Equipment Breakdown: Prevention and Coverage
It is a particularly harsh cold spell in the middle of January. Or, imagine it is a winter day last year! The last bell rings at the elementary school on Friday afternoon. A little while later, the last student, teacher and custodian has left for the long Martin Luther King Jr./Civil Rights Day weekend. The custodian is driving by the school on Sunday night and decides to check up on things. As he approaches the entrance door, he notices the door’s glass is covered with frost—and it appears to be on the inside of the door. He carefully opens the door and immediately steps into two inches of water. There is water streaming out of the sprinkler heads from the ceiling. He has a feeling that he should proceed toward the boiler room, where he will find the cause of this mess. It turns out that his premonition is correct: the boiler has failed and shut down. He doesn’t know the cause of the failure yet but his thoughts turn to “who is going to repair the boiler and help with cleaning up the mess—and who is going to pay for it?”
Equipment Breakdown Coverage
This is something the average municipal or school official probably doesn’t give much thought to during the course of a day, or, for that matter, week, month, year or likely ever. If you have thought about it, the first thing that may come to mind is the important jurisdictional boiler inspections performed by the insurance companies. Those are certainly a critical component of the coverage, but there is a wider umbrella of school and municipal risks that are covered by Equipment Breakdown Coverage, previously called Boiler and Machinery Coverage.
As a participant in the New Hampshire Local Government Center Property-Liability Trust (LGC-PLT), a group is automatically covered by a separate Equipment Breakdown Policy that LGC-PLT purchases for PLT members. The coverage is currently placed with Travelers, our property reinsurance partner. The policy is meant to complement the property protection groups enjoy through the PLT Member Agreement. However, it covers much more than boilers and production machinery. The coverage is intended to insure any equipment a member owns that transmits, distributes or uses mechanical or electrical energy. Without it, public entities may not be protected against property and business losses associated with explosions, mechanical failures or electrical arching breakdowns.
The origins of steam boiler and machinery coverage date back to the second half of the 19th century, when the mechanization of everything from transportation to manufacturing created a need to protect the mostly steam-powered machinery and equipment that were making these new systems possible. It is estimated that boiler explosions in the U.S. occurred every four days during this time period. The coverage was developed as an add-on to the safety inspections work that followed a number of tragic boiler explosions. The coverage has evolved tremendously to cover all kinds of risks that a typical property policy likely excludes.
There are five different types of covered property risks that the Equipment Breakdown Coverage is meant to cover. These include boiler and pressure vessels, air conditioning and refrigeration equipment, business and computer equipment (such as computers, fax machines, copiers, telephone systems, etc.), electrical equipment and mechanical equipment. The comprehensive coverage is extended to provide specific protection for nearly every conceivable equipment breakdown scenario. A short summary of the coverage provided includes the property damage to the covered property; business income loss as a result of a breakdown; extra expense for additional operating costs; food spoilage; electronic data or media that are damaged or lost; and additional damage, loss of income or additional expenses due to fungus, wet or dry rot and hazardous substances. Coverage is even provided for the additional cost to utilize green materials and procedures, including expenses to retain existing green certifications after a loss and up to 125 percent of replacement value for un-repairable equipment for upgrades to state-of-the-art technologies.
LGC-PLT groups have utilized this coverage in a number of circumstances. A couple of actual claim examples:
- A town hall was without heat for a sustained period of time. Inspection revealed two cracks in boiler which needed to be repaired.
- A fire box in a school boiler was found full of water and leaking necessitating a repair.
- A tree limb came down across three primary electrical lines cutting out power to large section of town. As a result, transfer switch and emergency generator at fire station damaged and was not repairable.
- A lightning strike short-circuited control circuits on boilers.
Regular Inspection is the Key to Prevention
Travelers provides participants with a summary list of typical machinery and equipment failures and causes. Obviously, LGC-PLT would rather groups avoid these typical claims scenarios, and the jurisdictional inspections definitely provide a strong measure of loss prevention to help avoid catastrophic events. Equipment Breakdown insurers who perform the inspections must be certified by the state to perform the inspections (RSA 157-A:7). Travelers inspectors have the proper certifications, and Travelers is also a National Board Authorized Inspection Agency. Travelers inspectors are authorized to make recommendations for repair and can remove a boiler or pressure vessel from service until it is repaired or replaced. The State of New Hampshire and LGC-PLT receive a copy of the inspector’s report if an inspected object is found not certifiable. Contact your LGC Health and Safety Advisor for assistance if questions arise regarding how to become compliant. Additional information related to boiler inspections and frequently asked questions is available at www.labor.state.nh.us/boilers_faq.asp.
Equipment Breakdown Coverage is something you may not give a second thought. Just remember it covers a lot more than boilers and you will certainly be glad your entity has it, if and when a loss occurs.
Tom Dunn is a senior coverage administrator for the New Hampshire Local Government Center Property-Liability Trust. Contact Tom at 800.852.3358, ext. 306, or firstname.lastname@example.org.