Machinery Breakdown Insurance
Fire cover pays when a machine burns; MB pays when it breaks.
A fire policy covers a factory against fire, flood and the other named perils, but not against the machine simply breaking. When the main compressor of a Surat textile processing unit seizes because a bearing failed, or a short circuit burns out a motor winding, the fire policy pays nothing. Machinery breakdown (MB) insurance, now often called machinery insurance, fills that gap.
It covers sudden and unforeseen physical damage to the insured machinery from internal causes, whether the machine is working or at rest, being cleaned or overhauled, or moved within the premises. Gradual wear is not covered: the policy pays for accidents to machines, not for their ageing.
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What Machinery Insurance Covers
- check_circleMechanical causes: vibration, maladjustment, misalignment, defective lubrication, abnormal stress, centrifugal force, entry of foreign material.
- check_circleElectrical causes: excessive voltage, failure of insulation, short circuit, arcing, failure of protective devices.
- check_circleAccidental causes: explosion or implosion within the machine, impact, collision, falling.
- check_circleHuman causes: lack of skill or negligence of the operator.
- check_circleOptional extras: express freight, overtime and holiday wages to speed up repair, and damage to the insured's own surrounding property.
What It Excludes
- check_circleFire, lightning, flood, storm, earthquake, theft and other perils insurable under a fire or burglary policy.
- check_circleNormal wear and tear and gradual deterioration.
- check_circleExchangeable parts and consumables such as belts, tools, dies, fuels and lubricants, unless damaged along with the machine.
- check_circleDamage during experiments or tests that deliberately overload the machine.
- check_circleConsequential loss: lost production needs its own cover (see MLOP below).
The Machinery Family of Covers
Machinery insurance (MB)
What it covers
Sudden physical damage to machines from internal causes
Trigger or condition
Breakdown or accidental damage of the insured machine itself
Boiler and pressure plant
What it covers
Damage from explosion or collapse of boilers and pressure vessels, to the plant itself and surrounding property, and liability to third parties
Trigger or condition
Explosion or collapse of the insured boiler or pressure vessel
Deterioration of stock (DOS)
What it covers
Spoilage of stock in cold storage, for example potatoes in an Agra cold store
Trigger or condition
Breakdown of the refrigeration plant, which must itself be a claim under the MB policy
Machinery loss of profits (MLOP)
What it covers
Loss of gross profit and standing charges while a broken machine is repaired
Trigger or condition
An admitted claim under the concurrent MB or boiler material damage policy
Electronic equipment insurance (EEI)
What it covers
Computers, medical scanners, control systems against all risks including breakdown
Trigger or condition
Separate product; covers data media and extra expenses as options
| Policy | What it covers | Trigger or condition |
|---|---|---|
| Machinery insurance (MB) | Sudden physical damage to machines from internal causes | Breakdown or accidental damage of the insured machine itself |
| Boiler and pressure plant | Damage from explosion or collapse of boilers and pressure vessels, to the plant itself and surrounding property, and liability to third parties | Explosion or collapse of the insured boiler or pressure vessel |
| Deterioration of stock (DOS) | Spoilage of stock in cold storage, for example potatoes in an Agra cold store | Breakdown of the refrigeration plant, which must itself be a claim under the MB policy |
| Machinery loss of profits (MLOP) | Loss of gross profit and standing charges while a broken machine is repaired | An admitted claim under the concurrent MB or boiler material damage policy |
| Electronic equipment insurance (EEI) | Computers, medical scanners, control systems against all risks including breakdown | Separate product; covers data media and extra expenses as options |
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Sum Insured: New Replacement Value
Machinery is normally insured for its current new replacement value: the cost of a new machine of the same kind and capacity, plus freight, customs duty and erection costs. Insuring the depreciated book value is a common error. If the sum insured is below the replacement value, the claim is cut in proportion under the average condition, even for a partial loss.
How IC-11 Tests This
Two questions recur. MLOP is admissible only if a claim is first admitted under the concurrent machinery or boiler material damage policy. Deterioration of stock pays for spoiled stock in cold storage after breakdown of the refrigeration plant. The trap is picking the CAR or EAR policy as the MLOP trigger (that is ALOP), or answering "fire" as an MB peril.
FAQs
What is machinery breakdown insurance?expand_more
Cover for sudden and unforeseen physical damage to machinery from internal mechanical or electrical causes, operator error or accident, while working, at rest, or being cleaned or moved within the premises. Fire and wear and tear are excluded.
Is machinery loss of profits insurance a standalone cover?expand_more
It is sold as a separate policy, but a claim is payable only when the breakdown is first admitted under the concurrent machinery or boiler material damage policy.
What does a deterioration of stock policy cover?expand_more
Loss of stock in cold storage that spoils or is contaminated because the refrigeration plant broke down, where the breakdown is itself a valid machinery claim.
What sum insured should machinery be insured for?expand_more
The current new replacement value, including freight, duty and erection costs. Insuring for book value leads to under-insurance and a proportionately reduced claim.
Next steps
- CAR vs EARarrow_forward
- Loss of Profitsarrow_forward
- Condition of Averagearrow_forward
- IC-01: Principle of indemnityarrow_forward
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