7.4 Boiler & Machinery (Equipment Breakdown Protection, EB 00 20) and Farm Coverage Forms
Key Takeaways
- Commercial property forms exclude mechanical breakdown, artificially generated electrical current damage to equipment, and explosion of the insured's own steam boilers, so equipment breakdown coverage fills that gap.
- The Equipment Breakdown Protection Coverage Form (EB 00 20) responds to an 'accident' — a sudden and accidental breakdown of covered equipment — and can include property damage, expediting expenses, business income, extra expense, and spoilage.
- Equipment breakdown insurers may suspend coverage immediately on equipment found in a dangerous condition by delivering written notice, and they may perform jurisdictional boiler inspections.
- ISO farm property coverage uses Coverages A through D for the farm dwelling and household property, E and F for scheduled and unscheduled farm personal property, and G for barns and other farm structures.
- Separate farm forms cover mobile agricultural machinery and equipment and livestock, with causes of loss chosen from basic, broad, or special forms.
Why Equipment Breakdown Exists
Commercial property causes-of-loss forms exclude losses a manufacturer or landlord fears most from its equipment:
- Mechanical breakdown, including rupture or bursting caused by centrifugal force;
- Artificially generated electrical current damage to electrical devices, appliances, or wires (except that resulting fire is covered);
- Explosion of steam boilers, steam pipes, steam engines, or steam turbines owned, leased, or operated by the insured (with resulting fire or combustion explosion covered).
Boiler and machinery insurance, now written as equipment breakdown protection, fills that gap. The Series 17-62 outline cites the Equipment Breakdown Protection Coverage Form (EB 00 20) and two endorsements: Business Income — Report of Values (BM 15 31) and Actual Cash Value (BM 99 59).
The Covered "Accident"
The form pays for direct damage to covered property caused by an accident (a breakdown) to covered equipment: a sudden and accidental breakdown that manifests itself by physical damage requiring repair or replacement. Typical examples:
| Accident type | Example |
|---|---|
| Mechanical breakdown | A chiller compressor seizes and destroys its motor |
| Artificially generated electrical current | An electrical arc burns out a switchgear panel |
| Explosion of steam boilers, piping, engines, or turbines | A boiler explosion damages the boiler room |
| Damage to steam boilers or hot water heating equipment from a condition inside them | A cracked cast-iron boiler section caused by low water |
Normal wear and tear, depreciation, gradual deterioration, and routine maintenance are not accidents. A breakdown they produce, however, can be.
Typical Coverages in an Equipment Breakdown Part
| Coverage | What it pays |
|---|---|
| Property damage | Repair or replacement of the damaged equipment and other covered property damaged by the accident |
| Expediting expenses | Reasonable extra cost of temporary repairs and to speed permanent repairs or replacement (for example, overtime labor or express freight) |
| Business income and extra expense | Loss of income and extra expense while operations are interrupted by the accident |
| Spoilage | Perishable goods spoiled by lack of power, light, heat, steam, or refrigeration caused by the accident |
| Utility interruption | Business income loss from an accident to utility equipment serving the premises |
| Other | Hazardous substance cleanup, ammonia contamination, computer equipment, data restoration, and ordinance or law, subject to form limits |
Key Conditions
- Suspension: if covered equipment is found in or exposed to a dangerous condition, the insurer's representative may immediately suspend coverage for that equipment by delivering or mailing written notice. Coverage can be reinstated only by endorsement.
- Jurisdictional inspections: many jurisdictions require periodic inspections of boilers and pressure vessels. Equipment breakdown insurers routinely perform them, and loss control is a major part of what the premium buys.
- Valuation: usually repair or replacement cost. The Actual Cash Value endorsement (BM 99 59) changes valuation to actual cash value.
- Business Income — Report of Values (BM 15 31): the insured reports business income values, and the recovery and limit are tied to those reported values.
Adjusting point: when a claim involves damaged equipment, the PA determines the cause. If an electrical arc started a fire, the fire damage belongs to the property policy while the arc-damaged panel belongs to equipment breakdown. The two insurers may need to share the loss, and a joint loss agreement is sometimes used so the insured is not stuck between them.
Farm Coverage
Farm property in upstate New York, such as dairy barns, hay, livestock, and tractors, is written on the ISO farm coverage part. The lettered coverages parallel homeowners coverages but extend to farm operations.
| Form | Coverages |
|---|---|
| Farm Dwellings, Appurtenant Structures and Household Personal Property | A Dwellings; B Other Private Structures appurtenant to dwellings; C Household Personal Property; D Loss of Use |
| Farm Personal Property | E Scheduled Farm Personal Property (items listed with individual limits); F Unscheduled Farm Personal Property (a blanket limit, usually subject to coinsurance) |
| Barns, Outbuildings and Other Farm Structures | G Other Farm Structures (barns, silos, grain bins, sheds) |
| Mobile Agricultural Machinery and Equipment | Tractors, combines, balers, and similar equipment, scheduled or blanket |
| Livestock | Cattle, horses, sheep, swine, and similar animals, against specified causes of loss such as fire, windstorm, electrocution, attack by dogs or wild animals, and accidental shooting |
Causes of loss: farm property is written with basic, broad, or special causes of loss, much like commercial property. Definitions, conditions, exclusions, limits, and additional coverages (including coverage for animals other than "livestock" as the form defines them) follow the farm forms.
Scenario: lightning strikes a dairy barn, killing six cows and destroying the barn and stored hay. The barn is Coverage G, the hay and farm supplies fall under Coverage E or F depending on how they were written, and the cows are covered under the livestock or farm personal property coverage for the lightning peril. Each carries its own limit, valuation rules, and possibly its own coinsurance, which the PA must calculate separately.
A manufacturer's air compressor suffers a sudden mechanical breakdown that destroys its motor. The commercial property policy uses the Special causes of loss form. Which coverage is designed to pay for the compressor damage?
During an inspection, the equipment breakdown insurer finds a boiler in a dangerous condition. What may the insurer do under the suspension condition?
Under the ISO farm coverage part, which coverage letter applies to barns, silos, and other farm structures?