CO 1003–COMMERCIAL OUTPUT PROGRAM—EQUIPMENT BREAKDOWN
COVERAGE PART
(June 2025)
This form is considered complete only when it is attached to the CO 1000– Commercial Output Program–Property Coverage Part, as there are multiple references to the property coverage part within the Equipment Breakdown Coverage form.
A schedule of coverages must be used with this coverage form. There are two options. CO 1073–Equipment Breakdown Schedule can be attached when the CO 1050–Schedule of Coverages is used. If CO 1051–Schedule of Coverages is used with the COP, then the Equipment Breakdown scheduled information is entered on it.
Related Article Commercial Output Program Declarations and Schedules of Coverages
Three definitions are added that apply only to this coverage part.
There are two types of items covered in this definition.
· Boilers and any piping for condensate, steam and feedwater related to the boiler.
· Pressure vessels, but only if subject to either vacuum or internal pressure. The vessels can be fired or unfired.
Pressure vessels only subjected to the static pressure of their own contents are not included in this definition.
Any machinery used to either process a product or produce a product with the intent to sell the product. Equipment or an apparatus used exclusively with such machines is also considered production machinery.
A legal proceeding involving judicial oversight is used to establish liability and damages for loss of property belonging to others, which is under the care, custody, or control of the named insured. While a proceeding generally refers to a trial, it can also include arbitration and other judicial processes. In this context, arbitration is considered part of the proceeding only if the named insured is required to participate.
Direct loss or damage to covered property is only covered if it results from an accident involving covered equipment. The accident must occur at a covered location. The term 'covered property' is not specifically defined within this coverage part; instead, it refers to the property described in the Commercial Output Program–Property Coverage Part, in the Covered Property section, and in the Supplemental and Supplemental Marine Coverages sections.
|
Example:
Friona’s boiler explodes. In addition to the boiler
being destroyed, one wall in the boiler room has also been destroyed, along
with the equipment stored outside that wall. All damaged property is covered.
|
NOTE: This is very specific coverage. The
only peril is an accident to covered equipment. The terms accident and covered
equipment are both defined in the Property Coverage Part. The definitions,
taken from the CO 1000–Commercial Output Program Property Coverage Part
Analysis, are provided below for reference.
NOTE: This
term is used only with equipment breakdown coverage.
Direct physical loss
from one or more of the following:
NOTE: This
term is used only with equipment breakdown coverage.
There are two types
of covered equipment. One type is machinery or items involved with generating,
transmitting, or using energy. Another is the type that operates under vacuum
or pressure environments during normal usage. The equipment must also be considered
covered property as described in the Covered Property section of this coverage
form.
It does not include
any of the following:
Related ArticleCO 1000–Commercial Output Program Property Coverage Part Analysis
This section serves as an addition to the Property Not Covered section in the Commercial Output Program–Property Coverage Part.
The distinction between this property item not covered and the same item in the Commercial Output Program’s Property Coverage section is that this represents a complete exclusion with no exceptions.
· Spoilage caused by an accident to covered equipment.
· Contamination because ammonia or other refrigerants are released.
· Spoilage because of any lack of electrical power.
· Spoilage because the electrical current fluctuates.
These extensions are not automatic. They apply only if a limit is shown on the Equipment Breakdown Schedule. Therefore, entering limits on the Equipment Breakdown Schedule is critical.
If two or more of the listed coverages apply to the same portion of a loss, only the smaller limit is paid. Unless otherwise provided for, the limits for the additional coverages are part of the Property Damage Limit and not in addition to it. These coverages apply to a loss resulting from an accident to covered equipment.
Coverage applies only if a limit is shown on the Equipment Breakdown Schedule.
NOTE: The entered limit is part of, not in
addition to, the equipment breakdown limit. This means that the equipment
breakdown limit should be sufficient to cover both the income limit and the
direct physical loss caused by the accident.
