Equipment Breakdown Insurance - Does My Business Really Need It?

March 13, 2023

Equipment breakdown Insurance, or sometimes referred to as Boiler & Machinery Insurance, is vital for businesses in Canada. This is because commercial property insurance policies will typically exclude this cause of loss. This coverage helps protect against the costs of repairs and replacement of equipment that breaks down, as well as proximate lost business income. Imagine you are a restaurant owner, and your freezer unit breaks down for 2 days, this would be a significant amount of not only revenue and time lost, but also spoilage for your product. Equipment breakdown insurance can help ensure that a business will continue to operate after an unexpected event, and will be compensated for repairs, extra expenses and lost revenues.

Equipment breakdown insurance is typically written on an "all risk" basis, which means that it covers all risks of physical loss or damage to equipment, except those specifically excluded. Equipment breakdown insurance can be purchased as a standalone policy or as an endorsement to a business owner's policy.

Equipment breakdown events can happen anytime and anywhere - whether it's a piece of machinery in a factory, or a computer in an office. Equipment breakdowns can be caused by a number of things, such as power surges, operator error, poor maintenance, or simply wear and tear. When equipment breaks down, it can cost a business money in repairs and replacement, as well as lost business income. Equipment breakdown insurance can fill the gap in a standard property insurance policy, and will help protect a business from these costs in the event of a claim.

Categories of equipment that equipment breakdown insurance typically covers:

- Boilers / Hot Water Tanks

- Air conditioning and refrigeration units

- Computers and data processing equipment

- Electrical distribution systems

- Manufacturing machinery

- Pressure vessels

Types of Equipment that are important to buy Equipment Breakdown Insurance for:

- Equipment that is vital to business operations (ex. HVAC systems, Refrigeration Units, Boilers and Pressure Vessels)

- Equipment that would be difficult or costly to replace (ex. custom machinery)

- Equipment that would cause a business to incur significant financial losses if it were to break down (ex. machinery on an assembly line, or HVAC and refrigeration units in a restaurant)

Types of Insurance Coverages for Equipment Breakdown:

Repair or replacement cost coverage - This type of coverage pays for the repairs or replacement of equipment that breaks down. It can also include lost business income if the equipment breakdown causes a loss of business.

Business personal property coverage - This type of coverage pays for the repairs or replacement of equipment that is used for business purposes and is not permanently attached to the building.

Spoilage -  This type of coverage pays for the loss of food or other perishable goods that spoil as a result of an equipment breakdown, for example food in a refrigeration or freezer unit.

Extra expense coverage - This type of coverage pays for the extra expenses that are incurred as a result of an equipment breakdown. For example, if a business has to rent a generator after their power goes out, the extra expense coverage would pay for the cost of the generator.

Equipment Breakdown Claims Examples:

- A business owner's policy includes Equipment Breakdown coverage with a $10,000 limit. After a power surge damages several computers in the office, the business owner makes a claim under their Equipment Breakdown insurance. The insurer pays for the repairs and replacement of the computers, up to the $10,000 limit.

- A factory has a Equipment Breakdown insurance policy with a $100,000 limit. After a piece of machinery breaks down, the repairs will cost $50,000 and the lost business income will total $20,000. The Equipment Breakdown insurance policy will pay for the repairs and replacement of the machinery, as well as the lost business income, up to the $100,000 limit.

Equipment breakdown insurance is important for businesses of all sizes. No matter what type of business you have, equipment breakdown events can happen and they can be costly when they interrupt daily business operations which can result in lost revenue. Equipment breakdown insurance can help give you the peace of mind that your business is covered in the event of an unforeseen accident.

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