District Energy, 2007, 4th Quarter - Sample Partial Issue

Feature
Story
Breaking It Down:
Equipment insurance explained

Kenneth E. Cooksey, CPCU, Senior Vice President, Acordia Inc.

One of the most critical yet understudied elements of any business may be its insurance program. If insurance coverages are not set up properly, a loss from any number of different sources could put a company out of business – or at least put a strain on its budget. With all the machinery and equipment that district energy operations have, one of the most important insurance policy considerations for district energy systems may be equipment breakdown coverage.

Understanding what this coverage entails is essential. Many companies fail to submit claims because they do not realize that insurance may be available to help cover part of the cost of a repair. Before maintenance people do a repair, district energy system operators should check their policies to see if it could be covered. They might be surprised!

For many years, equipment breakdown coverage was known as boiler and machinery insurance. It was first offered in the days when steam was the most prevalent source of heat and power for industry. Property policies excluded losses from exploding boilers because of the large losses that typically were sustained. The first boiler and machinery insurance policies were put into place to address this situation. Over the years, the policies

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have been expanded to include many types of machinery, equipment and electrical systems. Consequently, this coverage is now known as ‘equipment breakdown.’ (Some insurance companies still use the former name, which can be confusing.)

Covered Causes

Although policy language differs among insurance companies, there are many causes of loss that are commonly covered by equipment breakdown coverage. A cause of loss is an event that occurs, resulting in damage to the equipment. They can be separate or interrelated. The following are examples from Travelers Insurance Co.:

● Rupture/bursting/cracking due to overpressure, control failure, low water level or overheating

● Rupture/bulging/cracking due to overpressure, thinning of metal or vacuum collapse

● Cracking/rupture due to vibration or support failure

● Electrical burnout/burned bearings due to line surge, excessive moisture, brittle insulation or ventilation problems

● Electrical burnout/burned bearings due to misalignment, loss of lubrication or overspeed

● Cylinder/shaft damage/rod or valve

breakage due to liquid slugging, contaminated oil or seizing

● Blading/shaft/jacket/frame damage due to shroud ring failure, imbalance, progressive cracking and overspeed

● Broken teeth/burned bearings due to vibration, misalignment, metal fatigue or contaminated oil

● Breaking of moving parts/frame damage due to metal fatigue or thinning of parts under pressure

● Electrical burnout, line surge, excessive moisture, overload, dirty environment or loose connections.

Each cause of loss would require some expense to repair the resulting damage.

When this extensive list of causes of loss is coupled with the variety of equipment that district energy systems typically have, it is easy to see why equipment breakdown coverage is essential. The following types of equipment may be covered by these policies: