Proudly presents… MYTHS & UNKNOWNS OF EQUIPMENT BREAKDOWN INSURANCE Louis Vatrt & Tim Skelton
LOUIS VATRT AVP CONSTRUCTION & ENGINEERING • 32 years experience in Boiler, Pressure Vessel & Machinery Industry • 18 of 32 in the Insurance Industry • Extensive experience across underwriting, claims, engineering and multinational insurance business
TIM SKELTON NATIONAL UNDERWRITING DIRECTOR, ENGINEERING INSURANCE • Close to 20 years experience in the Equipment Breakdown Insurance industry • Extensive Underwriting experience on all segments of EBI both domestic & multinational • Supplement formal University education with AIIC, FIIC & CRM designations
PROPERTY OR BOILER & MACHINERY LOSS?
TOP 10 EBI MYTHS AND MISCONCEPTIONS 1. I don’t have a boiler so I don’t need boiler & machinery insurance 2. Boiler Insurance coverage is solely for the explosion of a boiler or pressure vessel 3. Machinery is protected by Property Insurance for any type of loss 4. Complex Coverage - Have to be a rocket surgeon to understand it 5. The equipment manufacturer’s warranty will cover anything that goes wrong
TOP 10 EBI MYTHS AND MISCONCEPTIONS 6. Boiler Insurance only covers the equipment itself, not damage to other property that is damaged as a result of an equipment breakdown 7. I don’t own the building so I don’t need equipment breakdown insurance 8. My production equipment is covered by service contracts so I don’t need boiler and machinery coverage 9. I don’t manufacture anything so I don’t need mechanical breakdown insurance 10. You have to be Scottish in order to inspect a boiler
WHAT’S IN A NAME? Boiler and Machinery Equipment Breakdown Insurance Machinery Insurance Machinery Solutions Mechanical Engineering Insurance Breakdown Insurance
SESSION OVERVIEW • Equipment Breakdown Insurance (EBI) 101 – History – What is EBI – Why is it needed • Types of Policies – Monoline vs Combined – Benefits of each policy type – Pitfalls to avoid • Building Collaboration – Partnership – Claims expectations – Successful placement of a Risk
HISTORY OF BOILER & MACHINERY • Dates back to the Industrial Revolution • Steam engines had become an integral part of the industry • Increases in pressure and /or temperature caused boilers (steam engines) to catastrophically fail • 1,800 people died in the 1865 boiler explosion of the steamboat “Sultana”, causing the US government to regulate pressure vessels and to mandate Inspections of pressure vessels
HISTORY OF BOILER & MACHINERY CONT’D • Insurance policies became available for the accidental explosion of boilers, but only in conjunction with inspections • Insurance coverage expanded to include machinery used with boilers, hence the name Boiler and Machinery Insurance • As coverage has evolved and broadened so has the name of Insurance, B&M Insurance now referred to as Machinery Insurance or Equipment Breakdown Insurance (EBI)
WHAT IS EBI? Simply a type of 1 st party insurance • • Purpose is to insure against financial loss – property damage, business interruption, and spoilage losses that result from accidental breakdown of pressure vessels, mechanical or electrical equipment • Based on an “accident to an object” • For coverage to apply there has to be an Accident as defined, to an Object as defined, subject to the Exclusions and Terms and Conditions in the Policy
WHAT IS AN ACCIDENT? • An Equipment Breakdown Policy responds to “Accidents to Objects” • Therefore it is important to understand what they are: • An “Accident” has three components: The Insurer is then liable for 1. Sudden and accidental the cost to repair or replace 2. Causes physical damage (whichever is the lesser), with like 3. Necessitates repair or replace kind, capacity, size and quality
WHAT ISN’T AN ACCIDENT? • Equally important to know what isn’t an “Accident” – Depletion, deterioration, corrosion or erosion of material – Wear and tear – The cracking of any part of any gas turbine exposed to the products of combustion – Leakage at any valve, fitting, shaft seal, gland packing, joint or connection – The breakdown of any structure or foundation supporting the Object – The functioning of any safety device or protective device – The sudden and accidental explosion of gas or unconsumed fuel within the furnace of any Object or within the gas passages there from to the atmosphere
WHAT IS AN OBJECT? • “Any boiler, any fired or unfired vessel … subject to vacuum or internal pressure ” • “Any mechanical machine, electrical machine or electrical apparatus … used for the generation, transmission or utilization of mechanical or electrical power ” • “Any electronic equipment used primarily to control, monitor, or operate one or more objects ” • Production Machines – specific to your client’s business: injection moulding machines, printing presses, ice-making machinery, processing equipment, milling or grinding equipment, etc.