If the named insured’s operation is interrupted because of an accident to covered equipment, an income loss typically occurs. The accident must occur at a covered location or within 1,000 feet of a covered location, either in the open or in or on a vehicle. If the named insured does not own the building or structure, its location includes passageways providing access to its portion of the building, as well as its business personal property situated within 1,000 feet, either in the open or on or in a vehicle.
The income loss is covered during the period of restoration, which begins when the business is interrupted and ends when it can resume operations. This time period is more fully explained in the Definitions section of the Commercial Output Program – Property Coverage part.
Related Article CO 1000–AAIS Commercial Output Program (COP)–Property Coverage Part Analysis
Three coverage options are available within the following four coverage selections. One option must be checked on the schedule of coverages for coverage to apply.
Earnings include rents when the option for earnings, rents, and extra expense is selected. However, earnings means only rents when the option for only rents and extra expense is selected.
Coverage applies to earnings, which consist of two separate components that are determined and then combined. The first component is the loss of net income. Net income is the profit or loss before income tax that would have been earned during the period of restoration. Net income can be either negative or positive.
The second component is the cost of expenses that continue during the restoration period. This is important because during periods when operations are conducted at a loss, certain expenses continue, including payroll expense, utility payments, and other contractual obligations.
The two components (net income and continuing expenses) are combined to determine the total amount of earnings covered. If the result is less than zero, the insurance company does not pay anything.
When the named insured is a manufacturer, a third component is added. The sales value of any goods that would have been produced during the restoration period must be added to the first component, net income.
|
Example:
Precious Manufacturing, Inc.’s net income/loss, which would have occurred during
the restoration period had there been no direct damage, is a loss of $30,000.
The sales value of goods that would have been produced in the time period is
$15,000, and the continuing expenses are $20,000. The total income loss is computed
as $15,000 + $20,000 - $30,000 = $5,000. |
All extra expenses incurred to expedite the repair, replacement, or restoration of property are covered, but only up to the amount that would reduce the income loss by having the property sooner. Additionally, all extra expenses for restoring valuable papers or records, including research and replacement costs, are covered, but again, only up to the amount by which the income loss is minimized by having those papers and records available.
A business might restart operations but not reach full earnings capacity immediately. This coverage adds a 30-day extension beyond the start of operations, or longer if specified in the Schedule. It will cease sooner if earnings recover to match previous levels. The extension of 30 days or more is included in the total loss of income coverage and does not increase the coverage limit listed on the Schedule of Coverages.
|
Example:
A business has an income
loss limit of $60,000.
The business was closed
for 145 days, resulting in a loss of income claim of $55,000. Additionally,
there is an extra expense claim of $2,500. The extended period for business
restoration lasts 25 days, with a claim totaling $15,000. So far, a total of
$57,500—which includes the $55,000 loss of income and the $2,500 extra expense—has
been paid out of the $60,000 limit. This means that only $2,500 of the
$15,000 extended period loss claim has been paid. |
NOTE: Coverage applies only if a limit is
shown on the Equipment Breakdown Schedule.
These expenses are the extra costs incurred to complete repairs or replacements ahead of schedule. These costs may include overtime pay, additional labor expenses, and transportation fees.
NOTE: Coverage applies only if a limit is
shown on the Equipment Breakdown Schedule.
This coverage pays for the additional cost of repairing or replacing covered property because of contamination by a pollutant. It includes the additional expense of cleaning up or disposing of the polluted property. Additional expenses are those that exceed what would have been required if pollutants had not been involved.
Coverage also applies to any additional loss described under Income Coverages caused by contamination by pollutants, but only if Income Coverage is shown on the Equipment Breakdown Schedule.
NOTE: Coverage applies only to the items with
limits shown on the Equipment Breakdown Schedule.
