day-to-day business operations. For most companies, a

PBX system, or private branch exchange, is required to manage

the phone lines that funnel incoming and outgoing calls.

PBX systems are complex digital equipment, replete with

sensitive circuitry and electronics. And like all computers, they

are extremely vulnerable to electrical disturbance. One of the

biggest problems in PBX systems – and virtually any

microprocessor-controlled equipment – is harmonic distortion.

This is electrical ‘noise’ created by nonlinear power loads. The

result is heat that burns out sensitive circuitry.

Boilers and Fired Pressure Vessels are subject to several

dierent hazards;

- explosion, due to internal pressure of steam or water

- burning (overheating), caused by continued ﬁring after the

water drops below a safe level

- cracking of cast iron sections, due to such things as expansion

and contraction stresses, rust growth between sections, porous

castings, and tie rods that are too tight

- bulging or bagging, usually caused by improper heat transfer

due to build-up of scale or sediment

- collapse (of the cylindrical furnace of a scotch marine boiler),

generally due to ‘low water’

Unﬁred Pressure Vessels, such as air tanks, electric water

heaters, steam cookers, hydro-pneumatic tanks, and process

vessels, are subject to the hazards of explosion, bulging,

cracking, and collapse (implosion).

The vessels, coils and piping that form part of refrigerating

systems can explode, collapse or crack. The most common type

of failure is cracking, which is often caused, oddly enough, by

freezing due to control failure.

An additional hazard is encountered in the operation of ammonia

refrigerating systems. Ammonia that is released by a breakdown,

such as a broken pipe, can cause heavy contamination losses,

especially in food products.

Mechanical Equipment – compressors, pumps, blowers, fans,

engines, turbines and the like – are subject to a variety of hazards.

Among the more common causes of failure are: metal fatigue,

loss of lubrication, over-speed, mechanical stress, and shock

loads. A more detailed listing appears in the separate exhibit

entitled Insurable Equipment on page 21.

Why Do Breakdowns Happen?

Many breakdowns – not all of them – can be prevented. The

preventable ones, which nevertheless occur, can nearly always

be attributed to human failure in one form or another.

Safe operation always requires proper maintenance of

equipment. But many operators or owners of equipment don’t

know how – or don’t take the time – to care for their equipment

properly.

Consider, for example, a low-pressure steam boiler in an

apartment building, oice building or manufacturing plant. Good

maintenance requires the periodic testing of controls, particularly

the low-water fuel cut-o. If a ﬂoat-type cut-o isn’t drained

periodically to ﬂush out the accumulation of sediment in the ﬂoat

chamber, chances are high that the cut-o will fail to shut o the

burner when the water in the boiler drops below a safe level,

resulting in a badly burned boiler or perhaps even an explosion.

Here are a few other breakdown causes that can be blamed on

human failure:

- Operating equipment beyond its rated capacity

- Misapplication of equipment

- Permitting dust or dirt to build up on electrical equipment

- Failure to protect equipment against vehicle impact

- Deliberately bypassing safety devices

- Relying too heavily on automatic devices

- Failure to test auxiliary equipment (for example, to ensure

proper lubrication of a large machine)

- Improper lay-up or start-up procedures for seasonal equipment

The list goes on and on. No wonder breakdowns happen!

POLICY COVERAGE

There are several forms under which BI&I can provide Equipment

Breakdown insurance.

•

TechAdvantage® Equipment Breakdown Coverage, our

standard policy

• All Systems Go Plus®

• Equipment Breakdown Rider, which forms part of many

property & casualty insurance company package policies

However, because the above are all derived from TechAdvantage®

Equipment Breakdown Coverage, we will use this form in the

following discussion and explanation.

Remember, we stated at the start that equipment breakdown

insurance covers losses from deﬁned Accidents or Electronic

Circuitry Impairment (ECI) to speciﬁed equipment, or Objects.

For the insurance to apply, there must be an Accident or ECI to

one or more Objects.

