AG 0130–EQUIPMENT BREAKDOWN COVERAGE

(February 2025)

Definitions

Property Covered

Property Not Covered

Other Equipment Breakdown Conditions

INTRODUCTION

The American Association of Insurance Services (AAIS) AG 0130–Equipment Breakdown Coverage endorsement is used with the AAIS Agricultural Output Program. It is attached to AG 0100–Agribusiness Property and Income Coverage Part. AG 0100 contains the sections needed to complete the coverage this endorsement provides. The sections AG 0130 amends are as follows:

· Agreement

· Definitions

· Property Covered

· Property Not Covered

· Additional Coverages

· Income Coverage

· Perils Covered

· Perils Excluded

· How Much We Pay

· Other Equipment Breakdown Conditions

AGREEMENT

The insurance company provides the coverage described in this endorsement during the policy period in exchange for the named insured's premium payment. This is subject to the Declarations, the Common Policy Conditions, AG 0100–Agribusiness Property and Income Coverage Part, and this endorsement’s terms.

DEFINITIONS

1. Restoration period

AG 0100 defines this term. This endorsement deletes and replaces it. The only difference between the two definitions is when the restoration period begins. In AG 0100, it begins when a covered loss causes direct physical damage but, under this coverage, it starts when an accident causes a loss at a covered location. The Dependent Locations Supplemental Income Coverage restoration period starts when an accident causes a loss at a dependent location.

Example: The boiler at Main Street Dairy sustains a covered accident at 1:00 P.M. Main Street Dairy’s period of restoration starts at 1:00 P.M. Omar’s Ice Cream depends on Main Street Dairy for its operations. The restoration period for Omar’s Ice Cream’s dependent location coverage would also begin at 1:00 P.M.

2. Additional Definitions

These additional definitions are to be used only for the coverages provided within this endorsement:

a. Accident

This is an unexpected event that causes direct physical damage to covered equipment. “Event” is the important word in this definition. It is any of the following:

· Mechanical breakdown

· Centrifugal force that causes moving parts of machinery to burst or rupture

· Arcing or electrical currents that cause a loss. However, lightning is not an event.

· Explosion of steam objects the named insured owns, leases, or operates within its control. Steam objects are steam boilers, pipes, turbines, and engines.

· Loss to these steam objects caused by an occurrence or any condition inside them

· Loss to hot water boilers or heaters when caused by an occurrence or any condition inside them

b. Boilers and vessels

These are boilers and any related piping as well as pressure vessels (fired or unfired) that are subject to either vacuum or internal pressure. The pressure must be generated by a force other than simply the contents’ static pressure.

Note: This definition is unusual because it is not used anywhere in this endorsement. However, it is included because it may be on the declarations.

c. Covered equipment

Covered property that either generates or uses energy OR operates under pressure or vacuum. Covered equipment may also be items specifically described on the declarations. However, covered equipment does not include any of the following:

· Equipment the named insured manufactures with the intent to sell

· Compartments or cabinets used to cover or contain the equipment

· Any type of building or structure, including air supported buildings or structures

· Foundations that support covered equipment

· Underground piping and vessels, sewers, or piping for sprinkler systems

· Water piping.

o This does not include specific items associated with boilers such as feedwater piping, condensate return piping, or water piping used for heating, air conditioning or refrigeration systems;

· Construction equipment, excavation equipment, and draglines

· Vehicles, mobile equipment, and any equipment mounted on them

o However, equipment meeting all three of the following criteria is an exception:

§ equipment is mounted on wheels or a trailer to make it easier to move; and,

§ this moveable equipment is not intended for driving or steering the wheels or trailers; and,

§ at the time of the accident the equipment is at the covered location, stationary and in use

· Refractory or insulating material

· Computers

· Satellites or spacecraft. This also applies to equipment mounted on satellites or spacecraft.

· Irrigation systems.

o However, for pivot irrigation systems, covered equipment includes:

§ the central pivot; and,

§ the wheels; and,

§ the drive mechanisms for the swing arm and corner attachments, including motors and gears; and,

§ the sensors,

§ the controls,

§ the pumps and the drive motors and engines used with such pumps in all irrigation systems.

d. Fungus or related perils

This is a fungus, mold, mildew, protist, algae, slime mold, wet rot, dry rot, bacterium or chemicals, matter, or compounds that any of these produces. This definition also includes toxins, spores, fragments, and metabolites, such as microbial volatile organic compounds.

e. One accident

This is both the initial accident and all subsequent ones that result from the initial accident. All accidents caused by one occurrence are treated as one accident.