If a covered equipment breakdown loss occurs, damaging a building to the point that an ordinance or law requires that the entire building be demolished, this extension covers the loss of value of the undamaged portion of the building that must be demolished. The ordinance or law must require the demolition, regulate construction or land use and be in force at the time of the loss. This insurance does not cover any costs related to pollution.
NOTE: It is difficult to enter a limit for
this item because it is unclear how much would be undamaged and needs to be
demolished. Knowing how the ordinance or law is worded would be helpful. For
example, if the ordinance or law states that when 50% or more of the building
is damaged, the entire building must be brought up to code, a limit of 50% of
the value should be entered. If the ordinance doesn’t apply unless 70% of the
building is damaged, then a limit of only 30% of the value would be needed.
This part of the extension applies to the actual cost to
demolish the undamaged portion of the building and to rebuild it so that it
complies with the applicable ordinances. The limit for the sum of these two
items must be shown on the Equipment Breakdown Schedule of Coverages under
Ordinance or Law (Increased Cost to Repair/Cost to Demolish and Clear Site).
· Increased Cost to Repair provides coverage for the increased costs that occur due to the enforcement of ordinances or laws following a covered loss. Any construction done or repairs made must return the building to its previous occupancy or purpose unless such occupancy or purpose is prohibited by the ordinance or law. No payment will be made for this item until the repair or replacement is completed. The repair or rebuilding must be finished as soon as possible but not more than two years after the date of loss.
· Cost to Demolish and Clear Site is very specific. It pays to demolish the undamaged portion of the building. It also covers the cost to clear the site in advance of the rebuilding. The demolition and site preparation for the damaged portion of the building are covered under the CO 1000 Coverage – Extensions—Debris Removal coverage.
·
We Do Not Cover states that two types of
ordinances are not covered. The first is any ordinance that applies to
pollution. The second is any ordinance the named insured should have complied
with prior to the damage but failed to do so.
· What We Pay If the Building is Repaired or Replaced states the insurance company pays either the actual costs incurred or the scheduled limit, whichever is less. The actual costs cannot exceed what it would cost to construct a building of the same height, area, and style.
·
What We Pay If the Building is Not Repaired or
Replaced states the insurance company pays either the actual demolition
costs, including the amounts the insured would have spent had the property been
replaced with similar property, or the scheduled limit, whichever is less.
NOTE: Coverage applies only if a limit is
shown on the Equipment Breakdown Schedule.
If covered equipment at an off premises utility service is damaged by an accident causing an interruption of power, gas, telecommunication or water to the covered location, the Income Coverage Extension is expanded to include the loss of earnings due to the interruption. The utility service could be provided by the actual utility, a landlord, or another type of utility supplier.
NOTE: A limit is not required for this
coverage. It is included, and any amount paid is in addition to the coverage
limit. In a practical sense, mounting defense costs often motivate insurance
companies to offer settlements.
When an accident to covered equipment damages property that belongs to others while it is in the named insured’s care, custody, or control, lawsuits may arise. When that happens, the insurance company has both the right and the duty to defend the named insured.
The insurance company controls the defense and has the option to investigate and settle any claim or suit. The insurance company needs the named insured's full cooperation during litigation. As a result, the named insured is not permitted to admit liability, pay, or incur any expenses without the written approval of the insurance company.
If the named insured does not cooperate with the company, or interferes with negotiations for a settlement, the insurance company could consider the contract has been breached; it would then exercise its rights to refuse to defend, forcing the named insured to assume responsibility for all such costs.
The insurance company pays the following expenses related to any suit it chooses to defend:
· Defense and investigation expenses
· Up to $250 of the named insured's salary for each day spent away from work at the insurance company's request
· Expenses charged to the named insured as a result of a request by the insurance company
· All costs the named insured must pay because of a suit the insurance company defends
· Accrued interest after entry of a judgment, until the insurance company pays its part of the judgment
· Interest awarded against the named insured before entry of a judgment. The insurance company does not pay any accrued interest after the date of its offer to settle a suit.
