ISO EQUIPMENT BREAKDOWN PROTECTION COVERAGE FORM ARCHIVE

(June 2020)

This document is a repository of articles and analyses that relate to earlier editions of the Insurance Services Office (ISO) Boiler and Machinery or ISO Equipment Breakdown Protection Coverage Form.

Archive Index
Analyses	ISO Equipment Breakdown Protection Coverage Form Analysis (09 11 edition)
Analyses	ISO Equipment Breakdown Protection Coverage Form Analysis (08 08 edition)
Analyses	ISO Equipment Breakdown Protection Coverage Form Analysis (09 07 edition)
Analyses	ISO Equipment Breakdown Protection Coverage Form Analysis (07 01 edition)
Endorsements	Pre-2001 Editions Boiler and Machinery Endorsements
Comparisons	ISO Equipment Breakdown Protection Coverage Form Comparison: EB 00 20: 09 07 Edition to the 09 11 Edition
Comparisons	ISO Equipment Breakdown Protection Coverage Forms Comparison: BM 00 20 07 01 Edition to EB 00 20 09 07 Edition
Comparisons	Compare: Boiler and Machinery Vs. Equipment Breakdown Protection Coverage Forms
Endorsements	ISO Equipment Breakdown Protection Coverage Form Available Endorsements and Their Uses (09 07 edition)
Endorsements	ISO Equipment Breakdown Protection Coverage Form Available Endorsements and Their Uses (07 01 edition)
Special Analyses	Reserved for future use

ISO EQUIPMENT BREAKDOWN PROTECTION COVERAGE FORM ANALYSIS (09 11 edition)

Introduction

A. Coverage

B. Exclusions

C. Limits of Insurance

D. Deductibles

E. Conditions

F. Definitions

INTRODUCTION

The Insurance Services Office (ISO) Boiler and Machinery Coverage Form was revised with the 07 01 edition and renamed Equipment Breakdown Protection Coverage Form. This name more accurately and completely responds to the coverage needs of the 21^st century. This change resulted in the development of completely new forms, provisions and endorsements. The forms have been updated twice since the name change. This analysis is based on the 09 11 edition. Changes from the 09 07 edition to the 09 11 edition are in bold print.

EB 00 20 EQUIPMENT BREAKDOWN PROTECTION COVERAGE FORM ANALYSIS

The coverage form opens by stating that certain provisions in the form restrict coverage and encourages a careful reading of the entire policy in order to understand rights and duties as well as to determine what is covered. It also points out that the insurance company uses the terms you and your to refer to the named insured and the terms we, us and our refer to the insurance company providing the coverage. It also directs attention to Section F–Definitions.

A. COVERAGE

1. Covered Cause of Loss

The only covered cause of loss is a breakdown to covered equipment. Both breakdown and covered equipment are defined terms that are explained in great detail in Section F. Definitions.

2. Coverages Provided

Insurance applies only to the coverages having a limit or the word INCLUDED next to them on the declarations. If an entry is not made, that coverage is not provided.

The limit of insurance provided for each coverage is the primary limit. If INCLUDED appears next to a coverage, that coverage is included in the total limit per breakdown.

Each coverage provided applies only to the part of any loss that results directly from the covered cause of loss. Ten coverages are available.

a. Property Damage

This coverage pays for direct damage to covered property but only while that property is at the premises on the declarations.

b. Expediting Expenses

This coverage is available to help the named insured return to full operations as quickly as possible. Following a direct damage loss, payment is made for the extra costs that are incurred to make temporary repairs. Payment is also made for costs incurred to make permanent repairs or replace the damaged property faster than standard.

Example: A production boiler at Perfection Products breaks down. The damage is too extensive for repair and a new boiler must be ordered. Delivery and installation will take three months. Ready Helper, Inc. has the identical boiler and is willing to immediately sell and ship it to Perfection at its cost plus 10%. Expediting Coverage will pay that 10% extra cost so that the boiler can be installed and operations resumed immediately instead of in three months.

c. Business Income and Extra Expense or Extra Expense Only

The insured can choose to purchase combined business income and extra expense coverage or only extra expense coverage. There is no option to purchase only business income coverage.

If the insured purchases combined business income and extra expense coverage, the insurance company pays the insured’s actual loss of business income during the period of restoration, as well as the extra expenses necessarily incurred to operate the business during the period of restoration. If coverage for only extra expense is purchased, there is no coverage for business income.

The company determines payment by analyzing how the business was doing prior to the loss and then estimating how the business would have fared had the loss not occurred.

The period of restoration ends five days after the covered equipment is back in service but another number of days can be entered on the declarations to extend this time period.

If ordinance or law coverage is provided, the period of restoration is extended to include the additional time needed to demolish, remove, repair, remodel or rebuild in accordance with the ordinance or law.

If media is damaged or data is lost or corrupted there is coverage for the actual loss of business income and/or extra expense for the period of time needed to research, replace or restore the media or data and also to reprogram the computer equipment. There is no coverage for media or data that is not replaced or restored or that cannot be replaced or restored.

This media coverage is limited to the actual loss of business income and/or extra expense for a maximum of 30 days following the period of restoration, or $25,000, whichever is less. A higher limit can be entered on the declarations.

Example: The computer at Perfection Productions is damaged and half of its data is destroyed. Perfection estimates it will take two months to totally restore the lost records. As the work is being done it is determined that many of the files can’t be restored. This reduced the amount of down time to one month. This coverage applies only for the one month time period, not the two months that would have been needed if all files had been restored.

d. Spoilage Damage

Coverage applies for the spoilage of raw materials, property being processed and finished products. In order for there to be coverage all of the following must apply:

· The covered items must either be in storage or in the manufacturing process

· There must be a written contract making the named insured legally liable for the nonowned items or the named insured must actually own the items.

· Lack of or excess of power, light, heat, steam or refrigeration must cause the spoilage.

Example: Perfection Products' bad luck continues. This time a boiler breakdown causes a refrigerated line to go down for almost two hours. As a result, the raw milk product being processed spoils and must be discarded. This coverage applies to the value of the spoiled milk.

If the named insured incurs expenses in order to reduce the spoilage loss, there is coverage for those expenses but only up to the amount those expenses reduce the loss.

e. Utility Interruption

This protection is available only if one or more of the following coverages is in force:

· Business Income And Extra Expense

· Extra Expense

· Spoilage Damage

The purchased coverage is extended to include loss or damage when utility services are interrupted. However, all of the following conditions must be met in order for this extension of coverage to apply:

(1) A breakdown to covered equipment belonging to the utility that supplies the named insured’s utility services must occur and directly cause the interruption

(2) The covered equipment that breaks down must supply electric power, communication services, air conditioning, heating, gas, sewer, water or steam to the insured’s premises

(3) The interruption of utility service must last longer than the waiting period number of days on the declarations. Coverage starts once that waiting period ends but payment is still subject to other deductibles in the coverage form.