Accident

In layman’s terms, an Accident means a sudden and accidental

breakdown of an Object resulting in physical damage to the

Object, that requires that the Object be either repaired or

replaced (except as is amended for more restrictive forms of

coverage applied to some boiler or turbine risks).

Because the insurance is not intended to cover certain

occurrences, especially those of a maintenance nature, the

following occurrences are not considered Accidents:

- depletion, deterioration, corrosion or erosion of material

- wear and tear

 leakage at any valve, ﬁtting, shaft seal, or gland packing

- cracking of any part of a gas turbine exposed to the products

of combustion

- breakdown of any structure or foundation supporting the Object

- operation of any protective device or safety device (which would

merely be doing what it is supposed to do)

However, if an excluded occurrence or condition (such as wear

and tear) caused a deﬁned Accident (e.g. a broken shaft in a

motor), the latter occurrence would be considered an Accident.

One other exclusion applies to boilers and ﬁred vessels –

combustion explosion. That hazard, as you will recall, is

speciﬁcally covered by the ‘explosion’ provisions of most ﬁre

insurance policies.

Electronic Circuitry Impairment (ECI)

BI&I‘s TechAdvantage® Equipment Breakdown Coverage adds a

second cause of loss: Electronic Circuitry Impairment (ECI).

Electronic Circuitry means microelectronic components,

including circuit boards, integrated circuits, computer chips, and

disk drives. An ECI causes equipment to suddenly lose its ability

to function as it had immediately before it stopped working. If the

remedy is to replace one or more electronic circuitry components,

then ECI is triggered, regardless of whether or not physical

damage is detected.

Electronic Circuitry Impairment does not mean:

- Conditions that can be remedied by normal maintenance,

rebooting, reloading or updating software or ﬁrmware

- Incompatibility of software or equipment installed

- Insuicient size and capacity of the equipment

- ECI does not apply to equipment that is not in the insured’s

care, custody or control

Electronic Circuitry Impairment does not extend to Service

Interruption, Contingent Business Interruption, Anchor Location

or Civil Authority coverages.

Object

Objects can be described in a number of ways. The Simple Seven

categories of insurable objects are:

1. Electrical: Electrical equipment or apparatus used for the

generation, transmission or utilization of electrical power, such as

electrical panels, switchboards, transformers, generators, cables

and motors

2. Air Conditioning and Refrigeration: These systems contain a

variety of equipment components, such as Pressure Vessel

(compressors), Mechanical (fans), Electrical (cables) and

Electronic (controls)

3. Boiler and Pressure Vessels: Boilers, ﬁred or unﬁred pressure

vessels, and piping normally subject to vacuum or internal

pressure other than static pressure of contents

4. Computer and Communications: Equipment used for the

generation, control, transmission, reception, recording,

reproduction, playback, or other use of television, radio, or

telephone signals; any electronic equipment used for research,

diagnostic, treatment, experimental, or other medical or scientiﬁc

purposes; any electronic equipment used for computing, data

processing, duplicating, inventory control, monitoring, scanning,

or other electronic oice equipment including associated ﬁbre

optic cable

5. Mechanical: Equipment used for the generation,

transmission, or utilization of mechanical power, such as gear

boxes, generators, fans, pumps, motors, and engines

6. Renewable and Alternative Energy: A wide range of

equipment used for alternative power generation, including solar,

wind, geothermal, and bio-fuel

7. Production Machines: Machines which process, form, cut,

shape, grind, or convey a product, or raw materials, or materials in

process, such as CNC machines, robots, machining tools,

printing presses, hydraulic presses, extruders, lathes, mills, and

equipment used in food processing

COMPREHENSIVE COVERAGE OVERVIEW

Optional Extensions to Coverage

PRESSURE EQUIPMENT

Group: Boilers, unfired

pressure vessels, piping

Examples: Cast iron boilers,

fired coil water heaters,

autoclaves, air receivers,

refrigeration systems, etc.