Example: The mixer at Main Street Dairy suddenly speeds up and explodes. The explosion causes ice cream to spread through the plant. The cold and liquid from the ice cream cause additional equipment to malfunction and break. All losses that started with the mixer explosion are treated as a single accident.

Note: This is important for deductible application and limit of insurance purposes.

f. Production machinery

This is any machine or apparatus used to process or produce products intended for sale. It does not include pressure vessels (fired or unfired) except for cylinders that contain a movable plunger or piston.

Note: This definition is unusual because it is not used anywhere in this endorsement. However, it is included because it may be on the declarations.

g. Vehicle

A vehicle is any type of self-propelled motor conveyance, such as a car, trailer, tractor, train, aircraft, watercraft, forklift or bulldozer. However, if the item is stationary and permanently installed at a location with electrical power coming from a source outside itself, it is NOT considered a vehicle or mobile equipment under this endorsement.

PROPERTY COVERED

Coverage applies to direct physical loss or damage by a covered peril in this endorsement to the following property that AG 0100 covers:

· Building Property

· Computers

· Mobile Equipment

· Personal Property

· Stock

· Specifically Scheduled Property

Limitations and exclusions throughout this endorsement further limit the property covered.

PROPERTY NOT COVERED

AG 0100 Property Not Covered is amended with respect to the coverage this endorsement provides as follows:

1. Animals

Animals are not covered.

This deletes and replaces Property Not Covered 3. Animals in AG 0100. There are no exceptions with respect to animals.

2. Fine Arts

Fine arts are not covered.

This deletes and replaces Property Not Covered 9. Fine Arts in AG 0100. It eliminates the exception within the Supplemental Coverage.

3. Jewelry, Watches, Jewels, Pearls, Precious Stones, and Metals

This property is not covered. Watch movements, semi-precious stones, gold, silver, and other precious metals and items that primarily consist of precious metals are also excluded.

This deletes and replaces Property Not Covered 14. Jewelry, Watches, Jewels, Pearls, Precious Stones and Metals in AG 0100. It eliminates the exception within the Supplemental Coverage.

4. Silverware, Goldware, and Pewterware

This property is excluded.

This deletes and replaces Property Not Covered 21. Silverware, Goldware, and Pewterware in AG 0100. It eliminates the exception within the Supplemental Coverage.

5. Household Personal Property

This property is not covered.

Note: This is an additional property, not a covered item.

6. Dwellings

Buildings used primarily for residential purposes are not covered. Building Property used with such a building or part of such a building is also not covered.

Note: This is an additional exclusion.

Example: The president of Green’s Nursery lives in a residence on the premises. The steam boiler that heats the residence explodes. There is no coverage for the damage to the residence, the swimming pool, the light fixtures around the residence or the household personal property.

ADDITIONAL COVERAGES

These following coverages are provided for loss or damage due to an accident unless otherwise stated on the declarations. The limit for each is part of the Equipment Breakdown Coverage limit, not in addition to it.

1. Expediting Expenses

Expediting Expenses are the extra costs an insured may incur to get back in business faster. The expenses must facilitate quicker repairs or replacement of the damaged property. Although not listed, expedited expenses could include overtime pay, additional labor costs, transportation costs, and priority surcharges. This coverage applies to both permanent and temporary repairs. A limit is shown in the schedule for this coverage.

The most the insurance company pays for this Additional Coverage is the limit listed on the declarations.

Example: The processing machine at Main Street Dairy can be replaced 30 days earlier for a 10% override to cover overtime costs. This cost is covered but only up to the limit on the declarations.

2. Pollutants

The coverage pays for the added cost of repairing or replacing covered property because of contamination by a pollutant. This includes the added expense of cleaning up or disposing of the polluted property. Any additional income loss caused by the contamination is also covered if income protection is included under this coverage part. The added costs are determined by how much the accident expenses would have been without pollutants compared to the actual expenses with the pollutants. A limit is shown in the schedule for this coverage.

Perishable stock contaminated by a refrigerant, including ammonia, is excluded under pollutants because it is covered below as part of the Spoilage Additional Coverage.

3. Spoilage

a. The insurance company pays for the following:

· The named insured’s perishable stock that spoils

· The named insured’s perishable stock contaminated by ammonia or another refrigerant

· The extra expense the name insured incurs to reduce the loss amount.

o However, the insurance company will not pay more than what the loss amount would have been had the extra expense not been incurred.