Example: Using the previous situation above, if the refrigerated line had gone down because of an offsite utility failure, coverage would have been denied. Instead the loss could have been covered under Utility Interruption.

f. Newly Acquired Premises

Coverage applies automatically at premises the insured newly purchases or leases during the policy period. As soon as the property is leased or purchased and for as many days as are on the declarations for this item, there is coverage.

The broadest coverage provided at any insured premises applies to the newly acquired property, subject to the terms, and conditions in the coverage form. The limits and deductibles for the newly acquired premises are the highest amounts that apply to an existing premises. The insured must inform the insurance company of the acquisition in writing as soon as practicable and pay the appropriate additional premium.

Example; Perfection Products has four locations. The limits are $200,000, $300,000, $400,000 and $500,000, respectively. Each location is subject to a 5% deductible. Perfection purchases a new premises and before it can notify the company, a loss occurs. The limit for that location is $500,000 subject to a 5% deductible.

g. Ordinance or Law Coverage

The Ordinance or Law exclusion eliminates coverage for any increase in loss due to enforcement of ordinances or laws regulating repair, replacement or reconstruction of a building or structure. This coverage pays such costs, within certain guidelines, if the increase in the amount of loss is necessary due to the enforcement of any laws or ordinances in force at the time of the breakdown that regulate demolition, construction, repair or use of the building or structure.

(1) Coverage is provided for the following when necessitated by the enforcement of ordinances or laws that require the undamaged portions of a building damaged by a covered loss to be demolished:

· Loss in value of the undamaged part of the building or structure

· Costs to demolish and clear the site of such undamaged parts but only if actually incurred

Also the increased costs to repair and reconstruct the building's damaged portions and reconstruct or remodel undamaged portions with similar property, either on the same premises or another are covered.

(2) Coverage does not apply for any of the following:

· Any costs to demolish and clear the site until the building is demolished and cleared

· Any increases in loss until the damaged building or structure is actually rebuilt and approved by the appropriate government agency

· Any ordinance or law cost increase if the ordinance or law should have been complied with prior to the loss

· Costs for changes that exceed the minimum requirements of ordinances or laws in effect at the time of the breakdown

· Increases in loss because of a hazardous substances declaration by any government agency

· Costs associated with the enforcement of any ordinance or law the requires demolition or reconstruction because of the presence or activity of fungus, wet rot or dry rot

· Costs associated with enforcement of any ordinance requiring testing, monitoring, clean up or other responses by the insured or others to the effects of fungus, wet rot or dry rot

(3) The insurance company does not pay the full amount of loss under this coverage when both covered and uncovered losses are sustained by the building. If the total building damage results in ordinances or laws being enforced, this coverage pays only the proportion of such loss that the covered breakdown portion of the loss bears to the total of all physical damage.

Example: A covered building is valued at $500,000. It sustains $300,000 in damage from equipment breakdown and a fire. A local ordinance requires installation of special upgrades any time building damage is 50% or more of its value. Enforcement of this ordinance results in an additional loss of $80,000. The breakdown portion of the loss is $75,000, or 25% of the total, and the fire portion of the loss is $225,000, or 75% of the total. Since the breakdown portion of the loss is 25%, only 25% of the additional loss due to enforcement of the ordinance, or $20,000, is covered.

If the insured purchased Ordinance or Law Coverage under its Commercial Property Coverage Form, it would respond to the remaining $60,000 of the additional loss due to enforcement of the ordinance.

If building damage that is not covered under this form is the reason the ordinance or law provision was triggered, this coverage does not apply even when there is covered damage from a breakdown. The commercial property coverage form insuring the damaged building is responsible for the entire amount due under ordinance or law coverage.

Example: A fire damaged a five story building in the downtown area. It was a brick building and due to local ordinance, because it was over 50% damaged, it was required to be torn down. If rebuilt, the construction would need to be masonry noncombustible or better. The fire also caused a covered breakdown loss to the building’s boilers. The breakdown loss is covered but not this ordinance or law coverage because the fire to the building is what triggered the enforcement of the ordinance.

h. Errors and Omissions

This unusual coverage is really forgiveness for forgetfulness. If the insurance company has the right to deny coverage because of any of the following:

· The description or the location of the property was omitted or was in error

· An location that was owned or occupied as of the coverage inception date is not included

· Coverage is cancelled at an insured premises

it won’t exercise that right.

Forgiveness occurs only if the situations are due to unintentional errors or omissions by the named insured. As soon as the named insured is aware of such error or omission, it must be reported to the insurance company and premium paid back to the date when the item property or premises should have been added to the policy.

Note: Coverage does not apply as a result of the insured's error or unintentional omission in reporting of values or the coverage it requested.

Example: Perfection Products 2^nd location runs the same product line as its 4^th location. Perfection accepts an offer from a competitor to purchase the 2^nd location and therefore leaves that location off the renewal application. Unfortunately, the sale falls through. Even more unfortunately, Perfection completely forgets to notify the insurance company that coverage on that location should continue. Even worse, a significant loss occurs at the location after the policy renews that suddenly reminds Perfection of its oversight in this matter. However, the story has a happy ending because this coverage pays for Perfection's unintentional omission of this location from its renewal specifications.

i. Brands and Labels

If the insurance company decides to take the named insured’s property as part of a claim settlement, the named insured can perform the following actions on that property prior to relinquishing it to the insurance company:

· Stamp SALVAGE on the merchandise or its container. This option is available only if doing so will not physically damage the merchandise.

· Remove the brands or labels. The items must be relabeled in a way that complies with applicable laws. This option must be handled in such a manner that the merchandise is not damaged.

The insurance company pays reasonable costs that are incurred to perform either of these tasks but the combination of these costs plus the values of the merchandise cannot be more than the applicable limit of insurance for the property.

Example: Perfection Products manufactures and sells a line of action figures under its own name. An accident occurs that causes smoke damage to the packaged actions figures. Perfection and its insurer agree on a settlement for the damaged merchandise. The insurer plans on selling all items as salvage. Perfection agrees but before relinquishing the inventory it arranges to have all packaging stamped with the word SALVAGE. The insurer must accept the salvage as marked and also pay for the stamping costs.

j. Contingent Business Income and Extra Expense or Extra Expense Only Coverage

This coverage is subject to the same terms and conditions as Business Income and Extra Expense or Extra Expense Only coverage.

