Equipment Breakdown; Spoilage; Off Premises Insurance Community University 1 www. Insurance. Community. University. com
Your Instructor Today Laurie Infantino, CIC, AFIS, CISC, ACSR, CISC, CRIS President and Co-Founder of The Insurance Community Center Insurance Community University www. Insurance. Community. University. com
Course Objectives 1. Review the exclusions and limitations in the Commercial Property forms that create the need to purchase Equipment Breakdown Coverage 2. Review Spoilage on EB and Property 3. Review EDP vs EB and the off premises exposures both direct and indirect 4. Review the Equipment Breakdown form Insurance Community University www. Insurance. Community. University. com
Let’s Begin with a Claim Insurance Community University www. Insurance. Community. University. com
Blast at O. C. Eatery Kills 1, Injures 5 : Victims: Debris and darkness trap the injured, who mourn the death of prized bartender. Los Angeles Times August 02, 1993 Insurance Community University 5 www. Insurance. Community. University. com
El Torito Grill A Blast that killed one man and injured five others caused by an exploding boiler. Pressure built up inside the boiler and the only way to relieve it was to explode. It shot the boiler through the roof like a missile. Insurance Community University www. Insurance. Community. University. com
El Torito Grill • The explosion occurred at the El Torito located in Newport Beach, California in Fashion Island Shopping Center. The El Torito was located across an access road from the shopping center. The explosion demolished the restaurant’s equipment room; knocked down a wall to an adjoining wall to the men’s locker room and killed Antonio De Santiago, a bartender who was changing his cloths at the time. Insurance Community University www. Insurance. Community. University. com
El Torito Grill • The building inspector said the building permit was issued 21 year ago. He suspected that the problem may have been twofold: a plugged pressure relief valve and a malfunction in the unit designed to shut off the gas supply when the boiler got too hot. Insurance Community University www. Insurance. Community. University. com
El Torito • What really happened? • The maintenance person removed the safety valve from the unit causing pressure to build up with the resultant explosion. Insurance Community University 9 www. Insurance. Community. University. com
On the EB forms, what are the answers to these questions? • Is there coverage for the boiler? • Is there coverage for the damage to the building that El Torito occupies? • Is there coverage for the damage done to Fashion Island located across the street? Insurance Community University www. Insurance. Community. University. com
On the EB forms, what are the answers to these questions? • Is there coverage for the damage to the customer’s vehicle that El Torito’s valet parker parked in the El Torito lot? • Is there coverage for the death of Antonio De Santiago? Insurance Community University 11 www. Insurance. Community. University. com
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Course Objective #1 Review the exclusions and limitations in the Commercial Property forms that create the need to purchase Equipment Breakdown Coverage. Insurance Community University 1 3 www. Insurance. Community. University. com
Typical Question Air Conditioning Units on a Building • Question: Why do we have to have an Equipment Breakdown Policy to cover air conditioning units on a building when they are covered on a Commercial Property Form? • Answer: The units are covered under building coverage but ONLY for the perils of the policy Insurance Community University www. Insurance. Community. University. com
The Purpose Of Equipment Breakdown Insurance • The purpose of this coverage is to provide coverage for perils that are excluded or not covered in Commercial Property Policies. Insurance Community University www. Insurance. Community. University. com
The Purpose Of Equipment Breakdown Insurance • Special Form has exclusions that necessitate EB coverage • On a “named perils” policy EB, coverages are not within the listing of covered perils Insurance Community University www. Insurance. Community. University. com
Four Major Areas of Exclusions MECHANICAL SPOILAGE M. E. S. S. ELECTRICAL STEAM BOILERS Insurance Community University 17 www. Insurance. Community. University. com
Electrical Exclusion • The majority of Equipment Breakdown losses • The majority of losses include the element of Business Income. • Business Income losses can exceed the amounts of the direct damage Insurance Community University www. Insurance. Community. University. com
Electrical Exclusion in Property We will not pay for: Artificially generated electric current, including electric arcing, that disturbs electrical devices, appliances or wires. But if loss or damage by fire results, we will pay for that resulting loss or damage Insurance Community University 19 www. Insurance. Community. University. com
Mechanical Exclusion We will not pay for: Mechanical Breakdown including rupture or bursting caused by centrifugal force. However, this does not apply to any resulting loss or damage caused by elevator collision Insurance Community University 20 www. Insurance. Community. University. com
