Boiler and machinery objects, and the specialized insurance that has been designed for them, are readily identified with large industrial plants and multi-story commercial buildings. But numerous small and medium-size enterprises do have property and exposures that are subjects for boiler and machinery insurance, and are outside the scope of "basic" property insurance.
Applications for commercial insurance do turn up significant data that establish the need for boiler and machinery insurance, regardless of the nature and the size of the applicant. But it behooves a person making an insurance survey for a client or prospect to recognize the property and exposures that warrant B&M protection. The ability to do this begins with knowing pertinent exclusions in commercial property insurance. As our special concern is with businesses of moderate size, pertinent parts of widely written policies, prescribed for them, are spotlighted.
Businessowners (BOP) policies drafted by the Insurance Services Office (ISO) and the American Association of Insurance Services (AAIS), for example, are clear on the subject. Each excludes loss due to the explosion of steam boilers, pipes and turbines owned or leased by the insured or for which the insured is responsible by virtue of having them under its control. Loss is covered, however, that is caused by ensuing fire or by combustion explosion.
The ISO and AAIS businessowners policies also exclude loss from mechanical breakdown, including rupture or bursting caused by centrifugal force, with reasonable exceptions.
Property insurance carried by large industrial, commercial and institutional insureds under package and monoline policies, as well as by smaller businesses for underwriting and optional coverage reasons, contains similar limitations applicable to building coverage and personal property coverage. ISO's Causes of Loss Special Form CP 10 30, covering property for risks except as excluded, is representative.
Coverage is provided for loss of or damage to steam boilers, steam pipes, steam engines and steam turbines, but not when caused by or resulting from a condition or event inside such equipment. There is coverage, however, for loss to such equipment caused by explosion of gases or fuel in the furnace of a fired vessel or in the flues or passages through which the gases of combustion pass. Hot water boilers or other equipment for heating water are not covered for loss caused by any condition or occurrence within them, other than an explosion. The limitations in this paragraph apply to the equipment itself.
Damage to other property resulting from explosion of equipment under steam pressure is treated separately. CP 10 30, for example, excludes loss or damage caused by or resulting from explosion of steam boilers, steam pipes, steam engines or steam turbines owned, leased by or operated under the control of the insured.
However, if loss or damage by fire or combustion explosion results, there is coverage for the resulting loss caused by the explosion of gases or fuel within the furnace of any fired vessel or within the flues or passages through which the gases of combustion pass.
The ISO form and similar commercial property forms in current use contain a mechanical breakdown exclusion comparable to that in BOP policies. Mechanical breakdown of machinery, including its rupture or bursting caused by centrifugal force, is excluded. There is also an exclusion for loss caused by artificially generated electrical current that disturbs electrical devices, appliances or wires.
It is important to note that those who are served by steam boilers, steam pipes, steam turbines or steam engines, but do not own, lease or operate such objects, do not need boiler and machinery insurance because of the risk posed by such equipment. Their property is basically covered by their property insurance, which applies to loss by explosion. Examples include tenants of office buildings or store buildings who have nothing to do with providing the steam heat that is fed into their premises.
Boiler and machinery insurance is written by including a B&M coverage part or form in a package policy or by using it in a monoline policy. Insurer experience with the coverage has resulted in the availability of several forms from which choice may be made for the exposure.
Simplified small business forms are appropriate for many accounts. Covered objects are defined in such a form, eliminating the need for object definition endorsements. Time element coverages are basically included. (It is notable that the needs of some insureds are met by a mechanical breakdown coverage option and a spoilage coverage endorsement, offered by some insurers under their BOP programs.)
The form used for large risks makes use of a reduced number of object definition endorsements, selected according to the nature of objects involved. Loss of income and extra expense coverages, among others, are added by endorsement.
An outstanding feature of B&M insurance is that it provides coverage with respect to property of others in the care, custody or control of the insured for which the insured may be liable. The insured's general liability insurance applies to liability exposures posed by objects insured by B&M insurance except for property in the insured's care, custody or control. The excluded exposure is picked up under B&M protection.
The mutual exclusiveness and meshing of boiler and machinery insurance with commercial property insurance is demonstrated by the former covering direct loss or damage to the insured's building(s), furniture, fixtures, equipment, supplies and stock of materials or merchandise, as well as to the insured object or objects--caused by accident to an object. Commercial property coverage parts (forms) exclude loss from such an occurrence.
Armed with knowledge of limitations in commercial property insurance for "boiler and machinery" objects, a person making an insurance survey will know what to look for. Exposures associated with boilers, other fired and unfired vessels, refrigerating and air conditioning systems, and the numerous types of mechanical and electrical equipment will likely warrant including B&M coverage in the insurance prescription. The demonstrated expertise and professionalism will not be lost on the insurance buyer. *
©COPYRIGHT: The Rough Notes Magazine, 1999