Example: Big Bob’s Farm Store recently stocked its freezer with $5,000 worth of meats and cheeses when a storm knocked out the power and lightning damaged the freezer. Bob contacted Tim’s Repair Service to fix the freezer. Tim estimated the repair would cost $1,000, but the necessary parts would take two weeks to arrive. Due to the delay, Tim offered to rent Bob a freezer for $2,500 during that time. Fortunately, Bob’s insurance will cover both the rental cost and the repair expenses, as they are less than the value of the spoiling inventory.

b. Coverage also applies to physical damage to the named insured’s perishable stock due to an accident to equipment a landlord or a utility owns. The equipment may also be owned by another supplier if there is a contract with the supplier to supply the named insured with any of the following services:

· Electrical power

· Disposing of waste

· Heating, air conditioning, and refrigeration

· Compressed air and natural gas

· Telecommunications services, data transmission, wide area networks, and Internet access

· Water treatment. This includes waste water treatment.

The damaged equipment must meet the definition of covered equipment but is not covered property. This coverage does not apply until 24 or more hours after the accident.

c. The Valuation section of the AG 0100 applies to the stock except in one situation. When damaged stock cannot be replaced before the date of its anticipated sale, the amount of valuation starts with the stock’s selling price at the time of the accident and is reduced by discounts and expenses that are not incurred because of the loss.

Example: Mainly’s stock of apples is destroyed when piping fails and sprays ammonia over them. This was the last batch of the season and cannot be replaced. Mainly would have sold the spoiled apples for $15,000 but would have incurred $3,000 in shipping, handling and other internal costs. Although they didn’t discount all customers, Mainly estimates it would have provided $750 in discounts. The valuation of the apples is, therefore, $11,250 ($15,000 - $3,000 - $750 = $11,250).

The most the insurance company pays for spoilage loss, damage or expense under this Additional Coverage is the limit listed on the declarations. This coverage is excess over any other Spoilage coverage that AG 0100 provides.

INCOME COVERAGE

This coverage applies only if both of the following apply:

· Income Coverage is selected on the policy declaration, so the AG 0100 Income Coverage applies.

· Loss of income is selected on AG 0131–Equipment Breakdown Declarations by entering limits for Income Coverage.

All terms, exclusions, and limitations, Income Coverage Extensions, Additional Income Coverages, Supplemental Income Coverages, and Optional Income Expense Deductions in AG 0100 apply to this coverage except for the following exclusions and limitations or that are stated on the declarations for the coverage this endorsement provides.

Exclusions and Limitations

The income coverage this endorsement provides does not apply to any increase in loss because of any agreement between the named insured and its customers and suppliers. Examples of such agreements are contingent bonuses or penalties, late fees, demand and demurrage charges, and other types of liquidated damages.

Note: The term demurrage is used in many industries as a cost incurred because of a delay. It could be a forced delay because a cargo cannot be loaded or unloaded. It is also a loss caused to a financial institution when stock is not delivered on a certain date, and a loss due to the international exchange rate differential occurs.

cherries

Example: Plenty Cherries supplies cherries to Mighty Fine Pies. The contract calls for a minimum number of tons to be delivered by a specific date. A loss occurs, and the contract cannot be fulfilled. Plenty Cherries must pay a fine to Mighty Fine Pies because it could not deliver. This fine is not covered under this policy and must be paid directly by Plenty Cherries.

Supplemental Income Coverages

A Supplemental Income Coverage applies only when there is a limit for it on AG 0131–Equipment Breakdown Declarations. The limit applies per occurrence and is part of the Equipment Breakdown limit, not in addition to it. Coverage applies only to losses a covered peril causes. Coverage is subject to a deductible, unless otherwise stated.

1. Dependent Locations

Earnings and/or Extra Expense loss incurred by the named insured during the restoration period because its business is interrupted by direct physical loss to property at a dependent location is covered. This applies only if the loss is caused by an accident occurring during the policy period. The maximum payment is the limit on AG 0131–Equipment Breakdown Declarations.