· Costs associated with a bond to release attachments. However, the insurance company is not required to furnish the bond.
Coverage applies to direct damage that occurs due to an accident involving covered equipment, unless coverage is limited or the peril is excluded.
|
Example:
Kelly’s boiler explodes. This forces the basement
ceiling and first floor upwards, resulting in the destruction of all property
situated on the first floor directly above the boiler. The destruction of the
basement ceiling, the flooring, and the destroyed property on the first floor
is covered because it is the direct result of a covered accident to the
boiler. |
Subject to specific exceptions, each of the broad exclusions is a total exclusion and applies, regardless of any other cause or event that contributes to a loss, whether concurrently or in any other sequence. The insurance company does not pay for any direct or indirect loss or damage caused by or resulting from any of the following events.
Related Article Concurrent Causation and Anti-concurrent Causation Clauses–A Discussion
Loss or increased cost due to enforcement of codes or laws regulating construction, use, or repair of buildings, demolition of buildings or debris removal is not covered. The only exception is that provided under Coverage Extensions–Ordinance or Law.
|
Example:
Plaintowne Printers lost their primary printing press in an accident.
Plaintowne is ready to replace the press when the city reminds it that new
equipment being installed must comply with special pollution control
ordinances. Plaintowne estimates this requirement will increase its costs by
30%. The insurance company informs Plaintowne that the additional cost is not
covered. |
Loss or damage caused by any earth movement or caused by eruption, explosion or effusion of a volcano is not covered. Earthquake, landslide, mudflow, mudslide, mine subsidence, sinking, rising or shifting of the earth and sinkhole collapse are all examples of earth movement.
NOTE: In the CO 1000–Commercial Output
Program Property Coverage Part, sinkhole collapse is an exception to the earth
movement or volcanic eruption exclusion, but under this coverage part, it is
not.
Seizure, confiscation, destruction,
quarantine or other type of loss or damage to property by any civil authority
is not covered.
|
Example:
The boiler at Maxine’s apartment building explodes.
The fire department responds and requests an air quality report due to
concerns about asbestos and lead. After the investigation, Maxine is ordered
to destroy the building and decontaminate the site. There is no coverage for
the costs resulting from the various orders by the civil authority; however,
the costs of the explosion and the damage caused by it would be covered. |
Loss caused by nuclear reaction,
nuclear radiation, or radioactive contamination is not covered. This exclusion
applies whether the nuclear event is controlled or not, and regardless of the
means that cause the event.
|
Example:
The wall in the hospital’s nuclear medicine lab
crumbles as a result of a boiler accident. All costs associated with cleaning
up the site of radioactive contamination are excluded. |
There is no coverage for loss or damage caused by any of the following:
· War, undeclared war, and civil war.
· Warlike action by a military force. Actions taken by the government to prevent or defend against an expected or actual attack by any government or other authority using military personnel or agents are also excluded.
· Rebellion, revolution, insurrection, or unlawful seizure of power. The action taken by the government to prevent or defend against any of these is also excluded.
If any action involves nuclear reaction, nuclear radiation or radioactive contamination, this exclusion applies in place of the Nuclear Hazard exclusion.
Loss or damage caused by water is not covered. This includes flood water, water backing up through a sewer or drain, and water beneath the ground surface. Exposures to sub-surface water that exert pressure on or flow through structures or surfaces are also not eligible for coverage.
However, there is an exception for covered electrical equipment that must be dried out due to the occurrence of any of the above perils.
|
Example:
Floodwaters
rush into Romar’s plant. The water affects the electrical system, causing all
equipment to fail abruptly. As a result, many of the production presses
cannot cycle normally and break down. Although the loss to the presses is
caused by mechanical breakdown, there is no coverage since flood caused the
breakdown. Thanks to the exception, the cost to dry out the electrical
equipment is covered. |
The second group of exclusions applies to loss or damage caused by or resulting from any of the following loss events. Some of these exclusions have exceptions, conditions, or limitations that should be carefully noted and reviewed.