Coverage applies to any loss sustained by the named insured because of a breakdown of covered equipment at a premises the insured neither owns nor operates. The loss must negatively affect the insured's ability to deliver its products or services, or must result in lower sales at any insured location on the declarations.

Coverage applies only for contingent locations scheduled on the declarations and only for loss of income and extra expense or extra expense for the scheduled sales, services or materials.

The named insured must do everything it can to influence the contributing or recipient business to resume its operations. The named insured is to cooperate with contributing or recipient properties in every way possible, except for providing financial assistance not authorized by the insurance company.

Example: The demand for Perfection’s action figures is exceeding its ability to produce them internally. They contract with Teeter Totter Toys to produce additional action figures under Perfection’s label in order to meet demand. Unfortunately, Teeter's production line's primary power train breaks down under the strain of the additional demands and all production ceases. Perfection tries to influence Teeter to spend additional sums to expedite replacing the drive train and resuming production, but to no avail. Replacement parts are simply not available outside normal distribution channels and time frames.

Perfection has to swallow hard and suffer the loss of unmet sales. The good news is that, because of this contingent BI coverage, the loss of expected business income from the products Teeter Totter would have produced is covered.

B. EXCLUSIONS

This coverage form has 21 exclusions. They apply whether the loss event results in widespread damage or affects a significant geographical area or not and are essentially absolute. Subject to specific exceptions, each is totally excluded, regardless of any other cause or event that contributes to a loss, either concurrently or in any other sequence. The insurance company does not pay for any direct or indirect loss or damage caused by or resulting from any of these events.

Note: Several of the exclusions are similar to exclusions found in commercial property coverage forms.

1. Ordinance or Law

If the enforcement of ordinances or laws that regulate the repair, use, operation, installation, clean up or disposal of covered property increase the loss amount, there is no coverage for that increase.

There is one exception. If the ordinance or law applies to the use or operation of the electrical supply or emergency generating equipment located at a hospital and damaged by a breakdown, there is coverage.

2. Earth Movement

Loss or damage due to earth movement is excluded. Earthquake, landslide, land or mine subsidence and volcanic action are examples of earth movement but the exclusion is not limited to these.

3. Water

a. All damage from flood, surface water, waves, tides, tidal water, overflow of a body of water is excluded. This applies to not only the water on the ground but also any spray from them. It applies even if the water is driven by the wind or even if considered a storm surge. The term waves includes tidal waves and tsunamis.

b. Mudslide or mudflow related damage is not covered.

c. Damage caused when water is discharged from a sewer, drain, sump, sump pump, or other similar equipment is not covered. The discharge could be an overflow or back up or any other type of discharge.

d. Sprinkler system or domestic water piping discharge that causes water damage is not covered.

e. Water damage from underground water seeping into doors, windows, floors, surfaces, foundations and basements is not covered.

f. Damage caused by this material carried by waters described in items a., c, and e. above, or by any material moved or carried by mudslides or mudflow described in item b. above, is not covered.

Example: The river was moving fast and picked up trees, docks and more. Mavis was relieved that the flood did not enter her warehouse but was upset that a waterborne tree crashed against her foundation and caused an opening that allowed water into her air conditioning units. Because of this exclusion the breakdown of the air conditioning unit is not covered.

There is no coverage if the water damage is due to an act of nature or is caused in any other manner. An example is given that if a seawall is breached and allows water in, this exclusion continues to apply.

4. Nuclear Hazard

The insurance company does not pay for loss or damage from nuclear reaction, radiation or radioactive contamination. The exclusion applies regardless how such incidents are caused.

5. War or Military Action

This exclusion lists three specific types of warlike activity that are not covered. War can be undeclared or a civil war. It is important to determine who can declare war. In any action that constitutes war, coverage does not apply. In addition, any action involving military forces and/or military agents is not covered. Finally, rebellions, revolution, usurped power, insurrection and any government response to any of them are not covered.

Note: Terrorism is not listed.

6. Explosion

There is no coverage for loss or damage caused by explosion. However, coverage does apply to explosions of covered equipment of steam boilers, piping, turbines or engines; electric steam generators; or gas turbines. There is also coverage if centrifugal force or mechanical breakdown causes an explosion in moving or rotating machinery.

7. Fire or Combustion Explosion

Loss or damage caused by a fire or combustion explosion. There is no coverage even if the fire or combustion causes a breakdown. Coverage is excluded even if the fire or explosion occurs at the same time as or ensues from a breakdown.

Note: These events are insured under the insured's Commercial Property Coverage Form. This exclusion prevents the Equipment Breakdown Protection Coverage Form from responding to a fire loss, resulting in duplicate coverage.

8. Fungus, Wet Rot and Dry Rot

Coverage does not apply to loss or damage caused because of the presence or any activity of fungus, wet rot or dry rot. However, if such activity or presence causes a covered breakdown, that covered breakdown loss or damage is covered.

In part C. Limits Of Insurance, Item 6. Limited Coverage for Fungus, Wet Rot and Dry Rot, some coverage is provided and this exclusion does not preclude such coverage. However, even that coverage applies only for the portion of loss or damage caused by the presence or activity of fungus, wet rot or dry rot resulting from a covered breakdown.

9. Virus, Bacterium or Other Microorganism

There is no coverage for any loss because of any virus, bacterium or other microorganism that causes or could cause physical distress, illness or disease. However, if these items cause a breakdown, that loss or damage is covered. Also, if an item could be considered excluded in this exclusion or in exclusion 8. above, the terms of exclusion 8. prevail.

This exclusion does not create coverage so any item that is excluded throughout the policy continues to be excluded even after the addition of this exclusion.

10. Furnace Explosion

Loss or damage caused by or resulting from an explosion within the furnace of a chemical recovery boiler or its piping to the atmosphere is not covered.

Note: These explosions are covered under the Commercial Property Coverage Form.

11. Pressure or Electrical Testing

When covered equipment becomes damaged during either pressure or electrical testing, there is no coverage.

12. Fire Extinguishing Agents

When water or any other agents are used to extinguish a fire there is no coverage for damage regardless whether the extinguishing attempt was successful.

13. Depletion, Deterioration, Corrosion, Erosion, Wear or Tear

Depletion, deterioration, corrosion, erosion, wear and tear losses are excluded unless a breakdown occurs and then only for the damage caused by the breakdown.

14. Other Insurance

Loss or damage resulting in a breakdown is not covered if the breakdown was caused by aircraft, vehicles, freezing, lightning, sinkhole collapse, smoke, riot, civil commotion, vandalism, or the weight of ice, sleet or snow.

This exclusion applies only if coverage against these causes of loss is provided by other insurance coverage carried by the named insured and applies whether or the named insured can collect it.