Steam Boiler Exclusion • We will not pay for: • Explosion of steam boilers, steam pipes, steam engines or steam turbines owned or leased by you, or operated under your control. But if loss or damage by fire or combustion explosion results, we will pay for that resulting loss or damage. We will also pay for loss or damage caused by or resulting from the explosion of gases or fuel within the furnace of any fired vessel or within the flues or passages through which the gases of combustion pass. Insurance Community University 21 www. Insurance. Community. University. com
Spoilage Exclusion • There is no specific “spoilage” exclusion in the standard ISO forms. There is, however, language in the form that constitutes a “spoilage” exclusion along with “inherent vice”. • Discussed in more detail in Learning Objective #2 Insurance Community University www. Insurance. Community. University. com
Other Exclusions or Limitations in the Commercial Property Forms • Building Ordinance • Business Income • Off Premises discussed in Objective #3 Insurance Community University www. Insurance. Community. University. com
Ordinance or Law Exclusion: The enforcement of any ordinance or law: (1)Regulating the construction, use or repair of any property: or (2)Requiring the tearing down of any property including the cost of removing its debris. • This exclusion is found in “almost” all property type forms including EB; EQ; Flood; DIC and more. • Each type of policy must be endorsed to cover the Ordinance or Law coverage incurred as a result of the “perils” of that policy. Insurance Community University www. Insurance. Community. University. com
Ordinance or Law • Look to response if it is only building or equipment, as well • In Commercial Property the only coverage available is for “Building Ordinance” none for equipment • Some policies contain limited coverage automatically • Verify Business Income Response under Equipment Breakdown Coverage Insurance Community University www. Insurance. Community. University. com
Business Income • Business Income is a coverage part in Commercial Property • Business income is as important for an equipment breakdown loss. Nearly half of all equipment breakdown claims now include an element of loss of business income or incurred extra expenses. • Losses are more difficult to measure Insurance Community University www. Insurance. Community. University. com
Course Objective #2 Review the need for “Spoilage” Coverage offered in Property Insurance and Equipment Breakdown Insurance Community University 27 www. Insurance. Community. University. com
Spoilage Exclusion • There is no specific “spoilage” exclusion in the standard ISO forms. There is, however, language in the form that constitutes a “spoilage” exclusion along with “inherent vice”. Insurance Community University www. Insurance. Community. University. com
“Spoilage” Exclusion We will not pay for: Decay, deterioration, changes in temperature, rust, corrosion, fungus, decay, deterioration, hidden or latent defect or any quality in property that causes it to damage or destroy itself: (a) Dampness or dryness of atmosphere; (b) Changes in or extremes of temperature Insurance Community University 29 www. Insurance. Community. University. com
Spoilage • The Spoilage exclusions give rise to the need for specific coverage referred to as Spoilage, Consequential, or Refrigeration Loss depending on the form. • Spoilage coverage can be provided on both the Equipment Breakdown Form and the Commercial Property Forms. • There is a significant difference in the coverages provided under each of the forms. Insurance Community University www. Insurance. Community. University. com
Equipment Breakdown Spoilage Property Spoilage “Breakdown” “Accident” Perils Beyond Your Control On Premises On or off the premises RC/SELLING PRICE Selling Price Sub-limited or Dec driven Full Limit Insurance Community University 31 www. Insurance. Community. University. com
Course Objective #3 Review EDP vs EB and the Off Premises exposures both direct and indirect Insurance Community University 32 www. Insurance. Community. University. com
Computer Hardware and Software Coverage By Form Property Form Equipment Breakdown EDP Coverage Inland Marine Property Perils Issues Computers “may” Be covered Broader Definition Of Property Software issue Computerized Equipment is Within definition Software Limitations Perils of the Policy “accident” Broader Definition Of Perils
Off Premises (Utility Interruption) Exclusion We will not pay for: The failure of power or other utility service supplied to the described premises, however caused, if the failure occurs away from the described premises. But if loss or damage by a Covered Cause of Loss results, we will pay for that resulting loss or damage. Insurance Community University 34 www. Insurance. Community. University. com
Why Does A Client Need “Off Premises” Coverages • Most insurance policies require that damage occur at a premises described. • Most insurance policies do not automatically cover “off premises” but they may have sublimits included or optional coverages activated on the Declarations Page. Insurance Community University www. Insurance. Community. University. com