MECHANICAL EQUIPMENT

Group: Equipment used to

generate, transmit, or utilize

mechanical power

Examples: Compressors, pumps,

gears, turbines, fans, blowers,

internal combustion engines, etc.

PRODUCTION MACHINES

Group: Machines or apparatus

which process, form, cut, shape,

grind, or convey product, and

maintenance machines

Examples: Hydraulic presses,

extruders, paper machines,

lathes, mills, etc.

ELECTRICAL EQUIPMENT

Group: Equipment used to

generate, transmit, or utilize

electric power

Examples: Electric motors,

generators, transformers,

miscellaneous electrical

apparatus (switchboards,

cables, circuit breakers)

ELECTRONIC EQUIPMENT

Group: Television, radio or

telephone equipment; medical

or scientific equipment; data

processing, computing, duplicating,

or office equipment

Examples: Television transmitters,

x-ray machines, computers,

bar code scanners etc.

PROPERTY DAMAGE COVERAGE

In the event of an Accident or ECI to a deﬁned Object, while the

Object is in use or connected ready for use, the insurance

company agrees to pay for:

(a) loss to the Object

(b) loss to other Insured Property directly damaged by the

Accident

Other Insured Property is deﬁned as property owned by the

insured, and property of others in the care, custody or control of

the insured for which the Insured is legally liable.

Loss settlement is made on the basis of the lesser of the cost to

repair damaged property or replace damaged property with

property of similar kind, capacity, size, quality, and function. If

damaged property is replaced with something bigger or better,

the cost of betterment is borne by the insured. However, if an

Object requires replacement, up to 150% will be paid for

equipment that is better for the environment, or more eicient

than the equipment being replaced.

This insurance is subject to a Property Damage Limit (also called

Limit per Accident or Limit of Liability) stipulated in the policy

declarations for the location where the Accident or ECI occurs.

INDIRECT DAMAGE COVERAGE

There are several forms of indirect damage coverage available

under equipment breakdown policies. All forms are optional and

may be added to the basic policy by endorsement. Business

interruption coverages on equipment breakdown policies are

similar to the property business interruption coverages.

Property damage coverage is required before the insured can

purchase indirect coverage. Some of the indirect damage

coverages available on equipment breakdown policies are:

1. Business Interruption – Actual Loss Sustained – This form

is intended to reimburse the insured for loss of proﬁts and/or

continuing expenses as a result of an Accident or Electronic

Circuitry Impairment (ECI), on a proof of loss basis, until

business, as speciﬁed in the form (production, sales, rents or

income) can be resumed; subject to the limit of loss speciﬁed.

2. Rent or Rental Value – This form is intended to reimburse the

insured for the loss of rents on:

a. the portion of the premises rented out

b. the fair rental value for the portion occupied by the insured,

and

c. the rental value of the unoccupied portion of the premises,

resulting from an Accident or ECI

3. Loss of Proﬁts – Loss of proﬁts coverage is provided to

reimburse the insured for loss of gross proﬁts (the dierence

between the cost price and the selling price of the insured’s

merchandise) resulting from an Accident or ECI, until the gross

proﬁts are back to the level immediately before the Accident or

ECI occurred but not exceeding the sum insured and indemnity

period speciﬁed.

4. Gross Earnings – Gross earnings coverage is provided to

reimburse the insured for loss due to the necessary interruption

of business as a result of an Accident or ECI until the damaged

property of the insured is rebuilt, repaired or replaced, but not

exceeding the amount of insurance speciﬁed.

5. Extra Expense Coverage – Extra expense coverage can be

provided to oset the additional cost of conducting business

during the period of restoration over and above the cost that

normally would have been incurred to conduct business during

the same period, had no Accident or ECI occurred. Such

businesses as newspapers, hospitals, schools, colleges and

nursing homes may have a need for this coverage.