Example: Vandals break into the boiler room at Mendleton Apartments because they are angry at their landlord. They destroy piping and rip out control panels. Because of this activity the boiler overheats and suffers a mechanical breakdown. Mendleton has vandalism coverage under a businessowners policy with Acme Insurance Company. The claim is presented to Acme. Acme refuses to pay because Mendleton violated the conditions of his policy.

Because other insurance would have been in effect except for Mendleton’s own actions, there is no coverage under this coverage for the boiler’s mechanical breakdown.

15. Windstorm or Hail

When windstorm or hail causes a breakdown, there is no coverage.

Note: This is covered under a commercial property coverage form.

16. Delay or Interruption

There is no coverage for delays or interruptions of any business, manufacturing or processing activities.

However, this type of loss can be covered in Business Income And Extra Expense, Extra Expense Only or Utility Interruption coverages available under this coverage form.

17. Business Income and Extra Expense, Extra Expense Only and Utility Interruption Coverages

The following additional exclusions apply to these coverages.

There is no coverage if operations would have ended even if a breakdown had not occurred.
Coverage does not apply if the named insured does not do everything needed and reasonable to resume or continue operations at the covered premises where the loss occurred.

Coverage does not extend to the period of time between when business operations could have resumed and when they actually did when the reason for the delay was a suspension, lapse or cancellation of a contract. The contract problem must have occurred following the covered breakdown event.

18. Power, Light, Heat, Steam or Refrigeration

If covered equipment breaks down and because of that breakdown loss or damage occurs to property because of too much or too little power, light, heat, steam or refrigeration there is no coverage for that damaged property.

However, this type of loss can be covered in Business Income and Extra Expense, Extra Expense Only, Spoilage Damage or Utility Interruption coverages available under this coverage form.

19. Utility Interruption Coverage

With respect to only Utility Interruption Coverage, there is no coverage for any loss that is a result of any of the following.

Any act of sabotage. There is no indication of who must commit the sabotage.
Collapse
Load shedding by the supplying utility but only if it is a deliberate action
Freezing but only when caused by cold weather
Direct impact by aircraft, missile or vehicle
Impact of objects that fall from an aircraft or missile
Lightning
Riot, civil commotion, vandalism
Sinkhole collapse
Smoke
Weight of ice, sleet or snow

This exclusion applies whether or not coverage for any of these causes of loss is provided by other insurance coverage.

Note: Load shedding is the intentional reduction or cutting off of service to control overall power requirements.

20. Indirect Breakdown Damage

The only coverage for indirect loss or damage that result from a breakdown to covered equipment available is that provided under Business Income And Extra Expense, Extra Expense Only, Spoilage Damage or Utility Interruption coverages within this coverage form. All others are excluded.

21. Neglect

There is no coverage for loss or damage that results from the named insured failing to take reasonable measures in order to save and protect covered property from further damage during and after a loss.

C. LIMITS OF INSURANCE

Note: This section is called Limits of Insurance but this is much more than the typical limit for an insurance section. A unique condition for public utility entities is in part of this section plus eight additional coverages.

1. The most the insurance company pays for any loss or damage from a single breakdown event is the limit of insurance on the declarations.

2. Payments are not increased if more than one insured is named on the declarations.

3. A limit of insurance or the word INCLUDED must be entered on the declarations for each coverage provided. If INCLUDED appears next to a particular coverage, the limit for that coverage is part of the limit per breakdown, not in addition to it. If a dollar limit appears next to a particular coverage, the insurance company pays up to, not more than, the limit of insurance for that particular coverage.

It is important to note that when a limit is entered for a coverage it is not an additional limit but instead is a sublimit within the per breakdown limit described in Item 1. Using the term INCLUDED provides the named insured with the most flexibility in any settlement.

Example: Responsible Business, Inc. has $1,000,000 per Breakdown coverage and schedules the limits as follows:
Coverage			Scenario 1		Scenario 2
Limit Per Breakdown			$ 1,000,000		$ 1,000,000
Property Damage			$ 1,000,000		$ 1,000,000
Expediting Expense			$ INCLUDED		$ 25,000
Business Income/Extra Expense			$		$
Extra Expense Only			$ INCLUDED		$ 50,000
Extended Period Of Restoration (Number Of Days Of Coverage)			_______ Days		_______ Days
Data Or Media ($25,000 Limit of Insurance) or			$		$
Spoilage Damage			$ INCLUDED		$ 25,000
Utility Interruption			$ INCLUDED		$ 10.000
Coverage applies only if services are interrupted at least			24 Hours		24 Hours
Newly Acquired Premises			INCLUDED		INCLUDED
Number Of Days Of Coverage			_______ Days		_______ Days
Ordinance Or Law			$ INCLUDED		$ 25,000
Errors And Omissions			$ INCLUDED		$ 10,000
Brands And Labels			$ INCLUDED		$ 10,000
Contingent Business Income/Extra Expense			$ INCLUDED		$ 50,000
Covered Premises:			$		$
Sales, Services Or Materials:			$		$
Responsible has a covered breakdown loss and submits the following loss amounts:
Coverage	Actual loss	Available Coverage
		Scenario 1		Scenario 2
Property damage	850,000	850,000		850,000
Extra Expense	75,000	75,000		25,000
Spoilage	50,000	50,000		25,000
Ordinance or Law	35,000	35,000		25,000
Brands and Labels	15,000	15,000		10,000
Total settlement amount		$1,000,000		$935,000
The total amount of the loss is $1,025,000 so the Scenario # 1 loss payment is capped at $1,000,000. Because of the use of sublimits, in scenario # 2 only $ 935,000 of the $1,000,000 is paid.

4. If covered equipment is for the exclusive use of supplying utility services to the insured's premises, is owned by a private or public utility, is not in the insured's possession or for which it is legally liable, and insured under this coverage form, the Property Damage limit on the declarations is deleted. It is replaced by the sum of one dollar. A slightly different provision applies if the insured is a public or private utility. If the insured is a public or private utility, this provision applies only when the covered equipment is owned by a public or private utility other than that the named insured.

Note: The nominal one-dollar limit exists as a technicality. Providing this limit permits the coverage form to provide indirect damage protection for consequential loss to the named insured as a result of damage to this non-owned utility equipment.

5. This coverage form automatically includes five additional coverages. Each is subject to a $25,000 limit, unless a higher limit or INCLUDED is entered on the declarations. These limits are part of the Limit of Insurance for Property Damage or the Limit Per Breakdown, not in addition to them.

a. Ammonia Contamination

This applies when ammonia contamination spoils covered property. Any salvage expense is part of this coverage and the limit provided.

b. Consequential Loss

When a product becomes unmarketable because a separate part of that product is damaged this coverage applies for the reduction in the undamaged product.

c. Data and Media

Costs incurred by the named insured to research, replace or restore damaged data or media. The costs to reprogram instructions used in any computer equipment are included.

d. Hazardous Substance

Additional expenses incurred by the named insured to clean-up, repair, replace or dispose of covered property damaged, contaminated or polluted by a hazardous substance. Ammonia is not considered a hazardous substance. This coverage is not subject to the Ordinance or Law exclusion.