The insurance company does not cover loss or damage caused by or resulting from any of these events. It also does not pay for marring, scratching, or erosion. However, if an accident involving covered equipment occurs due to one of these events, there is coverage for the damage caused by that resulting accident.
|
Example:
A boiler explodes, and its pieces are thrown around the basement. The walls
are marred and scratched. Those scratches and marring are covered because
they are a result of the covered accident. |
There is no coverage for any loss or damage caused by any animal. This includes loss or damage caused by vermin, birds, and insects. However, coverage applies to any resulting loss caused by an accident.
|
Example: The boarding kennel features an automated cage
opening system that enables groups of dogs to be released into the community
play area at designated times throughout the day. One night, a covered
accident occurs, breaking the opening system. Every dog gains access to the
outside area. When the caretaker arrives
in the morning, he discovers the dogs have destroyed most of the equipment in
the play area and parts of the walls. Coverage applies because the covered
accident was the cause of the animal damage. |
Loss or damage due to windstorm or hail is not covered.
Loss or damage caused by or resulting from fire or combustion explosion is excluded, even if caused by an accident.
NOTE: This exclusion eliminates overlapping
coverage with the Property Coverage Part.
The insurance company does not cover loss or damage resulting from the use of any extinguishing material to fight a fire.
|
Examples:
Scenario 1: A fire occurs in a neighboring building. The fire
department sprays water over Metal Fab’s building to prevent the fire from
spreading. The cold water hitting the hot boiler causes it to crack. The
damage to the boiler is not covered. Scenario 2: The sprinkler system is activated in error and
strikes a hot boiler, causing it to crack. This damage is covered since the
sprinkler system did not activate in an attempt to fight a fire. |
All loss and damage from the following is excluded, and there is no exception for resulting loss:
· Glass breakage
· Freezing, but only when due to weather
· Collapse
· Materials while in a molten state
Loss or damage caused by specified perils, as defined in CO 1000–Commercial Output Program Property Coverage Part, is not covered.
However, there is an exception. If the loss results from an explosion of steam boilers, pipes, turbines, or engines, coverage applies.
There is no coverage for loss of earnings or extra expenses incurred by the named insured when caused by or resulting from any of the following causes or events.
If suspension or cancellation of lease agreements, licenses, contracts or orders causes loss of earnings or extra expense to increase, there is no coverage for the increase. However, there is an exception. There is coverage if the suspension, lapse or cancellation is a direct result of the interruption of the named insured's business, but this exception still ends at the end of the restoration period.
|
Example: Danny’s Dogs has a contract to supply hot dogs to a
baseball stadium. One day, his pressure boiler explodes, and he cannot
operate until repairs are made. Since Danny cannot supply the hot dogs as
required by the contract, the contract is cancelled, and the stadium owners
find another supplier. The stadium continues with the new supplier even after
Danny’s Dogs resumes normal operations. The insurance company pays
for the loss of the contract during Danny’s restoration period, but payment
ends once Danny’s Dogs resumes normal operations. |
The named insured should resume business operations as soon as possible. If they do not take reasonable steps to restore operations quickly, the insurance company will only cover the amount of earnings and extra expense that would have been lost if they had acted responsibly.
Covered property is valued based on replacement cost provisions and items 3 through 9 in the Commercial Output Program–Property Coverage Part – Valuation. This is further subject to the provisions described under Environmental, Safety and Efficiency Improvements and Equipment Utilizing CFC Refrigerants in the rest of this section.