6. Spares Mitigation Clause – All business interruption forms

have a spares mitigation clause included. This provides insureds,

who have taken the steps of carrying a spare, a deductible waiver

in the event the spare fails while operating to mitigate a potential

loss.

7. Spoilage – Broad Form – This coverage provides indemnity for

loss or expense due to spoilage resulting from an Accident or ECI.

Loss from lack of power, light, heat, steam, or refrigeration is

expanded to cover either too much of these elements or too little

of these elements. This coverage is designed for food processing

risks where too much heat or cold may spoil the insured’s

product.

8. Spoilage – Enhanced Coverage – For an additional premium,

enhanced spoilage coverage is oered that will provide coverage

for spoilage resulting from the normal operation or failure of

safety or protective devices. These devices can include fuses,

electrical breakers etc.

OTHER COVERAGES AND LIMITS

The following additional coverages are provided for in the policy,

in most cases to a speciﬁc sublimit. The limit provided for each

coverage will vary depending upon the individual needs of each

insured and the insurer or reinsurer’s desire to limit the amount of

exposure in speciﬁc areas.

Automatic Coverage – provides insurance at newly acquired

locations for a period up to 90 days on equipment similar to that

insured at existing locations. Coverage applies to both direct

damage and business interruption, or other indirect coverages if

insured at existing locations. The coverage territory includes

those countries where one or more insured location already

exists.

By-Laws, Demolition and Increased Cost of Construction –

provides insurance to cover the extra costs associated with

demolishing, repairing, or replacing insured property as a result

of current by-laws or regulations. Liability is limited to the cost to

replace property on the same site with property of such kind,

capacity, size, quality, and function required to satisfy the

minimum requirements of regulations.

Errors and Omissions – provides coverage to insured’s locations

that have been omitted or cancelled from the policy due to an

error or unintentional omission by the insured in the areas such

as reporting or describing the location.

Hazardous Substances – coverage provides insurance for the

increased cost to repair, replace, clean up, or dispose of aected

insured property and for any increase in loss under any indirect

damage coverage as a result of the involvement of a substance

which has been declared by the government to be hazardous. A

hazardous substance is (a) any pollutant, contaminant, or other

substance declared by a governmental authority to be hazardous

to health or the environment, or (b) any mould, yeast, fungus, or

mildew including any spores or toxins created or produced by, or

emanating from such mould, yeast, fungus or mildew, whether or

not allergenic, pathogenic or toxigenic.

Water Damage – where not covered under the property policy,

provides coverage for loss to insured property which is damaged

by water as a result of an Accident or ECI.

Ammonia Contamination – provides coverage from damage

caused by ammonia contacting or permeating insured property

as a result of an Accident or ECI.

Professional Fees – provides insurance for reasonable and

necessary fees payable to auditors, accountants, lawyers,

architects, engineers, or other professionals, for producing and

certifying to establish the amount of liability in the event of an

Accident or ECI. The insured’s own employees are not included.

Expediting Expenses – are those reasonable extra costs to make

temporary repairs, speed up permanent repairs, or to speed up

permanent replacement. Overtime labour and express

transportation are two examples.

Data Restoration – provides coverage for the additional costs of

repairing or replacing data as a result of an Accident. Coverage is

also provided for data lost as a result of an Accident, but not ECI,

at an insured‘s cloud computing service provider. The cost of

gathering or assembling the information is also included.

Damage caused by programming errors is not covered.

Civil Authority or Denial of Access – provides business

interruption or extra expense coverage, if any, in the event access

to an insured location is denied, due to an Accident, but not ECI,

to an Object located on or within 1000 metres of the insured’s

premises.