The covered expenses are those additional costs incurred over and above what would have been paid had no hazardous substance been present.

e. Water Damage

Covered property damaged by water unless the damage is because a sprinkler system or domestic water piping leaked. Salvage expense is part of the coverage and limit.

If fungus, wet rot or dry rot results from such water damage, loss or damage from those substances is limited as described in 6. Limited Coverage For Fungus, Wet Rot And Dry Rot below and is part of the Water Damage limit, not in addition to it.

6. Limited Coverage for Fungus, Wet Rot and Dry Rot

This coverage and limit is added:

a. Property damage

Loss or damage caused by fungus, wet rot and dry rot is covered but only if it is a direct result of a breakdown to covered equipment that occurs in the same policy period. This coverage includes the cost to tear out and replace covered property in order to access the fungus, wet or dry rot and also any testing after property restoration but only if there is a reasonable suspicion that the fungus, wet or dry rot are present. The limit is $15,000 for all occurrences that take place during any 12-month period and does not increase the limit of insurance for covered property. The limit doesn’t increase even if the fungus, wet or dry rot manifest in another policy period. A higher limit for this coverage can be shown on the declarations.

b. Business Income and Extra Expense Or Extra Expense Only

This coverage also applies to Business Income and Extra Expense or Extra Expense Only if these coverages are provided. The loss of business income or extra expense must be due solely to loss or damage to covered property caused by fungus, wet rot or dry rot. It is limited to the loss or expense sustained in a period not exceeding 30 days. The 30 days are a maximum amount of time in a year and are not required to be consecutive. A different number of days can replace the 30 days if entered on the declarations.

c. Ordinance or Law

Any coverage purchased for ordinance or law does not extend to coverage for enforcing ordinances related to the demolition, destruction, reconstruction, remodeling or remediation of property because of fungus, wet rot and dry rot presence or activity. There is also no coverage for any type of mandated response to or assessment of fungus, wet rot or dry rot effects.

7. Increased Cost of Loss and Related Expenses for Green Updates (09 11 update)

a. Property Damage

When equipment is damaged and must be replaced, one of the considerations in replacing it is the environmental impact plus energy efficiencies. The owner might decide that the energy and environmental savings from using more efficient or green items more than offsets its higher upfront cost. This coverage provides for some of those upgrades. The insurance company pays for:

· The additional expense to provide green upgrades in the repair or replacement of damaged covered property. Raw materials, property in process, finished goods and stock are not included as covered property receiving this expense.

· Additional expenses that relate to:

o Reusing or salvaging the damaged property

o Making sure the recyclable damaged property and construction waste is taken to an appropriate site

o Using vegetated roof section in place of damaged roof section but only if installed following recommendation of a green standards-setter

· Additional costs in hiring an accredited architect or engineer in order repair or replace damaged areas of a building

· Reasonable additional expenses:

o To pay for green standard-setter certification or recertification fees

o To pay equipment testing fees required as part of the certification or recertification process

o To flush out the air in renovated areas and then to test the air quality. This applies if recommended by the green standards-setter following repair or renovation of covered property

The items described above are only those above what the insurance company would have paid if not for the green upgrades.

The insurance company does not pay for further modifications following the failure of a covered property to gain certification or recertification.

It also does not pay these green additional costs in repairing or replacing damaged property if it is merely a way to gain points towards certification or recertification.

The amount payable is 25% of the total property damage loss without the green updates but the maximum payment is $100.000. These payment limitations apply only if nothing is entered on the declarations for this coverage.

Note: This may not be how the coverage is intended to apply but the opening line of a policy paragraph states “Unless a different limit or INCLUDED are shown in the declaration” and then describes the percentage limitation and the dollar limitation. This would mean that when the word INCLUDED is shown, there is no percentage or other cap on this coverage other than the One Breakdown limit on the policy.

b. Business Income and Extra Expense Or Extra Expense Only

Coverage for business income and extra expense or extra expense only must be in place for this coverage to apply. All conditions for that coverage must be met before this applies.

If using green updates to repair or replace the damaged coverage property lengthens the period of restoration, this coverage pays for no more than an additional 30 days. The days are not required to be consecutive. The 30 days can be changed by an entry on the declarations.

c. Green Updates Conditions

This coverage:

· Does not increase any limits of insurance

· Is an exception to the ordinance or law exclusion

· Cannot be used to reduce coverage to repair or replace property that was green prior to the loss or damage.

Example: Fit and Green Sporting Center is dedicated to reducing its carbon footprint. All newly purchased equipment must generate its own power, where possible. A covered loss destroys 15 bikes and 10 treadmills, damages one portion of the roof and most of the interior walls.

Fit and Green finds replacement bikes and treadmills that generate and actually return energy to the power grid. The cost is 10% higher than the standard equipment. That increase is covered.
Fit and Green hires an architect to redesign the interior so it uses less energy and also to design a vegetative garden for the roof. These costs are covered.
The architect recommends green wallboard and paint for the interior repairs. The costs above replacement cost are covered.
The cost above replacement cost to repair the damaged roof portion with vegetative roof is covered but not the cost of replacing the entire roof.
The redesign of the interior adds 15 days to the period of restoration and that additional income loss is covered.

The one breakdown limit is $350,000. The amount paid without the green upgrades is $275,000 so $75,000 is available to pay for all of these green upgrades.

D. DEDUCTIBLES

1. Application of Deductibles

Payment for loss or damage resulting from a breakdown does not begin until the amount of loss or damage exceeds the deductible shown in the declarations for the particular coverage. Payment is then made but not for more than the limit of insurance.

Note: Deductibles are applied by coverage with two exceptions:

COMBINED deductible is shown for coverages on the declarations. In that case, after the settlement has been determined for all coverages subject to the combined deductible, the combined deductible is deducted from that aggregated loss settlement amount.
When more than one type of covered equipment is involved in a single breakdown, only the highest deductible is applied for each of the particular coverages.

2. Determination of Deductibles

This coverage form has five different deductibles:

a. Dollar Deductible

In this case the flat dollar amount shown on the declaration is deducted from any loss settlement to determine the payment amount.

b. Time Deductible

A time deductible can also be referred to as a waiting period. The insurance company does not pay until the number of hours or days on the declarations after the occurrence of a covered loss have passed. Loss amounts incurred between the time of the occurrence and the end of the designated time or waiting period are the insured's financial responsibility.

