(December 2022)
This endorsement is used with the Insurance Services Office (ISO) OP 00 01–Capital Assets Program Coverage Form (Output Policy). The endorsement covers only the mechanical breakdown of covered equipment.
The endorsement schedule has spaces for the following information:
Per Breakdown–Direct Damage Limit of
Insurance
Note: This limit applies to all locations and for all covered equipment. If more limited coverage is desired for specific equipment at a specific location, attach OP 04 15–Limited Coverage for Specified Equipment to the policy along with the OP 04 13. The OP 04 15 is explained in more detail at the end of this article.
Sub-Coverages
The most the insurance company pays for either of these sub-coverages is $25,000 unless there is a higher limit, or the word "Included" is entered in the spaces provided. These limits are part of the Per Breakdown–Direct Damage Limit of Insurance, not in addition to it.
Deductible
Note: This information may be entered on the declarations if it is not entered on the endorsement schedule.
The insurance company pays for direct loss or damage to covered property because of a breakdown of covered equipment at a covered location.
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Example: George's Gyroscopes has specialized production equipment it uses to manufacture its precision products. Significant centrifugal forces in a large motor cause fatigue to its bearings, and they break loose, rupturing their enclosure and hurling metal shards and fragments throughout the premises. No employees are injured, but much property is damaged. This coverage responds to the damage to the motor as well as to the other property damaged. |
C. Exclusions in the policy are amended with respect to the coverage this endorsement provides.
1. The Electrical Apparatus, Mechanical Breakdown, and Steam Apparatus exclusions do not apply.
2. A
new exclusion is added. It states that coverage does not apply to loss or
damage to covered equipment when it is subjected to electrical or pressure
testing. However, this exclusion does not apply to the extent of the coverage
provided under the exception to the Installation, Testing, Repair Exclusion in the
policy. The exception covers the resulting fire or explosion direct loss or
damage due to installation, testing, repair, or similar services performed on
computers.
3. These exclusions replace the corresponding exclusions under d. Other Types of Losses in the policy:
The following two limitations in D. Limitations in the policy do not apply with respect to the coverage this endorsement provides:
1. D. 1. a. is about events caused by or that result from conditions or events inside steam boilers, pipes, engines, or turbines.
2. D. 1. b. is about events caused by or that result from conditions and events inside water heating equipment or hot water boilers, other than explosions.
The limitations are removed because of the coverage being provided in this endorsement.
The limits in this section are subject to the coverage forms limits of insurance.
1. The Per Breakdown–Direct Damage Limit of Insurance
This limit on the endorsement schedule is the most the insurance company pays for direct damage in any one breakdown. This limit is a sublimit of the coverage form limits of insurance, not an addition to it.
2.
Specific Sub-coverage Sublimits
In an unusual method of limiting coverage, this endorsement places a coverage limitation within the limit of insurance section. These sub-coverages are not described in any other part of the endorsement, so without this item, full limits are available. This item offers three different limits. The first is the $25,000 for each coverage. The second is a limit above the $25,000 but less than the limit provided in paragraph 1 above. The third is the word Included, which means that the paragraph 1. Limit applies without limitation.
a. Ammonia Contamination
This is contamination of covered property by ammonia that results in spoilage. Salvage expenses are covered as part of this sublimit.
b. Hazardous Substance
These are additional expenses the named insured incurs to clean up, repair, replace, or dispose of covered property that is damaged, polluted, or contaminated by a hazardous substance. The expenses paid are those that are over and above amounts the insurance company would have paid if the loss did not involve hazardous substances.
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Example: The Major Mushroom Storage Warehouse’s Ammonia Contamination and Hazardous Substance coverage is without sublimits. The word “Included” is entered on the schedule instead. A pressure vessel explodes and damages the building and several refrigeration units. Ammonia leaks and spoils all of the mushrooms. Other refrigerants are also dispersed, and equipment must be destroyed due to the contamination. Because ammonia contamination and hazardous substance coverage had no sublimits, the full per breakdown limit applies for all damage due to the vessel explosion. |
1.
Application of Deductibles
There is no payment for covered loss or damage that results from a breakdown until it exceeds the deductible amount on the endorsement schedule.
2.
Determination of Deductible
There are two different types of deductible.
a.
Dollar Deductible
The dollar deductible on the endorsement schedule is first deducted from any loss otherwise eligible for payment. The insurance company then pays the lesser of the amount of loss that exceeds the deductible or the limit of insurance.
The policy deductible applies when a dollar deductible is not entered on the endorsement schedule.
b.
Time Deductible
There may be a time deductible on the endorsement schedule with respect to Business Income and Extra Expense. If so, the insurance company is not liable for any loss that occurs during the time period on the endorsement schedule immediately after a breakdown occurs. If there are two or more deductibles that involve different causes of loss that apply to the same loss, only the largest is deducted.
This deductible is unusual because there are usually exceptions with respect to time deductibles for extra expense but not in this case.
Any insurance company representative can immediately suspend breakdown coverage on covered equipment he or she finds to be in or exposed to a dangerous condition. That person delivers or mails written notice to the named insured's last known address or to the address where the affected covered equipment is located. Coverage suspended in this way can be reinstated only by endorsement.
If such coverage is suspended, the named insured is entitled to pro rata refund of the premium for the affected equipment. However, the suspension applies even if such refund is not offered or made.
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Example: Jerod, a loss control specialist from Busy Insurance Company, inspects Happy Hippo’s industrial plant and notices a crack in one of the vessels. He notifies the plant manager that, effective immediately, the coverage for that vessel is suspended and any damage resulting from its breakdown is not covered. The plant manager is under time pressure. He calls a repair technician who agrees to make an emergency call. The plant manager needs that vessel if he is going to make production, so he does not shut it down. Before the technician arrives, the vessel breaks down causing significant damage to itself and surrounding property. Because of the suspension, Happy Hippo is not covered for any damage related to that breakdown. |
Four definitions are added to L. Definitions in the policy.
1. Breakdown
This is a direct physical cause of loss that damages covered equipment so that it must be repaired or replaced. Breakdown includes pressure or vacuum equipment failure. It is also a mechanical failure that includes centrifugal force-caused rupture or bursting. Electrical failure is also breakdown and includes electrical arcing.
Breakdown does not include or mean any of the following:
2. Covered equipment
This is equipment that operates under internal pressure. It is also equipment that operates under vacuum pressure that is not from weight of its own contents. Electrical or mechanical equipment that is used to generate, transmit, or utilize energy and computers and communications equipment are also considered covered equipment.
Covered equipment does not include or mean:
3. Hazardous substance
This is any substance a government agency declares to be a health hazard. It does not include ammonia.
4. One breakdown
This term is used in the Limits of Insurance and Deductible Sections. When an initial breakdown occurs, and because of that initial breakdown, other breakdowns occur. All breakdowns triggered by that initial breakdown are considered one breakdown.
In addition, multiple breakdowns at a single location that happen at the same time and are the result of the same cause are considered a single breakdown.
The use of this term prevents multiple limits from being available to cover the multiple losses but also prevents the named insured from being assessed multiple deductibles.
This endorsement starts with a schedule for the following three entries:
Only the Limits of Insurance section of OP 04 13–Equipment Breakdown Protection Coverage Endorsement is amended when this endorsement is attached, but that change is significant.
The coverage for any equipment listed in the schedule is limited to only the following:
The limit of loss in the schedule is a sublimit subject to the Per Breakdown–Direct Damage Limit of Insurance in the OP 04 13 schedule. It is not an additional limit.