Equipment breakdown coverage
Equipment breakdown coverage is insurance for sudden, accidental physical damage to covered boilers, machinery, pressure equipment or electrical equipment. It can pay to repair or replace the equipment and, where the policy includes them, damage to other property, lost business income, spoiled goods, temporary repairs and expediting costs, within its limits and deductible.
Also called: boiler and machinery insurance
Equipment breakdown coverage pays when covered equipment, such as a boiler, a compressor, a refrigeration unit or an electrical panel, suffers a sudden physical breakdown. It can pay for the repair or replacement and, if your policy includes them, the income you lose while the business is down, spoiled stock and the extra cost of a faster repair. Three things decide a claim: whether the coverage is on your policy at all, whether the equipment counts as covered equipment, and whether the event fits the policy's definition of a breakdown.
How a breakdown claim is paid, with real form numbers
Under the ISO Equipment Breakdown Protection Coverage Form, EB 00 20, the covered cause of loss is a breakdown to covered equipment: direct physical loss that damages the equipment and requires repair or replacement, according to a published copy of the ISO form (opens in a new tab). That includes mechanical failure, electrical failure such as arcing, pressure or vacuum failure, and rupture caused by centrifugal force. For direct damage, the insurer pays the covered amount after the deductible, up to the per-breakdown limit.
Lost business income can be paid at less than the loss. In an example from the Hartford Steam Boiler Equipment Breakdown Coverage Form (opens in a new tab) (2015), a business declared an estimated annual business-income value of $100,000 when its actual value was $200,000:
Hover or tap a row to highlight it.
| Step | Amount |
|---|---|
| Actual business-income loss | $40,000 |
| Declared value divided by actual value ($100,000 / $200,000) | 0.50 |
| Loss after coinsurance ($40,000 x 0.50) | $20,000 |
| Less business-income deductible | $5,000 |
| Insurer pays | $15,000 |
| Business absorbs ($20,000 from coinsurance plus $5,000 deductible) | $25,000 |
The business-income limit in that example was $100,000, so the limit was never the problem; the low declared value was. The example shows how the form's calculation works, not an average claim.
Limits, deductibles and optional parts that change the payout
Most of what this coverage pays comes from parts that are either included, given their own limit, or left off:
- Business income and extra expense, which may carry a time deductible before payments begin.
- Expediting expenses, the added cost of a faster repair or replacement.
- Spoilage, for perishable stock lost to a covered breakdown or service interruption.
- Utility or service interruption, for a breakdown at a utility's equipment, often with a waiting period.
- Data restoration and hazardous-substance cleanup, each often with a separate sublimit.
Deductibles come in several forms. The declarations may show a dollar amount, a percentage of the loss, a multiple of daily value, or a minimum and maximum, according to an ISO form archive (opens in a new tab). A coverage described in the form does not apply unless the declarations show a limit or the word "INCLUDED" for it.
A higher limit or broader optional coverage generally raises the premium because it raises what the insurer could pay. A higher deductible shifts more of each claim to you and can lower the premium, but the size of any change depends on the insurer's quote.
Where you meet the term
For a small business, equipment breakdown appears in a commercial property policy, a businessowners policy, a commercial package policy, or a standalone boiler and machinery policy. It may be an endorsement, an optional coverage, a schedule or its own declarations page. Ordinary commercial property coverage may exclude mechanical or electrical failure, and equipment breakdown is a distinct optional coverage, according to the NAIC insurance terms list (opens in a new tab).
You will see it on a quote, binder, declarations page, renewal proposal, endorsement or claim letter. Homeowners can meet it too: some home policies offer it as an optional endorsement for systems such as water-well pumps, water heaters and central heating or cooling.
"Boiler and machinery" is the older name for the same category. In New York, boiler and machinery insurance reaches well beyond boilers, covering engines, turbines, compressors, pumps, pressure vessels and apparatus that generates, transmits or uses electricity, under N.Y. Insurance Law § 1113(a)(9) (opens in a new tab). It may also be sold as "systems protector," "systems breakdown" or "machinery breakdown," according to the California Department of Insurance commercial guide (opens in a new tab).
Questions to ask an agent or insurer
- Which equipment is listed as covered, and are boilers, motors, HVAC, refrigeration, computers and electrical systems included? The form responds only to covered equipment as the policy defines it.
- What are the limit per breakdown, the deductible and any sublimits? These set the most the policy pays and what you pay first.
- Are business income, extra expense, spoilage, service interruption, expediting expenses and data restoration included? Each can be a separate coverage that does not apply just because property damage is covered.
- Does a time deductible or coinsurance calculation apply to business income? Either can reduce the payment, even when the loss is well under the limit.
- Which exclusions apply to maintenance, wear, corrosion, power interruption, flood and viruses, and what records will a claim require? The breakdown definition and exclusions decide whether a loss qualifies.
Frequently asked questions
Short answers for owners reading a quote or dealing with a failed machine.
Does equipment breakdown coverage pay for any broken equipment?
No. The equipment must be covered equipment, the event must meet the breakdown definition, and no exclusion can apply. The ISO form excludes inadequate or improper maintenance, malfunction, adjustment, calibration, cleaning, modification, and computer errors and viruses.
Is a power outage covered?
Not automatically. Spoiled inventory or downtime from an outage may be excluded unless the policy includes service interruption, spoilage or utility interruption coverage. Check the declarations for those parts by name.
Is equipment breakdown the same as a home warranty?
No. A home warranty is generally a service contract for specified household systems, with its own service-call fees and conditions, and New York regulates service contracts separately from insurance, according to a New York DFS opinion (opens in a new tab). Equipment breakdown is insurance with an insuring agreement, a covered equipment definition, a deductible, a limit and exclusions.
Does a boiler inspection replace this coverage?
No. Connecticut requires periodic inspection of covered boilers under Conn. Gen. Stat. § 29-237 (opens in a new tab), with power boilers generally inspected every year. That rule governs boiler operation; the policy still sets coverage, limits and deductibles.