Service Interruption – provides coverage where equipment not

owned or operated by the insured causes loss to the insured as a

result of an Accident but not ECI. The coverage is for business

interruption and other indirect coverages provided these

coverages are included in the policy. The Accident, but not ECI,

must be to an Object located on or within 1000 metres of the

insured’s premises. The Object may be owned by the building

owner at the location, or by a public utility or other company, and

used to supply steam, gas, water, refrigeration, electricity, or

telephone services to the insured. Cloud computing services are

included in service interruption coverage, paying for lost business

income and extra expense, when an insured’s cloud provider

experiences an outage due to an Accident.

Anchor Location – provides contingent income coverage for loss

resulting from an Accident, but not ECI, to equipment not owned

by the insured, which is located at a nearby location that draws

clients to an insured location.

Brands and Labels – pays for the cost of removing labels or

stamping of salvaged merchandise, damaged as a direct result of

an Accident or ECI.

Green Coverage – pays additional costs to help restore

recognized environmental standards to equipment and property.

O Premises Transportable Objects – covers transportable

insured equipment against loss from an Accident or ECI for

property damage, business income, extra expense, and data

restoration, anywhere in Canada and USA.

Public Relations – pays for professional public relations services

to help manage the insured’s business reputation, which may be

at risk when a breakdown causes a business interruption loss.

Contingent Business Interruption – provides business

interruption coverage for an Accident, but not ECI, to equipment

owned by a customer or supplier of the insured.

POLICY CONDITIONS

The following brief explanations are those which are somewhat

unusual or unique to equipment breakdown insurance. We have

not included those which are clearly stated and found to be

common to most types of insurance policies.

Inspection

Since engineering and loss prevention are most important, the

insurance company is permitted, but is not obligated, to inspect

the insured’s equipment at any reasonable time.

Suspension

This condition allows any representative of the insurance

company to suspend coverage on loss from a breakdown to any

insured Object immediately upon discovery of a dangerous

condition.

Mortgagee Interest

If there is a mortgagee named in the policy, in the event of loss,

the cheque will be made payable to both the insured and the

mortgagee. The mortgagee must be given 15 days written notice

if the policy is cancelled. The insurance company also agrees to

notify any mortgagee shown in the policy if coverage is

suspended.

Notice of Loss

When a breakdown occurs, the insured must notify the insurance

company immediately. Written conﬁrmation by email, letter or

facsimile is required as soon as possible.

Duties in the Event of Loss or Damage

After a loss, the insured is required to protect property from

further damage and allow the insurance company reasonable

time and opportunity to examine damaged property. Also, the

insured must assist the company in the process of investigating

and adjusting the claim including making records and employees

available for questioning on any matter relating to the claim. The

insured is required to send the insurance company a signed

statement of loss containing the information the company needs

to settle the claim.

Subrogation

The insurance company has the right to take over the insured’s

right to collect from a third party. The insured must not do

anything after the breakdown to harm such rights.

Other Insurance

This is the standard joint loss provision regarding the sharing of

loss where more than one carrier is liable for payment for damage

to the insured’s property.

Insurer’s Agreement

This is the Disputed Loss Agreement. If there is a dispute

between the equipment breakdown insurer and the property

insurer over which insurer is liable or the proportion of each

company’s liability, this condition comes into eect. The insured

in such a case may write requesting that the loss be settled in

accordance with the Insurance Bureau of Canada’s Disputed Loss

Agreement.

Action Against the Company

Legal action must be commenced by the insured within

14 months from the date of the breakdown, or per local

requirements.

POLICY EXCLUSIONS

Several standard exclusions apply to equipment breakdown policies. They are

grouped into eight general categories as follows:

• The Nuclear Exclusion – Nuclear reaction, nuclear radiation, or radioactive

contamination etc.

• The War Exclusion – War, bombardment, invasion, insurrection, rebellion,

revolution, operations of armed forces while engaged in hostilities, sabotage

etc.

• The Terrorism Exclusion – Terrorism including any act to combat terrorism.