Why Does A Client Need “Off Premises” Coverages • The causes of loss to off premises utilities varies from such situations as fire, earthquake, flood, windstorm, vehicle damage, transformers malfunctions, etc. Insurance Community University www. Insurance. Community. University. com
Commercial Property Off Premises Wind to Power Lines Wind is a “Cause of Loss” on a Commercial Property Form. Covered on Utility Interruption Endorsement to a CPP Insurance Community University 37 www. Insurance. Community. University. com
Equipment Breakdown Off Premises Transformer Overloads causing damage Covered on Utility Interruption on an Equipment Breakdown Form Insurance Community University 38 www. Insurance. Community. University. com
Off Premises Applies to ALL Property Policies • • Commercial Property Equipment Breakdown EDP Earthquake Flood Wind Other+++++++++ Insurance Community University 39 www. Insurance. Community. University. com
Course Objective #4 Review the Equipment Breakdown form Insurance Community University www. Insurance. Community. University. com
Who Needs EB Coverage? • Owner of a building • Tenant of a building – Contractual requirement – For damage to their own equipment – For Business Income as a result of damage to the building or damage to their property Insurance Community University www. Insurance. Community. University. com
Reasons Coverage Is Often Not Purchased • In-house Maintenance Program • Reliance on Equipment Warranty or Maintenance Contract (There is no loss of use coverage) • Banks seldom requires it • Not offered by the Agent – this is a potential errors and omissions exposure Insurance Community University www. Insurance. Community. University. com
Ways of Writing Equipment Breakdown Written with the SAME carrier on a separate policy Written as a EB Coverage Part with SAME carrier Written as EB Endorsement SAME carrier Covered because NOT excluded (New Endorsement) Insurance Community University Written with a DIFFERENT care on a separate policy 43 www. Insurance. Community. University. com
Electrical Equipment UTILITY-OWNED TRANSFORMER INSURED’R TRANSFORMER MAIN ELECTRICAL PANEL Air Conditioning Or Refrigeration COMPRESSORS FANS, MOTORS CHILLERS, PIPES BACK-UP GENERATOR Heating Systems PUMP, MOTORS STEAM BOILER HOT WATER BOILER PUMPS, MOTORS HEAT PUMPS Other Equipment SMALL COMPRESSORS DEEP WELL PUMPS FANS, MOTORS *PRODUCTION MACHINERY COMPRESSOR, MOTORS, FANS HOT WATER HEATERS ELECTRIC HEAT TRANSFORMER AUXILIARY STEAM PIPING MISC. ELECTRICAL APPARATUS
Equipment Breakdown Coverage Boiler & Machinery Insurance Community University www. Insurance. Community. University. com
Why Equipment Breakdown Is Written • Mechanical, Electrical or Steam Equipment on Premises • Inspection Service - the insured also has the advantage of using an inspection service provided for certain types of equipment that can assist in preventing serious losses. Typically an insurance company will provide this service as part of the premium charged. Insurance Community University www. Insurance. Community. University. com
Limitations and Exclusions on Commercial Property Form A. Explosion of Steam Boiler No coverage for loss of or damage to steam boilers, steam pipes, steam engines or steam turbines B. Mechanical Breakdown No coverage for loss or damage caused by or resulting from mechanical breakdown, including rupture or bursting caused by centrifugal force. C. Electric Arcing (Injury) No coverage for loss or damage caused by or resulting from artificially generated electric current, including electric arcing, that disturbs electrical devices, appliances or wires. Insurance Community University www. Insurance. Community. University. com
Inspections • The various state and municipalities are principally responsible for the inspections and maintenance of the log for boilers and unfired pressure vessels that are subject to inspection by the state jurisdiction. • In most jurisdictions, insurance company inspections are acceptable in lieu of inspections made by a state inspector. Insurance Community University www. Insurance. Community. University. com
Contract Maintenance or Damage MA EB Maintenance (MA) 1. Remedial Maintenance on site 2. Clean, oil, adjust 3. Repair defective parts due to normal usage Yes Yes No No No Equipment Breakdown (EB) 1. Damage from an accident or other damage not due to wear and tear 2. Damage to electrical apparatus or any property external to the equipment 3. Power surge damage 4. Indirect losses such as BI, EE, Spoilage or Power Interruption No Yes No No Yes Insurance Community University 49 www. Insurance. Community. University. com
New EB Endorsement Equipment Breakdown Cause of Loss EB 10461012 • Similar approach to some insurance company forms (Chubb first) • Eliminates major EB exclusions in the property form Insurance Community University 50 www. Insurance. Community. University. com
There are “Other” Limitations that could affect coverage on CP • CAUTION: – If EB endorsement “just” removing “EB” exclusions still have other exclusions that could affect coverage • • Flood EQ Animal ETC Insurance Community University 51 www. Insurance. Community. University. com