Note: A day equals 24 hours.

Example: Lizzie owns a laundry. She has a five-day waiting period on her Business Income And Extra Expense Coverage. A critical item of equipment breaks down at 3:20 p.m. on 8/03/11. The breakdown results in the laundry being shut down until the equipment is repaired. Repairs are finished on 8/08/11 at 1:45 p.m. Business does not resume until the fifth day after the accident but the repairs are made before five 24-hour periods pass. As a result, Lizzie receives no payment under the Business Income And Extra Expense coverage.

c. Multiple of Daily Value Deductible

A time deductible can be quite disadvantageous to the insured. The initial period after a loss frequently involves significant loss of income and extra expense. Subsequent periods involve less because often arrangements have been made for the business activity to continue and contracts are renegotiated or cancelled. This front loaded deductible disadvantage can be mitigated by developing a more equitable time deductible. It is called the Multiple of Daily Value Deductible and is calculated as follows:

Step 1. Determine the business income that would have been earned for the entire premises where the breakdown loss occurred during the period of restoration if there had been no loss.

Step 2. Divide Step 1 by the number of days the business would have operated during the period of restoration. The result is the daily value.

Step 3. Multiply Step 2 by the number of days shown on the declarations for this deductible.

Step 4. The insurance company subtracts Step 3. from the amount of loss for which it is liable. It then pays the amount of loss or damage that exceeds this deductible amount up to the applicable limit of insurance.

d. Percentage of Loss Deductible

Percentage-of-loss deductibles are often used in place of dollar deductibles but the application in this coverage form is different than the way percentage deductibles are applied in other forms. In this form, the percentage is applied to the amount of the loss instead of to the value of the covered property.

Example: Major Manufacturing Company has a $1,000,000 Property Damage limit on its Equipment Breakdown Protection Coverage Form. Major sustains a $300,000 loss when its primary assembling equipment breaks down. Here is what Major recovers under three different deductible approaches:
$50,000 Flat Deductible	5% Deductible used in other property forms	5% Percentage of Loss Deductible
$300,000 loss	$300,000 loss	$300,000 loss
–$50,000 deductible	–$50,000 deductible	–$15,000 deductible
$250,000 payment	$250,000 payment	$285,000 payment

e. Minimum or Maximum Deductibles

This deductible is used with both the Multiple of Daily Value Deductible and the Percentage Of Loss Deductible. It allows the insured to have a definite range of payment.

If the insured selects the Multiple of Daily Value Deductible or the Percentage of Loss Deductible, the deductible amount is calculated and then compared to the minimum and maximum deductible on the declarations. If the calculated deductible falls between the minimum and the maximum, the insured is responsible for the calculated deductible. If the calculated deductible is less than the minimum, the insured is responsible for the minimum deductible. If the calculated deductible is more than the maximum, the insured’s responsibility is for the maximum deductible.

Example: Lizzie chooses a 10% Percentage of Loss Deductible for Property Damage and a five-day Multiple of Daily Value Deductible for Business Income and Extra Expense. Both coverages are subject to a $500 minimum and $5,000 maximum deductible. Lizzie's boiler breakdown causes $60,000 in covered property damage and $15,000 loss of income for the 30 days her operation is shut down. Her daily value is $500.

The Property Damage deductible is $60,000 X .10 (10%) = $6,000. Since $6,000 is more than the $5,000 maximum, she is responsible for only $5,000.

The Business Income deductible is $500 X 5 (days) = $2,500. Since $2,500 falls between $500 and $5,000, Lizzie is responsible for $2,500.

E. EQUIPMENT BREAKDOWN PROTECTION CONDITIONS

These conditions are in addition to the Common Policy Conditions.

Note: Many of these loss conditions are similar to those found in commercial property coverage forms.

1. Loss Conditions

a. Abandonment

The insured cannot surrender or turn over property to the insurance company without its permission.

Example: Montgomery Metals Manufacturing's secondary production line sustains a covered equipment breakdown loss. Since business is slow, Montgomery decides it can handle all its production on its main production line and informs its insurance company that it will accept a cash settlement and requests that the equipment be taken off Montgomery's property. The insurance company refuses to accept the property. Montgomery has to rethink its decision and determine its next step.

b. Appraisal

If the insured and the insurance company cannot agree on the value of property or the amount of loss, either may request an appraisal of the loss. Each party selects its own competent and impartial appraiser who, in turn, selects an umpire or has one appointed for them. Differences in value or amount that cannot be resolved are submitted to the umpire. A decision by any two parties is binding on all parties. Each party pays its own appraiser and shares the cost of the umpire equally.

Note: Even if there is an appraisal, the insurance company retains its right to deny the claim.

Example: Jane's production boiler breaks down. Jane and Cheapskate Mutual, her insurance company, cannot agree on its value. They agree to submit the dispute to appraisal. Jane selects an experienced appraiser who just happens to be her brother. Cheapskate selects a totally impartial party who has no appraisal credentials. Both "appraisers" are rejected because Jane’s selection is biased and Cheapskate's selection is not qualified.

c. Defense

If owners of property sue the named insured because of claims, the insurance company has the option to defend the named insured. If the insurance company does provide defense, it does so at its own expense which means it will not lower the amount of insurance available to pay losses.

d. Duties In The Event Of Loss Or Damage

The named insured has a number of duties to perform if a claim or demand for coverage occurs. It must:

· Inform the insurance company of the loss or damage as soon as possible, including a description of the property involved. As a minimum, the notice should include information concerning how, when and where the loss or damage took place.

· Give the insurance company a reasonable amount of time and ample opportunity to examine the damaged property before repairs begin and the physical damage of the breakdown is removed. The insured must also do whatever is needed to protect covered property from further loss or damage.

· Allow the insurance company to inspect the property proving the loss or damage. This includes taking samples of both damaged and undamaged property for inspection, testing and analysis. The company must also be permitted to examine the insured's books and records and make copies of any information needed.

· Send the insurance company a properly executed proof of loss on its forms within 60 days of its request to do so.

· Cooperate with the insurance company as it investigates or settles the claim.

The insurance company has the right to examine any insured under oath at reasonable times concerning the claim or the insurance coverage provided. This includes questions regarding the named insured's books and records. The insured must acknowledge any examination by its signature.

Note: The insurance company has the option of examining anyone alone and not in the presence of any other insured.

e. Insurance under Two or More Coverages

When more than one coverage applies to a single loss, payment is limited to the actual amount of loss or damage, subject to any applicable deductible. No duplicate payments are made.

f. Legal Action against Us

No legal action can be brought against the insurance company until the insured complies with all the terms of the coverage form. In addition, the legal action must commence within two years after the date of the breakdown.

If an obligation to a third party is involved, the insurance company must agree that the obligation exists. This agreement may be the result of arbitration. However, a third party cannot include the insurance company in a legal action to establish the insured’s obligation to that third party.

g. Loss Payable Clause

The insurance company pays any loss to the named insured and the loss payee as their interests may appear. The named insured is paid provided the loss is not caused by conversion, secretion or embezzlement by the named insured. If a cancellation notice is mailed to the named insured, a similar notice must also be mailed to the loss payee. When payment is made to the loss payee, all of its rights that apply to that loss pass to the insurance company.

Note: An important right that passes to the insurance company is the right to subrogate against third parties possibly responsible for the loss.

h. Other Insurance

If other coverage identical to that provided under this coverage form applies to the same loss, this coverage form pays on a proportional basis.

If other coverage on a different basis applies to the same loss, this coverage is excess over that other coverage (subject to the limit of coverage that applies to the given loss).

Note: Refer to General Condition 3. Joint or Disputed Loss Agreement for claim situations where a commercial property coverage form and this coverage cover the same loss.

i. Privilege to Adjust With Owner

If loss or damage occurs to property of others in the insured's care, custody or control, the insurance company has the right to settle the claim directly with the property owner. Documentation of the payment to that party satisfies the named insured's claim against the company.

j. Reducing Your Loss

The named insured must resume business, either partially or completely, within a reasonable period of time after a covered breakdown loss. It must also attempt to make up for lost business within a reasonable period of time that may not necessarily end when operations resume.

The insured must use all reasonable means to minimize or avoid a business income loss. This includes:

· Working extra time or overtime to continue operations at the same or another owned or acquired premises

· Working with and/or sharing property or services of other business

· Using other owned equipment, property or merchandise on hand or readily available

· Using the salvage from damaged covered property.

k. Transfer of Rights of Recovery against Others to Us

The rights to recover from a third party of anyone for whom the insurance company has paid a claim are transferred to the insurance company. Such a transfer is for no more than the payments made by the insurance company. Those rights must be secured and nothing done after a loss that negatively affect them. The named insured can waive its rights against others in writing under two situations:

· Before a loss to covered property or income

· After a loss to covered property or income but only if the other party is another insured under this coverage form, is a business the insured owns, is a business that owns the insured or is a tenant of the named insured.

l. Valuation

The value of covered property is the cost to repair, rebuild or replace the damaged property with similar property. While the meaning of "similar" is subject to debate, it usually refers to property of same kind, capacity, size or quality. The value of damaged property may be determined to be the actual cost to repair, rebuild or replace it. The restoration of the covered property must be done at a location where the work can be performed for the lowest cost. For this reason, it could take place at the original location or a new one. The insurance company does not pay for damage to obsolete property or to property that is useless to the insured.

· Improved Equipment (09 11 change)

· The insurance company pays up to an additional 25% of the property damage loss amount to repair or replace the damaged equipment with equipment that enhances safety. Two limitations apply. The 25% increase cannot exceed the limit of insurance on the declarations and the function of the equipment must be the same after the repair as it was before the loss occurred.

Note: The 09 11 edition changed this item by removing efficiency and environmental impact as reasons for improving equipment. Those items are now considered in C. Limits of Insurance, Item 7. Increased Cost of Loss and Related Expenses for Green Updates. This item now applies only for improvements that enhance safety.

· Extended Warranty

If an extended warranty or service contract is voided due to a covered loss, the insurance company reimburses the insured for the unused costs of non-refundable or non-transferable warranties or contracts.

· Time Limit on Replacement Cost

Repairs or replacement must take place within 24 months of the date of loss. If not, the insurance company pays the lesser of the cost required to repair or replace or the actual cash value of the property at the time of the breakdown.

· Selling Price

Property held by the insured for sale is valued at its selling price. For the purpose of this coverage, selling price means the sales price reduced by any discounts and expenses that would have been incurred. This provision only applies to property that was manufactured by the named insured, could not be replaced before its anticipated sale and is valued at more than its replacement cost.

· Data and Media Damage or Loss

Loss involving mass-produced data and media is adjusted according to its replacement cost. Other data and media losses are paid based on the cost to research, assemble and reproduce the data and media onto blank material. However, the insurance company does not pay for any data or media, either mass-produced or custom made, that cannot be replaced with data or media of similar kind and quality or property having similar functional use.

· Spoilage

With respect to this coverage, the insurance company determines the value of covered property according to the type of property. Raw materials are valued at their replacement cost. Property in process is valued at the replacement cost of the raw materials, adjusted by the related labor overhead charges.

Note: This provision only refers to overhead. Profit is not mentioned.

Finished products are valued at their selling price, adjusted for any discounts offered and expenses the named insured otherwise would have had.

· Salvage Value of Property

If property is used for temporary repairs or other valid uses after a breakdown, its value is considered in the adjustment of any loss. This property may be purchased as expediting expenses but that continues to be useful after repairs are completed. The salvage value of this property is deducted from the insurance valuation at settlement since it is a new asset the named insured did not have before the loss.

m. Business Income and Extra Expense Coverage Conditions

These additional conditions apply only to Business Income and Extra Expense Coverage:

· Annual Reports

The insured must complete an Annual Report of Values Form once each year. The form must be approved by the insurance company and the first report must reach the company within three months of the annual report date on the declarations. It is then due on each anniversary date.

Note: It is not clear if it is due on the anniversary date of the three months due date or the anniversary date of the reporting form date on the declarations.

· Adjustment Of Premium

After receiving the reports of value, the insurance company calculates the earned premium for the past year. If it is more than the premium already charged, the insured pays the difference. If it is less, the insurance company refunds the difference to the insured. The return premium is never more than 75% of the premium originally charged.

· Coinsurance

If a covered business income and extra expense loss occurs and the insured did not submit the reports of value as required above, this coinsurance condition applies.

The insurance company does not pay the full value of any loss if the actual business income annual value is more than the estimated business income annual value, the report is received more than three months after its due date, or the report is overdue. The amount paid is determined by the following formula:

Step 1. Divide the estimated business income annual value by the actual business income annual value at the time of the breakdown. The result is a multiplier factor

Step 2. Multiply the total business income loss amount by Step 1

Step 3. Subtract any applicable deductible from the amount determined Step 2

Note 1: The insurance company pays the lesser of the amount determined in the Step 3 above or the business income and extra expense limit of insurance. Any remaining amount must be paid by other insurance or from the insured's own financial resources.

