In the dynamic world of business, we rely on a vast network of equipment to keep operations running smoothly. From your manufacturing line’s critical machinery and the HVAC system regulating your office climate, to the computers managing your inventory and sales—when they work, business thrives.

But what happens when a vital piece of equipment suddenly fails? Not due to a fire or storm, which your standard commercial property insurance covers, but due to an internal malfunction? That unexpected halt can quickly spiral into a financial and operational crisis.

This is where an Equipment Breakdown Policy becomes your business’s unsung hero. It fills the crucial gap left by traditional property insurance, safeguarding your business from the financial fallout of mechanical or electrical failure.

What Standard Property Insurance Misses

Most commercial property policies are designed to protect against damage from external perils like theft, vandalism, fire, or weather events. However, they almost always contain exclusions for internal failures such as:

• Mechanical Breakdown: A bearing seizes, a motor burns out, or a key part cracks.
• Electrical Short Circuits: A sudden power surge or electrical arcing fries delicate circuits.
• Pressure System Failures: Boiler explosions or a sudden loss of pressure in a compressor.
• Operator Error: Internal damage caused by an employee accidentally operating equipment improperly.

An Equipment Breakdown Policy is specifically designed to cover the repair or replacement costs when these kinds of sudden, internal failures occur.

 

The True Cost of a Breakdown

The expense of a breakdown extends far beyond the repair bill for the broken part. Consider the following significant financial impacts that this specialized insurance is designed to cover:

1. Repair or Replacement Costs: Coverage for the repair or replacement costs for broken-down equipment at the insured’s location. The coverage can include enhanced provisions such as a ‘new-for-old’ option under specific circumstances and an equipment upgrade provision following an insured event.
2. Business Interruption: Covers costs relating to business interruption, including:
   • Loss of gross profits.
   • Loss of rentals or payroll.
   • Additional increase in cost of working.
   • This cover can also extend to breakdowns affecting customers and suppliers.
3. Deterioration of Specified Property: Cover for loss or damage to specified property due to:
   • Breakdown of the equipment.
   • The operation or failure to operate of any switch, thermostat, control, fuse, circuit breaker, or overload device.
   • Sudden leakage or contamination caused by the escape of refrigerant or liquid from the equipment.

The policy provides comprehensive protection for a wide range of exposures often excluded by warranties or standard property policies.

Here are specific claims examples for Equipment Breakdown policies:

Equipment Damage and Business Interruption

Loss Event	Cause and Equipment Affected	Final Loss / Coverage
Catastrophic Power Surge	An electrical arc developed in the vertical busbar, traveling up eight floors of a 30-story commercial building.	The claim covered the $16.5 million settlement (including business interruption) to replace electrical wiring on all 30 floors, as new wiring had to meet current building codes due to the structure’s age.
Car Park Exhaust Fan Failure	A pump motor in an exhaust fan system at a residential strata failed. The motor, fan blades, and Variable Speed Drive (VSD) seized.	$51,900 settlement. The repair required specialist rigging and cutting of sheet metal ducting due to the fan’s location in a sealed shaft, increasing the total cost.
COVID-19 Club Reopening	After a mandated shutdown, an RSL club powered up its equipment. 19 Pokies (gaming machines) failed due to component issues (mainboards, power supplies, etc.), along with damage to associated lighting control systems.	$32,000 settlement, covering the repair and replacement of the electronic equipment.
Refrigeration Failure	A copper pressure equalization line on a compressor suffered a catastrophic failure in a commercial building’s air conditioning plant room, resulting in the complete loss of refrigerant gas and making the area unsafe to enter.	The policy covered the costs to repair the system and replace the refrigerant gas.

Protection in a Modern, Connected World

In essence, an Equipment Breakdown Policy is a vital safety net that helps ensure a single, sudden equipment failure doesn’t turn into an insurmountable financial disaster for your company. It provides the peace of mind that allows you to focus on your customers, knowing your operational backbone is protected.

To secure your valuable assets and ensure your business continuity, you need the right protection tailored to your specific needs.

Contact ARMA Insurance Brokers today to discuss an Equipment Breakdown Policy and safeguard your business from the unexpected.