• The Demolition and Increased Cost of Construction Exclusion – It should be

noted that coverage for this exclusion may be added as an additional Other

Coverage up to a speciﬁc sublimit as speciﬁed in the policy. The exclusion

applies to any increase in loss necessitated by any ordinance, law, or

regulation. It also excludes increased costs due to contamination by a

substance declared to be a contaminant, as well as increased costs of

cleanup or disposal of contaminated or polluted property.

• The exclusions that avoid or prevent duplication of coverage by the

equipment breakdown policy and the property insurance policy –

Earthquake, Wind, Fire and Smoke, Water, or other means to extinguish

Fire, Lightning, Flood and Escape of Water.

• The Indirect Losses or Causes of Losses – Business Interruption, Spoilage,

etc. Indirect coverage for Business Interruption, Spoilage and Extra Expense

are of course available as additional coverages that may be added by

endorsement to the policy.

• The Cyber Exclusions – Data erasure, errors in creating data, inability to

transmit data, impact of virus etc.

Note: These explanations of policy exclusions are intended as a guide to understanding.

Please refer to the policy itself for an exact description of what is excluded.

INSURABLE EQUIPMENT

Type of Equipment Typical Failures Some of the Causes

Boiler and fired Explosion Overpressure; inadequate or inoperative

pressure vessels relief valves; structural weakness

Burning Control failure; low water due to leakage or feed

pump failure; flame impingement

Bulging Scale or sediment buildup; flame impingement

Cracking Thermal stresses; rust buildup; overtightened

tierods; porous castings; vandalism

Unfired pressure vessels Explosion Overpressure; chemical reaction; inoperative or

(hot water tanks, air tanks, inadequate relief devices; structural flaws

cookers, process vessels) Bulging Thinning of metal due to erosion, corrosion

Implosion Sudden loss of pressure; control failure

Cracking Vibration; structural flaws; poor welding

Centrifugal compressors, Explosion (centrifugal) Loss of load; control failure; metal fatigue infans,

pumps blowers element

Burned bearings Misalignment; loss of lubrication

Shaft, blading, Misalignment; metal fatigue; foreign material;

impeller breakage overload; progressive crack

Refrigerating and Cracking (piping) Vibration; support failure; vehicle impact

air conditioning vessels, (forklift trucks); chipping ice off piping

piping Cracking (vessels) Failure of flow switch; improper lay-up; freeze up

Explosion Overpressure; control failure; corrosion

Piping (steam, air, etc.) Explosion Vibration; support failure; vehicle impact

Cracking Support failure; freeze-up; vibration

Electric motors, generators Electrical burnout Arcing; line surge; excessive moisture; dirty

and other rotating windings; brittle insulation; vermin; lightning

electrical equipment Burned bearings Misalignment; inadequate lubrication

Shaft, frame or rotor Overspeed; metal fatigue; foreign material;

breakage overload; progressive crack

Reciprocating compressors, Cylinder damage Liquid slugging; contaminated oil; seizing or

pumps, internal coring due to inadequate lubrication

combustion engines Shaft, rod breakage Misalignment; shock load; progressive crack;

loosening of parts

Jacket, frame, engine Freeze-up; loosening of bolts; progressive crack;

block damage loss of cooling medium

Gears, gear sets Broken teeth Vibration; misalignment; misapplication;

progressive crack; metal fatigue

Burned bearings Misalignment; inadequate lubrication

INSURABLE EQUIPMENT (CONT’D)

Type of Equipment Typical Failures Some of the Causes

Production machines Breaking of moving Metal fatigue; thinning of parts under pressure;

(paper machines, presses, parts loosening of bearings; foreign material

extruders, etc.) Frame or column Misalignment; shock load; progressive crack;

damage metal fatigue

Transformers Electrical burnout Lightning; line surge; excessive moisture;

deterioration of insulation; overload; contaminated

insulating liquid

Miscellaneous electrical Electrical burnout Lightning; line surge; excessive moisture; poor

apparatus (switchboards, maintenance of relays and contactors; loose

cables, bus ducts, connection; overload; carelessness

circuit breakers)

Air conditioning units, (refer to comments relating to particular

small refrigerating and components of the units; motors, compressors,

compressing units vessels, etc.)