When covered equipment needs to be replaced after an accident, the additional costs for replacing the old equipment with environmentally friendly, safer, or more energy-efficient equipment, as determined by the insurance company, will be covered. This coverage is subject to certain conditions and limitations as follows:
· The cost is capped at 125% of the cost to replace with equipment similar to the equipment damaged or destroyed
· Any increase in the size or capacity of the equipment is not covered
· This applies to only the property damage. There is no coverage for increases in loss or earnings or extra expense related to this upgrade.
|
Example:
George decides to upgrade to a more environmentally friendly boiler after a
covered accident, but the new boiler takes two additional weeks to deliver
than similar models that are not as environmentally friendly. George has no
coverage for the extra two weeks of lost earnings even though he has coverage
for equipment breakdown loss of earnings. |
· No limit of insurance is increased due to this provision
· If any property is valued on an Actual Cash Value, it does not benefit from this provision
· Replacement of component parts is not covered.
When a covered loss occurs involving air conditioning systems or refrigeration equipment that uses CFC materials, the loss is valued at the least expensive of the following:
· Repair or replace the damaged property and replace the lost CFC refrigerant.
· Repair the damaged property and retrofit the system to use a non-CFC refrigerant, and then recharge the system with the non-CFC refrigerant.
· Replace the system with a system that uses non-CFC refrigerants.
The insurance company must consider both direct and indirect damage losses when determining the least expensive option. If the first option above is the least expensive but the insured wants to use one of the other options, doing so may be considered part of the Environmental Safety and Efficiency Improvements, but is still subject to the 125% limitation.
|
Example: Abruzzi’s Italian Deli’s CFC refrigeration units
are damaged. There are many options available to replace them. 1. The cost to replace with identical units will be $10,000.
The cost to refill with CFC is $2,500. Anticipated delivery time is four
weeks. 2. The cost to repair the units and retrofit them with
non-CFC is $12,000, and the estimated completion time is three weeks. Cost to
refill is $3,000. 3. The cost of a new non-CFC unit filled with
refrigerant is $18,000, with a projected delivery time of one week. Option 3 is the best for Abruzzi’s
since the CFC equipment is being phased out, making it increasingly difficult
to obtain. The company will pay up to $12,500 x 1.25 = $15,625 toward the
upgraded equipment due to the Environmental Safety and Efficiency
Improvements. Additionally, the time difference may make option 3 the best
choice. |
Coverage is limited to the insurable interest of the named insured in the lost or damaged property.
Point to Ponder: When property is in the
care, custody and control of the named insured, how does this condition apply?
What is the amount of the named insured’s insurable interest in it?
When different types of equipment are damaged in a single accident, and the pieces of equipment have different deductible amounts, only the highest deductible that applies to a damaged item is considered. Once that deductible is satisfied, no other deductibles are applied.
NOTE: The Equipment Breakdown Schedule
shows only a single Property Coverage deductible. If deductible by type of
equipment is needed, an entry must be made on the schedule to refer to an
endorsement where the types of equipment and their applicable deductibles can
be shown. If two or more coverages are involved in the same accident, multiple
deductibles may apply because they are applicable for the specific coverage. There
are spaces on the Schedule for a property damage deductible, an income
coverages deductible and an Other deductible.
The property deductible shown on the declarations applies to all property damaged in a single Equipment Breakdown accident. The income deductible applies to earnings, rents, extra expense, and service interruption covered losses from a single accident.
· When the deductible is expressed in terms of dollars, the deductible amount must be paid by the named insured before the insurance company pays any part of the loss.
·
When the deductibles are expressed in terms of
Multiple of Average Daily Value (ADV) they are calculated as follows:
o Divide
the operating expenses that would have been incurred during the restoration
period if no loss occurred by the number of days in the restoration period.
o Multiply
the result determined above by the number of days shown as the Income
Deductible on the Schedule to determine the dollar amount of the deductible.