Policy Overview • The Equipment Breakdown Protection Coverage Form provides coverage on a comprehensive basis by incorporating optional coverages into the form. • It is its own form and not an simply endorsing a property form • These are activated by inserting a limit, number of days, or the word “INCLUDED” on the Declarations Page. Insurance Community University www. Insurance. Community. University. com
Covered Cause of Loss • Covered Cause of Loss is a "Breakdown" to "Covered Equipment". – Caution: Must Review Definitions – Used to say “Accident to an Object” – This is the TEST Insurance Community University 53 www. Insurance. Community. University. com
“Breakdown” • Means the following direct physical loss, that causes damage to "Covered Equipment" and necessitates its repair or replacement: • NOTE: Used to say “sudden and accidental”. Insurance Community University 54 www. Insurance. Community. University. com
“Breakdown” (1)Failure of pressure or vacuum equipment; (2)Mechanical failure including rupture or bursting caused by centrifugal force; or (3)Electrical failure including arcing; unless such loss or damage is otherwise excluded within this Coverage Form Insurance Community University 55 www. Insurance. Community. University. com
“Breakdown” Exclusions Examples • Malfunction—Calibration, etc • Defects, erasures, errors, limitations or viruses in computer equipment and programs • Leakage at any valve, fitting, shaft seal, gland packing, joint or connection Insurance Community University 56 www. Insurance. Community. University. com
“Covered Equipment” Equipment built to operate under internal pressure or vacuum other than weight of contents; (2)Electrical or mechanical equipment that is used in the generation, transmission or utilization of energy; (3) Communication equipment, and "Computer Equipment"; and Insurance Community University 57 www. Insurance. Community. University. com
“Covered Equipment” (4) (3) Equipment in Paragraphs (1), (2) and that is owned by a public or private utility and used solely to supply utility services to your premises. CAUTION: there is always a HOWEVER after these paragraphs that lists what they do NOT intend to cover. Insurance Community University 58 www. Insurance. Community. University. com
“Covered Property” a. b. You own; or Is in your care, custody or control and for which you are legally liable. Insurance Community University 59 www. Insurance. Community. University. com
Equipment Breakdown Coverage Triggers Covered Cause of Loss Breakdown to “Covered Equipment” Damage to Property of Others Legal Liability Damage to “Covered Property” Spoilage or Consequential Business Income Contingent Business Income Insurance Community University Utility Interruption 60 www. Insurance. Community. University. com
Coverages Available IF on Dec or says INCLUDED a. Property Damage b. Expediting Expenses c. Business Income and Extra Expense OR Extra Expense Only d. Spoilage Damage e. Utility Interruption f. Newly Acquired Premises Insurance Community University 61 www. Insurance. Community. University. com
Coverages Available IF on Dec or says INCLUDED g. h. i. j. Ordinance Or Law Coverage Errors And Omissions Brands And Labels Contingent Business Income And Extra Expense Or Extra Expense Only Coverage Insurance Community University 62 www. Insurance. Community. University. com
Equipment Breakdown Protection Built in Coverages Errors and Omissions a. Protects the insured for an oversight on premises that should have been insured in the policy b. Does not extend to errors or unintentional omissions committed by insured in the reporting of values or requesting coverage Insurance Community University www. Insurance. Community. University. com
Equipment Breakdown Protection Built in Coverages Brand Labels a. Extends property damage coverage to allow insured to stamp the word SALVAGE on or remove the label from damaged merchandise at the insurer’s expense b. Not to exceed the limit of insurance on such property Insurance Community University www. Insurance. Community. University. com
Exclusions • • • Ordinance Or Law Earth Movement Water Nuclear Hazard War or Military Action Insurance Community University 65 www. Insurance. Community. University. com
Exclusions • Fungus, wet Rot and Dry Rot • Any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease – NOTE: Some states have forms for this coverage – Some limited coverage is provided Insurance Community University 66 www. Insurance. Community. University. com
Exclusions • Depletion, deterioration, corrosion, erosion, or wear and tear. However, if a "Breakdown" occurs, we will pay the resulting loss or damage Insurance Community University 67 www. Insurance. Community. University. com
Equipment Breakdown Sub. Limits ($25, 000) Ammonia Contamination Water damage Data & Media Insurance Community University Hazardous Substance Consequential 68 www. Insurance. Community. University. com
“Hazardous Substance” • "Hazardous Substance" means any substance other than ammonia that has been declared to be hazardous to health by a government agency. Insurance Community University 69 www. Insurance. Community. University. com
“Consequential Damage” • The reduction in value of undamaged stock parts of a product that becomes unmarketable Insurance Community University 70 www. Insurance. Community. University. com