Electronic equipment Electronic breakdown Power spikes or surges; dust or dirt; moisture;

(personal telephone systems, extreme temperatures

computers, x-ray machines,

transmitters,

photocopiers, etc.)

TYPICAL OCCUPANCIES

Heating boilers

Pressure Vessels

(non-process)

Air conditioning

units,systems

High pressure boilers

Process vessels

Refrigeration

Motors, generators

Emergency generators

Pumps, compressors

Production machines

Transformers

Steam, Gas Turbines

Switchboards,

cables, etc.

Electronic equipment

and Electronic Circuitry

•

Usually found

•

Occasionally found

Apartment buildings • • • • • • • • •

Auto sales • • • • • • • •

Bakeries • • • • • • •

Banks • • • • • •

Bottling plants • • • • • • • • • •

Bowling alleys • • • • • • •

Breweries • • • • • • • • • • •

Canneries • • • • • • • • • •

Car washes • • • • • • •

Chemical plants • • • • • • • • • • •

Churches • • • • • • •

Clubs • • • • • •

Cocktail lounges • • • • • •

Cold storage plants • • • • • • •

Colleges • • • • • • • • • •

Condominiums • • • • • • • • •

Convalescent homes • • • • • • • • • •

Country clubs • • • • • • • • •

Dairies • • • • • • • • •

Dry cleaners • • • • • • •

Food processing • • • • • • • • • • •

Foundries • • • • • • • • • •

Funeral homes • • • • •

Garages • • • • • •

Greenhouses • • • • • • • •

Hospitals • • • • • • • • • • • • •

Hotels • • • • • • • • • • • •

Laundries • • • • • • • • • •

Manufacturing, heavy • • • • • • • • • • •

Manufacturing, light • • • • • • • • • • • •

Motels • • • • • • • • •

Municipal buildings • • • • • • • • •

Office buildings • • • • • • • • •

Paper mills • • • • • • • • • •

Printing, publishing • • • • • • • • •

Professional buildings • • • • • • • • • • •

Public buildings • • • • • • • • • •

Pumping stations • • • • • • • •

Refineries (oil) • • • • • • • • • •

Restaurants • • • • • • • • • •

Schools • • • • • • • • • • •

Service stations • • • • • •

Stores • • • • • • • • • •

Textile plants • • • • • • • • • •

Theatres • • • • • • • • •

Utilities (electric) • • • • • • • • •

Warehouses • • • • • • • •

QUICK REFERENCE CHART

Equipment Insurance vs. Warranties and Contracts

Typical “Full”

Manufacturer’s Maintenance Equipment

Type of Occurrence or Service Warranty Contract Insurance

Pay for breakdown caused by faulty YES NO YES

materials or workmanship

Pay for Business Income Losses NO NO YES

(optional)

Pay for extra expense of rental NO NO YES

equipment, rental facilities (optional)

and temporary repairs

Pay for spoilage of perishables NO NO YES

(optional) (optional)

Pay for direct damage to NO NO YES

surrounding property

Provide required jurisdictional NO NO YES

inspection service

Oil, clean, adjust, change filters, etc. NO YES NO

Repair and replace worn parts NO YES NO

Pay for lost refrigerant from breakdown NO NO YES

Pay for labour cost to repair/replace parts NO Sometimes YES

Pay for accidental breakdown NO YES YES

(see exclusions)

Pay for Ammonia Contamination NO NO YES

of product

Pay for operator error or NO NO YES

misuse of equipment

Pay for full replacement cost of NO NO YES

parts and property

Pay for refrigerant lost through leakage NO NO NO

Pay for expediting expenses NO NO YES

of overtime, labour, fast freight, etc.