2. Utility Service Interruption

Coverage for Earnings and/or Extra Expense includes loss the named insured incurs when its business is interrupted because utility services to a covered location are interrupted. The interruption must be due to an accident to equipment a landlord or utility owns. The equipment may also be owned by another supplier if there is a contract to supply the named insured with any of the following services:

· Electrical power

· Disposing of waste

· Heating, air conditioning, and refrigeration

· Compressed air and natural gas

· Telecommunications services, data transmission, wide area networks, and Internet access

· Water treatment. This includes waste water treatment.

Coverage does not apply until 24 or more hours after the accident. The number of days can be changed on the AG 0131.

Note: Coverage may be limited to exclude loss caused by specific utilities by scheduling those utilities on AG 0131–Equipment Breakdown Declarations.

PERILS COVERED

Coverage applies only if an accident involving covered equipment occurs. Direct physical loss caused by OR resulting from that accident is covered unless it is limited or caused by an excluded peril.

PERILS EXCLUDED

1. Primary Exclusions

With respect to the coverage this endorsement provides Perils Excluded 1. Primary Exclusions in AG 0100 apply with the following changes:

a. Earth Movement or Volcanic Eruption

This exclusion is similar to Exclusion 1.b. Earth Movement or Volcanic Eruption in AG 0100. However, this provision also excludes any accidental loss caused by sources of loss that either earth movement or eruption triggers, and there are no exceptions for sinkhole collapse, volcanic action, fire, or explosion.

b. Water

Because of the mandatory Water Damage Amendment, AG 0149 10 08, we refer you to the below related article. Please see Perils Excluded – 1. Primary Exclusions – g. water.

Note: The Water exclusion in the AG 0100 is deleted and replaced by the AG 0149–Water Damage Amendments.

c. Fungus or Related Perils

This exclusion is not in AG 0100, although fungus is part of Exclusion 2.d. Contamination or Deterioration. There is no coverage for any loss caused by or related to the existence or any activity of fungus or related perils. This exclusion does not apply to spoilage of perishable stock to the extent that this endorsement’s spoilage terms cover such spoilage.

Fungus or related perils may cause an accident. In that case, the loss is covered except as limited by this endorsement’s exclusions.

d. Specified and Other Perils

Losses caused by any of the following are excluded:

· Specified perils (except for explosion within the definition of accident)

· Freezing related to weather

· Collapse

· Glass breakage

· Molten materials

2. Secondary Exclusions

With respect to the coverage this endorsement provides, Perils Excluded 2. Primary Exclusions in AG 0100 apply with the following changes:

a. Animals

Exclusion 2.a. Animals in AG 0100 is replaced. There is no coverage for any loss or injury by any animal. Animals include vermin, birds and insects. However, if an accident occurs and, as a result, there is animal damage, that resulting damage is covered.

b. Contamination or Deterioration

Exclusion 2.d. Contamination or Deterioration in AG 0100 is replaced. This exclusion is a more limited version of the one it is replacing. Only corrosion, rust and qualities, faults and weaknesses that are part of the property that can cause it to be damaged or destroy itself are excluded. However, coverage applies to any resulting loss an accident causes.

Note:The exclusion does not list fungus, mildew, mold or rot bin burn, change in grade or condition or organic heating of grain, seed, or other agricultural products.

c. Wear and Tear

Exclusion 2.v, Wear and Tear in AG 0100 is replaced. The only change is removing the exception for specified perils or glass breakage and adding an exception for resulting loss an accident causes.

d. The following exclusions are added:

· Discharge of Water

There is no coverage for any loss, damage, or expense resulting from water or any other extinguishing agent being discharged to fight a fire.

· Testing

There is no coverage for damage caused by testing for hydrostatic, pneumatic or gas pressure in a boiler or pressure vessel. There is also no coverage for damage resulting from an electrical insulation breakdown test on electrical equipment.

HOW MUCH WE PAY

1. Deductible

How Much We Pay – 2. Deductible in AG 0100 is replaced as follows:

· The deductible used is that shown on the policy declarations, unless deductibles are entered on the Equipment Breakdown Declarations (AG 0131). No payment of loss is made until the deductible(s) is satisfied.

· If the amount of deductible varies by piece of equipment when an accident occurs and involves multiple pieces of equipment having varied deductibles, only the highest deductible applies to the entire accident.

· If multiple coverages are involved with a single accident, each coverage will be subject to its particular deductible unless the declaration states that the deductible is combined.

Property and Income Coverages

· The income deductible shown in the Equipment Breakdown Declarations (AG 0131) applies to earnings, rents, extra expense, utility service interruption, and Supplemental Income Coverages covered losses.