Data and Media • Your cost to research, replace or restore damaged "Data" or "Media" including the cost to reprogram instructions used in any "Computer Equipment". Insurance Community University 71 www. Insurance. Community. University. com
Hazardous Substance • Any additional expenses incurred by you for the cleanup, repair or replacement or disposal of "Covered Property" that is damaged, contaminated or polluted by a "Hazardous Substance". Insurance Community University 72 www. Insurance. Community. University. com
Water Damage • The damage to "Covered Property" by water including any salvage expenses. Insurance Community University 73 www. Insurance. Community. University. com
Valuation a. Replacement Cost in most cases b. Up to an additional 25% of the property damage loss to “Covered Property” for repairing equipment in a manner that does not harm the environment, increases its efficiency or enhances its safety Insurance Community University www. Insurance. Community. University. com
Valuation c. Provides for the loss in value of an extended warranty d. “Covered Property” may be valued at its selling price e. “Data” and “Media” have limitation on replacement and valuation Insurance Community University www. Insurance. Community. University. com
Valuation • Underwriters often restrict coverage on older boilers and machines. Some firms agree to exclude certain kinds of equipment or insure at ACV and/or have high deductibles on categories. • Actual Cash Value Endorsement Insurance Community University www. Insurance. Community. University. com
Coverage Territory 1. United States of America (including territories and possessions); Puerto Rico; and Canada Insurance Community University www. Insurance. Community. University. com
Deductibles • Dollar Deductible • Time Deductible – If a time deductible is shown in the Declarations, we will not be liable for any loss under that coverage that occurs during that specified time period immediately following a "Breakdown". Insurance Community University 78 www. Insurance. Community. University. com
Deductibles • Multiple of Daily Value Deductible – Determine the total amount of Business Income that would have been earned during the Period of Restoration – Divide the result by the number of days the business would have been open during the period of restoration. Result is daily value. – Multiply the daily value by number of days on the declaration Insurance Community University 79 www. Insurance. Community. University. com
Deductibles • Percentage of Loss Deductible – If a deductible is expressed as a percentage of loss in the Declarations, we will not be liable for the indicated percentage of gross amount of loss or damage (prior to the applicable deductible or coinsurance) insured under the applicable coverage. Insurance Community University 80 www. Insurance. Community. University. com
Suspension Clause a. Permits insurer to suspend coverage if found in dangerous condition b. Suspension is immediate (1)Written notice to insured (2)Could be handwritten at address where “Covered Equipment” is located c. Reinstated only by endorsement d. Pro rata refund will be processed but suspension in force even if refund not made or offered Insurance Community University www. Insurance. Community. University. com
Joint or Disputed Loss Agreement 1. An important provision when coverage is written separately from the Commercial Property. 2. Pays 100% of loss portion that is covered under this form. 3. Pays 50% of loss portion that is disputed between the Commercial Property coverage and this coverage. 4. Add the Loss Adjustment endorsement to the Commercial Property coverage for this provision to work properly Insurance Community University www. Insurance. Community. University. com
Some “interesting endorsements” • Optional Valuation Clause EB 99649 • Product Withdrawal Coverage EB 99659 • Off Premises Equipment Coverage EB 99639 Insurance Community University 83 www. Insurance. Community. University. com
Upcoming Classes 8/14 Property Valuation – Credit for CA Only 8/16 Personal Auto – 2 CE Hours Many States 8/22 Farm Property 7/26 Understanding Logging Industry and Forest Products Presented and Sponsored By: Mattei Insurance Services Join the Community TODAY at: www. insurancecommunitycenter. com Insurance Community University 84 www. Insurance. Community. University. com
Disclaimer Insurance forms and endorsements vary based on insurance company; changes in edition dates; regulations; court decisions; and state jurisdiction. This instructional materials provided by Insight is intended as a general guideline and any interpretations provided by Insight do not modify or revise insurance policy language. The authors of these materials, Insight Insurance Consultants is a division of Insight Consulting and Management Inc. In providing these materials, Insight assumes neither liability nor responsibility to any person or business with respect to any loss that is alleged to be caused directly or indirectly as a result of the instructional materials provided. Copyright 2010 – 2011 All Rights Reserved www. insurancecommunitycenter. com Laurie: 714. 803. 5830 laurie@insurancecommunitycenter. com Marjorie: 714. 206. 9583 Marjorie@insurancecommunitycenter. com Insurance Community University 85 www. Insurance. Community. University. com
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