Reciprocating pumps,

compressors and engines

Turbines

Centrifugal pumps

Centrifugal

compressors

Miscellaneous machines

Transformers

Boilers

Piping

Unfired pressure vessels

(cookers, process

vessels, air tanks, hot

water tanks)

Fans and blowers

Electrical motors,

generators, and other

rotating electrical

equipment.

Refrigeration and air

conditioning vessels

Miscellaneous

electrical

apparatus

(MEA)

EQUIPMENT EXPOSURES FOUND

IN A TYPICAL FACTORY

A CHOICE OF POLICIES

TechAdvantage® Equipment Breakdown Coverage

This policy provides coverage on larger risks, particularly those

engaged in processing or manufacturing. This standard form is

adaptable to a wide range of exposures. Property damage,

business interruption, and other coverages can be tailored to suit

the speciﬁc needs of each insured.

All Systems Go Plus® - broad, unlimited* coverage with Data

Compromise and Identity Recovery

This unique insurance policy was created to speciﬁcally address

the needs of the modern non-manufacturing and non-processing

small business with insurable values not exceeding $15,000,000

for building owners and $1,500,000 for tenants. It combines

broad, unlimited* equipment breakdown coverage with optional

Data Compromise and Identity Recovery. Premiums are based on

property values rather than actual objects so as to permit brokers

to provide quotes to their clients without having to wait for a

company survey. Fast rating, binding, and issuing can be done

through biiconnect.com. If you are a broker requiring access,

please contact your BI&I Marketing Representative.

*There is no limit of insurance applicable to direct damage, spoilage, business

interruption / extra expense, service interruption and anchor location, for

qualiﬁed risks.

Equipment Breakdown Rider

BI&I makes this product available exclusively through its

reinsurance arrangements with property and casualty insurers

in Canada.

Equipment Breakdown Rider has the added ﬂexibility of three

coverage options, from Basic to Comprehensive Plus.

Course of Construction Equipment Breakdown Coverage

Course of Construction Equipment Breakdown coverage

provides coverage for the breakdown of permanently installed

equipment during construction. It can also be extended to include

coverage during commissioning and testing.

Note: It should be understood that the comments in this guide are merely an eort

to summarize policy coverage, exclusions and conditions. Please refer to the

policy itself for exact details of coverage. For further information or assistance

contact your local BI&I Oice.

The Boiler Inspection and Insurance Company of Canada

Head Oice

Toronto

390 Bay St, Suite 2000 Toronto, ON M5H 2Y2

Tel.: (416) 363 5491 Fax: (416) 363 0538

Email: [email protected]

Branch Oices

Toronto

390 Bay St, Suite 400 Toronto, ON M5H 2Y2

Tel.: (416) 362 1203 Fax: (416) 362 6601

Email: toronto@biico.com

Montréal

800 René-Lévesque Blvd. West, Suite 1735

Montréal, QC H3B 1X9

Tel.: (514) 861 8261 1(888) 659 2434 Fax: (514) 861 6922

Email: [email protected]

Hamilton

883 Upper Wentworth St, Unit 305B

Hamilton, ON, L9A 4Y6

Tel.: (905) 528 8751 1(800) 263 2168 Fax: (905) 528 3636

Email: [email protected]

Regional Oices

Halifax

Purdy’s Wharf, Suite 1611, 1969 Upper Water Street

Halifax, NS B3J 3R7

Tel.: (902) 423 6276 Fax: (902) 422 6942

Email: halifax@biico.com

Québec City

Tel.: (418) 681 7857 Fax: (418) 681 6099

Email: quebec@biico.com

Calgary

808 – 4th Avenue SW, Suite 400, Calgary, AB T2P 3E8

Tel.: (403) 265 2813 Fax: (403) 264 9024

Email: calgary@biico.com

Vancouver

609 Granville Street, Suite 1578, Vancouver, BC V7Y 1G5

Tel.: (604) 683 0341 Fax: (604) 683 1799

Email: [email protected]