23 Mar Machinery Breakdown and Loss of Profits following Machinery Breakdown
By Harry Kellerman and Richard Hood
Commercial Business Insurance products are evolving, with specialist products which used to be underwritten on a stand-alone basis such as Cyber Liability, Directors and Officers, Contractors All Works, Machinery Breakdown now being included in general Business insurance offerings, as an added section to the policy.
By adding these specialist products under a Business Policy, the underwriting that is required to manage the risk is diluted which also flows through to the scope of cover provided. Although these specialist lines attract low premiums, they are often “watered-down” and have onerous exclusions and conditions which could open a can of worms at the claims stage! Although these “watered-down” versions have their place it is vital that business risks are understood by the broker to ensure that these versions of cover remain suitable to cover specific business risks.
One such specialist product which has become a challenge has been the inclusion of Machinery Breakdown cover under a standard Business policy. Often there is an assumption that Business Interruption cover is automatically linked to this cover, which is not the case! Business interruption cover is only triggered under a Business policy following a material damage loss caused by an insured peril eg Fire, Lighting, Storm etc. Therefore, is vital the insurers are specifically requested by the broker to include Business Interruption cover following a breakdown of machinery.
Machinery Breakdown Loss of Profits cover must run concurrently with Machinery Breakdown cover as the actual breakdown of the machinery will be the trigger to this cover. This includes power surge / electrical shorting, negligence (human error), wear & tear (consequence only), accidental damage and entry of foreign objects.
Machinery Breakdown Loss of Profits cover, on the other hand, provides cover for the Loss of Gross Profits sustained as a result of a business interruption caused by material damage indemnifiable under a Machinery Breakdown policy.
In conclusion, make sure that Machinery Breakdown and Loss of Profits cover is correctly placed and insured for your business. Adding this specialist cover to your General Commercial Policy has limitations and could expose a business that is reliant on their machinery to an uninsured loss.