What Is Equipment Breakdown Coverage? Do You Need It?

Equipment breakdown coverage pays for damage from a sudden, accidental equipment failure that your property policy excludes: mechanical breakdown, electrical arcing and steam boiler explosion. It pays to repair or replace the broken equipment and other property the failure damaged, and, when it is tied to your business income coverage, the income you lose while operations are down.

Most owners assume their commercial property policy covers the equipment that runs the business. It does, but only when the damage comes from outside the machine, such as fire, wind or theft. When the damage starts inside the machine, such as a burned-out compressor, an electrical arc in a panel or a cracked boiler, the property policy won't pay for the repair. That is the gap equipment breakdown insurance fills.

What does equipment breakdown coverage pay for that property insurance excludes?

Equipment breakdown coverage pays for the internal equipment failures your property policy lists as exclusions. The Causes of Loss Special Form (CP 10 30) excludes mechanical breakdown, including rupture or bursting caused by centrifugal force. It excludes damage from artificially generated electrical, magnetic or electromagnetic energy, which covers the arcing and current surges that melt wiring, devices and computer systems. And it excludes explosion of steam boilers, steam pipes, engines and turbines that you own, lease or operate.

The property policy still pays for some of the resulting damage. After a boiler explosion, it pays for fire damage that follows, but not for the boiler itself or anything else damaged directly by the excluded cause. When a business owner asks for "mechanical breakdown insurance," this is the product a commercial broker quotes. Hartford Steam Boiler, an equipment breakdown specialist, describes the risks commercial equipment faces, such as electrical short circuits, excess mechanical force, overloading and control failures, which most other property is not exposed to.^[3]

Here is how the main excluded causes compare:

ISO offers two ways to buy the coverage. The Equipment Breakdown Cause of Loss Endorsement (CP 10 46) adds equipment breakdown to the covered causes of loss on your standard property policy. The standalone Equipment Breakdown Protection Coverage Form (EB 00 20) provides similar coverage as its own coverage part. Small commercial businesses usually add CP 10 46 to their package policy. Large industrial equipment schedules are usually written on a separate (monoline) policy through specialists such as Hartford Steam Boiler, one of the oldest names in the business. Either way, ordinary wear and tear stays excluded. Coverage is triggered by a sudden, accidental breakdown, not slow deterioration.

What does equipment breakdown coverage cover?

Equipment breakdown covers much more than the boiler room. The industry still calls it boiler and machinery (B&M) insurance, a name from its early days, when inspectors mainly examined pressure vessels. Older B&M policies listed each covered piece of equipment as an "object," and that word still appears on equipment schedules today. Equipment typically covered includes:

• Boilers and pressure vessels: steam boilers, hot water heaters, and other fired or unfired vessels operating under pressure or vacuum.
• Electrical distribution equipment: panels, switchgear, transformers and the building wiring that arcing destroys.
• Air conditioning and refrigeration: chillers, compressors, walk-in coolers and the cooling systems whose failure can spoil your product.
• Mechanical equipment: electric motors, fans, pumps, engines and other machines with moving parts that can fail suddenly.
• Computers and communications gear: servers, phone systems and diagnostic equipment that a power surge can destroy.
• Production machinery: the equipment that makes the products you sell.

Insurers define covered equipment differently, so check your policy schedule. Some equipment must be described specifically, and equipment being tested may have separate terms.

Does equipment breakdown coverage replace lost income?

Yes, it can. A transformer failure can shut down a business as well as damage equipment, and the lost income from the shutdown is often far larger than the cost of replacing the equipment. With CP 10 46 attached, equipment breakdown becomes a covered cause of loss under your commercial property program, so a business income form such as CP 00 30 responds to a breakdown shutdown the same way it responds to a fire. The standalone EB 00 20 form has its own business income and extra expense options. With neither, a transformer burnout that closes your business for three weeks gives you no property claim and no income claim.

Deductibles work differently on equipment breakdown. Business income coverage usually has a waiting period measured in hours, often 24, separate from the dollar deductible on the equipment damage. The breakdown deductible may apply per object or as a multiple of average daily value. So even with a low dollar deductible, a full day of downtime may not be covered. Read the deductible page of the quote, not just the limit.

Spoilage has the same gap. The property form excludes loss from a change in temperature or humidity caused by a breakdown of refrigeration, cooling or humidity control equipment, which is how a grocery store or restaurant usually loses its inventory. Spoilage coverage added alongside equipment breakdown closes that gap.

Wear and tear is still the most common dispute, even on compressors and motors, because it stays excluded under breakdown policies. The insurer's first question is whether the failure was sudden or whether the part simply wore out over time. That one word, "sudden," decides whether the whole claim is paid. At the teardown, the insurer's engineer opens the failed component and reads the damage. A scored bearing surface and carbonized winding insulation point to gradual wear, while a fractured shaft or a single clean arc mark points to a sudden failure.

The failed part is your best evidence if the insurer's engineer denies the claim as wear and tear. Don't let the repair contractor haul the dead compressor away, because once it is gone you have nothing to show the engineer.

Why does the insurer inspect your equipment?

The insurer inspects your equipment because, in equipment breakdown, inspection is part of the product. Insurers that write this coverage employ inspectors who examine boilers and pressure vessels on a regular schedule and get failing parts repaired before they burst. The causes are ordinary: when the National Board of Boiler and Pressure Vessel Inspectors reviewed its incident data, low water, operator error and poor maintenance led the list, and the Board recorded 2,087 incidents in 1996 alone.^[1]

The visits do two jobs. State boiler safety laws require an operating certificate renewed after a periodic inspection by an inspector holding a National Board inservice commission, a credential the National Board issues for this work.^[2] Where the state lets the insurer's own inspectors do those required inspections, one visit serves the insurer and keeps the operating certificate current, without paying a separate third party. The inspection also has an enforcement power found nowhere else in commercial insurance: under the EB 00 20 conditions, if the inspector finds covered equipment in a dangerous condition, the insurer can suspend coverage on that equipment immediately by delivering written notice, with no advance notice period.

This guide is for educational purposes and summarizes standard ISO policy language. Your policy's specific terms, conditions, and endorsements control. Talk to a licensed broker about your actual exposures.

How to check whether you already have equipment breakdown coverage

Ask your broker whether your property policy has the CP 10 46 endorsement, or whether you have a standalone EB 00 20 policy, and read the business income waiting period before you sign. Equipment breakdown coverage protects you against the sudden mechanical or electrical failure, arcing or boiler explosion that a standard property policy leaves out. Often the income lost while you are shut down for repairs costs more than the equipment itself.