· The property deductible is also shown in the Equipment Breakdown Declarations Section of the Schedule of Coverages and applies to all covered property.

Application of Deductibles

Dollar deductibles

When the deductible is stated in dollars, that deductible amount must be paid by the insured before the insurance company starts to pay anything for the loss.

Example: The deductible is $1,000. The damage from a covered accident is $50,000. The coverage limit is $100,000. The named insured pays $1,000, and the insurance company pays $49,000.

Multiple of Average Daily Values (ADV) is calculated as follows:

· Step 1 – Compute the average daily value by dividing the sum of the net income plus continuing operating expenses that would have been incurred during the restoration period (had no loss occurred) by the number of days in the restoration period.

· Step 2 - Multiply Step 1 by the number of days shown as the Income Deductible on AG 0131 to determine the dollar amount of the deductible.

Operating expenses include payroll expense and other expenses that are continuing. Operating expenses are not reduced by expenses that are not being earned. The number of days is not reduced because of the accident, nor are reductions made for any scheduled or unscheduled shutdowns that occur during the restoration period.

The ADV applies to the entire location's net income and operating expenses, even if the loss does not affect the entire location. More than one location may be included in valuing the loss. In that case, the ADV is the combined value of all covered locations that are involved. The number on the declarations is multiplied by the ADV as determined above. The result is used as the deductible that applies.

Example: Five is the number entered for ADV deductible. The sum of the net income and the continuing expenses over the 90 days in the period of restoration is $120,000.

Step 1: The ADV is $120,000 ÷ 90 = $1,333.

Step 2: The deductible is 5 X $1,333 = $6,665.

The limit of insurance is $100,000. The named insured pays the $6,665 deductible. The insurance company pays $100,000 and the named insured pays the remaining $13,335.

Time Deductible

If there is a time deductible (also called a waiting period) on the declarations, the insurance company does not pay any loss until after the number of hours or days on the declarations. A day is 24 consecutive hours.

Example: A three-day time deductible is on the declarations. The limit of insurance is $100,000. The loss for the first three days is $6,000. The loss for the rest of the period of restoration is $60,000. The total loss is $66,000.

The named insured pays $6,000 for the first three days, and the insurance company pays $60,000.

Percentage of Loss Deductibles

If the deductible on the declarations is a percentage of loss, the deductible amount is developed by multiplying the gross amount of the loss by the deductible percentage listed on the declarations. The percentage is applied prior to applying coinsurance and any other deductible. The dollar amount of such a percentage deductible is subject to the minimum deductible on the declarations.

Note: Most percentage deductibles, such as those used for earthquake and hurricanes, are multiplied times the property values instead of the gross loss amount.

Example: The percentage of loss is 5%. The limit of insurance is $100,000. The amount of loss is $90,000. The named insured pays .05 X $90,000 = $4,500. The insurance company pays $85,500 ($90,000 loss amount - $4,500 deductible).

2. Additional Provisions

These provisions are added to the How Much We Pay section in AG 0100 but only with respect to the coverages this endorsement provides.

Loss Settlement

The most paid for loss, damage, or expense that arises out of any one accident under this endorsement’s terms is the Equipment Breakdown limit for this coverage on the declarations.

This endorsement does not provide an additional limit of insurance.

Overlapping Coverage

The coverage this endorsement provides supersedes Other Coverages 3. Electrical Breakdown in AG 0100.

OTHER EQUIPMENT BREAKDOWN CONDITIONS

1. Jurisdictional Inspections

The insurance company will conduct necessary state or municipal boiler and pressure vessel inspections for any covered property that requires such inspections. However, the insurance company does not guarantee that the conditions found are safe or healthful.

2. Suspension

If covered equipment is found to be unsafe or exposed to a hazardous condition, any representative from the insurance company has the right to suspend coverage for any accidents caused by that equipment. The suspension notice can be sent by mail or delivered directly to either the mailing address or the location where the covered equipment is located.

The covered equipment must be endorsed for reinstatement. This will remove the suspension. Suspended insurance is subject to a pro rata premium refund. However, the suspension applies even if a refund has not been offered or made.

3. Environmental, Safety, and Efficiency Improvements

The named insured can replace its damaged equipment with equipment that is better for the environment, safer, or more efficient. The insurance company pays up to 125% of the value to replace the equipment with equipment of like kind and quality.

This condition does not increase any applicable limits or apply to any property valued on an Actual Cash Value basis.