WHAT ISN’T AN OBJECT? • Refractory or insulating material • Sewer piping, sprinkler piping, domestic water piping • Elevator, escalator, conveyor, crane or hoist (not excluding electrical equipment attached to the equipment) • Any vehicle, mobile equipment, trailing cable • Well casings, penstocks, draft tube • Varies by Individual Policy
WHY IS EBI COVERAGE NEEDED? Property Exclusions EBI Policy Coverage • “Any boiler, including the piping • Policies provide coverage for “any and equipment connected boiler, any fired or unfired pressure thereto, which contains steam or vessel” … “or any other piping and water under steam pressure…” its accessory equipment all subject to vacuum or internal pressure…” • “Any pressure vessel having normal internal working pressure greater than 103 kilopascals (15 pounds per square inch) above atmospheric pressure”
WHY IS EBI COVERAGE NEEDED? EBI Policy Coverage Peril Exclusions • Damage caused by “centrifugal • Policies also provide coverage for “ any mechanical machine, electrical force, mechanical or electrical machine or electrical apparatus breakdown or derangement…” used for the generation, transmission or utilization of • Damage c aused by “artificially mechanical or electrical power.…” generated electrical currents, including arcing…”
CLAIM – FOOD PROCESSING FACILITY • December 2006 – DOL • Implosion of a 7,000-gallon glycol storage vessel at a food processing facility • Non-food grade glycol contaminated $500,000 of salami • Joint Loss settlement • Machinery portion $1.5 Million
SESSION OVERVIEW • Equipment Breakdown Insurance (EBI) 101 – History – What is EBI – Why is it needed • Types of Policies – Monoline vs Combined – Benefits of each policy type – Pitfalls to avoid • Building Collaboration – Partnership – Claims expectations – Successful placement of a Risk
. TYPE OF POLICIES Monoline Combined
TYPE OF POLICIES • Insured objects and coverages are designated to dovetail with coverage exclusions in a property policy • Provided in 2 ways: 1. Monoline policies – Property and Equipment Breakdown 2. Combined within a Property policy; embedded or sectional or endorsed to the overall Policy • Monoline Property and EBI policies are designed to fit together, thus avoiding gaps and duplication of coverage while providing complete coverage • Pure Combined Policies written on a Property Policy wording with EBI exclusions removed can be problematic
CLAIM – PIPELINE May 2007 - DOL over a distance of 1 km
BENEFITS OF EACH Same Insurer(s) – One Stop Shopping Property exclusions do not come into play Claims Underwriting expertise; One Policy vs specialists tailored solutions Two Potentially simplified loss adjustment for Risk control Fewer potential Jurisdictional “joint/combined expertise gaps or overlaps in inspections losses” coverage Increased market Marketplace: stable, capacity very competitive
EBI MARKETS IN CANADA Total: 44 Markets - $396,664,000
PITFALLS TO AVOID • Joint & Disputed Losses • Property exclusions applying to EBI • Inconsistent coverages across policies
CLAIM – PRESSURE VESSEL FAILURE IN MANUFACTURING PLANT
CLAIM – PRESSURE VESSEL FAILURE IN MANUFACTURING PLANT • Pressure vessel rupture in a counter top manufacturing facility - May 1993 • $13 million settlement; complete destruction of the facility • Pre-existing crack grew by corrosion fatigue until it failed in a rapid manner at normal operating pressure • Vessel came to rest about 100-feet from its original position
SESSION OVERVIEW • Equipment Breakdown Insurance (EBI) 101 – History – What is EBI – Why is it needed • Types of Policies – Monoline vs Combined – Benefits of each policy type – Pitfalls to avoid • Building Collaboration – Partnership – Claims expectations – Successful placement of a Risk
THE PARTNERSHIP Insured Partnership Insurer Broker
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