Operating expenses include the net income, payroll costs, interest, and ongoing operating costs. These expenses are not adjusted downward for costs not incurred due to the accident, fewer working days, or any scheduled or unscheduled shutdowns during the restoration period.
|
Example: OK Plumbing Supplies has a covered accident, and its business
operations are suspended for 90 days. The operating expenses during that time
would have been $150,000. The Income Deductible is five days and uses the
average daily value method. The deductible is calculated as follows: ·
The Average
Daily Value is $1,667 ($150,000 divided by 90). ·
$1,667
multiplied by five days equals $8,335, the deductible expressed in dollars. |
· Time deductibles can be expressed in terms of days or hours. A day deductible equals 24 hours. Time deductibles are commonly referred to as waiting periods, during which the insurance company does not pay for any lost earnings.
Subject to other provisions in this section, the insurance company pays the smallest of the following amounts:
· The amount determined in the Valuation section
· The cost to repair, replace or rebuild property with like kind and quality. The Environmental, Safety and Efficiency Improvements and Equipment Utilizing CFC Refrigerants items under Valuation must be contemplated in determining the actual cost.
· The limit for the covered property
NOTE: It's crucial to remember that
regardless of how many extras are added to a coverage, the coverage limit still
applies.
If a coinsurance percentage applies to Equipment Breakdown Property Damage, the penalty for not meeting the coinsurance requirement is calculated as follows:
Step 1. Determine the value of the property subject to coinsurance at the time of loss
Step 2. Multiply step 1 by the Equipment Breakdown coinsurance percentage
Step 3. If step 2 is equal to or greater than the limit of insurance for the coverage involved, no coinsurance penalty applies and the entire loss is covered, subject to limits and valuation. If step 2 is less than the limit of insurance for the coverage involved, proceed to step 4.
Step 4. Divide the limit of insurance by step 2.
Step 5. Multiply the amount of loss by step 4 to determine the amount of loss to be paid.
The income coverage formula is identical to the formula for property damage except for Step 1. The sum of the net income, payroll expense, interest and other continuing expenses anticipated starting from the inception date of the policy and continuing for 12 months must be developed in Step 1.
NOTE: Coinsurance does not apply to extra
expense.
The insurance company pays only the actual amount of a claim, loss, or damage, regardless of the number of coverages that apply to the loss.
If another policy has the same plan, terms, provisions and conditions as this policy, this policy pays its proportional share. The proportional share is determined by comparing the limits of each policy.
If the other policy or policies are written subject to different terms and conditions, this policy is excess and pays only the amount of the covered loss that exceeds the amount due from the other policy or policies. It remains excess even if the named insured cannot collect from the other coverage.
This policy never pays more than the applicable coverage limit.
Two unique additional conditions apply to this coverage part.
Any representative of the insurance company may immediately suspend coverage on any piece of covered equipment. The suspension must be due to the equipment being found to be in or exposed to a dangerous situation or condition. This suspension applies only to accidents involving that specific equipment. Any suspension must be in writing and delivered to the address specified in the policy where the equipment is located; however, it takes effect immediately.
The suspension remains in effect until the insurance company provides written notice to the named insured that coverage is reinstated. The insurance company provides a premium refund for the period of suspension.
NOTE: The
suspension applies even if the named insured has not received the premium
refund.
|
Example: It's the week
before Sweetest Day, and Special Events Candy has orders that need to be
fulfilled. An insurance company inspector arrives to inspect the equipment.
He notices a serious situation and stops to talk with the owner. The owner is
uncooperative, so the inspector notifies the owner that coverage for that
particular item is suspended immediately and leaves the premises. The owner
removes the notice and continues to use the equipment. Scenario 1:
The suspended equipment explodes. That equipment is not covered, and neither
is any other property damaged by the explosion. However, the fire caused by the
explosion is covered since fire is an included peril in the commercial
property coverage part. Scenario 2:
The equipment adjacent to the suspended equipment explodes, causing damage to
the suspended equipment. The suspended equipment is covered because the
accident with the other equipment caused its damage. |
The insurance company agrees to provide any required state or municipal boiler and pressure vessel inspections on behalf of the named insured.