Travelers entered into an agreement to reinsure the boiler and machinery endorsement of National Union. (These reinsurance agreements are common.) This allowed National Union to spread risks and permit a reduction in the amount of reserves National Union would otherwise have been required to maintain.
The problem arose when an off- premises power transformer supplying electricity to the named insured malfunctioned, causing a power surge. The surge, in turn, caused small fires and resultant damage to various electrical fixtures and components throughout the plant, requiring repair and replacement. Both National Union and Travelers disagreed over the cause of the malfunction. According to Travelers, vandalism caused damage to the transformer.
In the final analysis, the court held that since the transformer was owned by the power company and not the insured (the paper carton manufacturer), the transformer could not have been considered an object for purposes of the boiler and machinery endorsement. However, that endorsement did include in the definition of object a “mechanical or electrical machine or apparatus used for the generation, transmission or utilization of electrical power,” which the court said aptly described the named insured’s damaged electrical equipment and fixtures. The loss also qualified as an accident.
A number of insurers offer equipment breakdown coverage. For the larger risks, Hartford Steam Boiler (HSB) is undoubtedly the predominate insurer. In fact, some insurers that write this insurance will sometimes have the HSB reinsure their accounts. This discussion of equipment breakdown coverage, however, is based on the latest (2006) provisions of Insurance Services Office (ISO).
A basic policy declarations page, a policy conditions form, an equipment breakdown declarations page and an equipment breakdown form EB 00 20 are used along with one or more individual endorsements available to modify the coverage to meet the insured’s or underwriter’s needs. The equipment breakdown declarations page EB DS 07 is an important part of the policy, considering that insurance applies only to the coverages listed and for the limits designated. This means that the data on this page should be checked carefully to be sure it is correct and complete.
ISO form EB 00 20—equipment breakdown protection coverage—is the latest coverage document. The covered cause of loss is “breakdown” to “covered equipment.” The term “breakdown” is defined in the definitions section of the form. This definition includes what a covered breakdown is, what it is not and what losses are included. The first criterion of coverage is that there is direct physical loss that causes damage to covered equipment which necessitates its repair or replacement. The nature of the physical loss is: (1) failure of pressure or vacuum equipment, (2) mechanical failure and (3) electrical failure.
The term “covered equipment” is defined to include the above four categories of equipment mentioned earlier in this article, namely: (1) equipment built to operate under internal pressure, such as boilers and pressure vessels, (2) electrical or mechanical equipment used in the generation, transmission...
2. This article includes copyrighted material of ISO Properties, Inc., 2006.