Note 2: It seems unnecessary to include a statement that the insured would have to rely on some other, specified source to take care of any unpaid loss. It should be sufficient to state the maximum that would be handled by the policy and leave it at that.

Important: The penalty applies separately to each location when coverage applies to more than one location.

2. General Conditions

Many of the Equipment Breakdown Protection Coverage Form general conditions are similar to those found in commercial property coverage forms.

a. Additional Insured

Persons or organizations designated as additional insureds are considered insureds under the Equipment Breakdown Protection Coverage Form but only to the extent of their interest.

b. Bankruptcy

The insurance company's obligations under this coverage form are not affected or changed by the bankruptcy or insolvency of the named insured or his or her estate.

c. Concealment, Misrepresentation Or Fraud

Coverage is void in the event of fraud or if any insured at any time intentionally conceals or misrepresents material facts with respect to this coverage form, covered property, the named insured’s interest in covered property or a claim under this coverage form.

d. Liberalization

If the insurance company adopts coverage form revisions that broaden this coverage without making an additional premium charge any time up to 45 days before this policy’s inception date or during its term, the broadened coverage automatically applies to this coverage form.

e. Mortgageholder

· The insurance company pays the mortgageholder for direct damage to covered property caused by or resulting from a breakdown to covered equipment in their order of precedence and as their interests may appear.

Note: Trustees are also mortgageholders.

· Foreclosure or similar proceedings on covered property does not void the mortgageholder's rights under this condition.

· If the insurance company refuses to pay the named insured's claim because of its acts or failure to comply with coverage terms, mortgageholders are still entitled to receive claim payments but must assume additional responsibilities. If the named insured did not pay the premium, the mortgageholder must do so if requested. If the named insured did not submit a proof of loss, the mortgageholder must do so within 60 days after the company requests. Mortgageholders must also notify the insurance company of any ownership change or change in material hazard at the risk they become aware of.

· If the insurance company refuses to pay the named insured's claim because of its acts or failure to comply with coverage terms, the mortgageholder is paid. In that case, the mortgageholder's mortgage rights are transferred to the insurance company to the extent of the amount paid and the mortgageholder's right to recover the full amount of its claims is not impaired.

Note: The insurance company has the option to pay the mortgageholder the entire principal and accrued interest on the mortgage. In that case, the mortgage and note is transferred to the insurance company and the named insured pays any remaining mortgage debt to the company.

· If the insurance company cancels or does not renew coverage, it must give notice to the mortgageholder at least 10 days’ notice before the expiration date for nonpayment of premium and 30 days for all other reasons. Notice of nonrenewal must be at least 10 days before the expiration date.

Note: Statutes in many states supersede these notice periods.

· If the insurance company suspends coverage, it is suspended for both the named insured and the mortgageholder. The mortgageholder must receive written notice of any such suspension.

f. No Benefit to Bailee

This insurance is for the benefit of the named insured. Parties entrusted with covered property belonging to the named insured do not receive that benefit.

g. Policy Period, Coverage Territory

The coverage provided under the Equipment Breakdown Protection Coverage Form applies to loss or damage that occurs during the policy period and in the coverage territory. The coverage territory is limited to the United States of America, its territories and possessions, Puerto Rico and Canada.

h. Premium and Adjustments

The named insured must report the full 100% insurable values at each location to the insurance company every year as of the anniversary date. The value for each coverage must be reported separately. The renewal premium is determined based on the rates in effect as of the renewal date for all values at risk.

The named insured must also maintain the records needed to complete these reports and have those records available for examination by the insurance company or its representatives. The examination can take place only within normal business hours but can be conducted during the policy year and also for up to 12 months following the coverage expiration or cancellation.

i. Suspension

This feature is unique to the Equipment Breakdown Protection Coverage Form. If covered equipment is determined to be in or exposed to a dangerous condition, any insurance company representative may immediately suspend coverage with respect to that equipment by delivering or mailing written notice of suspension to the insured's last known address or to the location of the suspended equipment.

Example: Practically Perfect Property Insurance Company insures Kim's Kandee Kitchen. Practically's senior equipment inspector notices certain insured equipment operating at considerably higher temperatures than their rating allows. The inspector enters the shift manager's office and issues a written order to shut down the equipment within 30 minutes or have coverage on that equipment suspended. Kim ignores the order. Three days later, the equipment identified by the inspector breaks down and starts a fire. With a copy of the inspector's written order in hand, Practically notifies Kim that coverage was and still is suspended and that the equipment loss is not covered.

Suspended coverage can only be reinstated by issuance of an endorsement for that covered equipment.

Note: Oral statements authorizing resumption of operations are unacceptable and do not reinstate coverage.

If coverage is suspended, the insured receives a pro rata refund of premium paid to insure that equipment. However, the suspension takes place as soon as announced, even before any applicable is offered or issued.

3. Joint or Disputed Loss Agreement

This condition keeps the insured from being a victim of insurance company disagreement. Under this provision, the loss is paid after which the insurance companies determine their portion of the loss payment.

a. This provision applies only if all of the following items are met:

· A commercial property policy and this policy are in effect.

· Property considered covered under both policies is damaged.

· The insurance companies disagree as to the amount of coverage each should pay.

b. This provision does apply if both agree there is no coverage or if there are no disagreements between the insurers.

c. The following conditions must be met in order for the terms of this provision to apply:

· The commercial property coverage form must have a Joint or Disputed Loss Agreement similar to the one in this coverage form.

· The damage to covered property can be caused by a loss where both carriers admit to some liability for payment under their respective policies. It can also be caused by a loss for which one carrier contends the other carrier is totally responsible or both carriers decline coverage but contend that the other carrier's coverage applies to all or part of the loss.

· Both the named insured and the insurance companies agree as to the total amount of the loss.

d. If these requirements are met and the named insured requests payment under this provision, each company pays its entire undisputed amount and half of the disputed amount to the insured.

Note: This condition does not modify or waive any rights that any insurer has against another insurer or any rights an insured holds against the insurer.

The disputed amount of loss paid by the equipment breakdown carrier is not more than the same loss agreement in the commercial property coverage form or the amount it would have paid if property coverage had not been in force at the time of the loss. In any event, the carrier's liability does not exceed the applicable limit of insurance on the declarations. Amounts paid and accepted by the named insured do not alter, waive or surrender any other rights it has against the insurance company.

e. Arbitration

The arbitration section of the Joint or Disputed Loss Agreement is similar to the Appraisal loss condition in commercial property coverage forms. If both insurers agree they have some liability for the loss and both agree to submit their differences to arbitration, each pays its entire undisputed amount and half of the disputed amount to the insured within 90 days. Arbitration then takes place within 90 days after the insured receives these payments.

If one insurer does not agree it has liability but does believe others do, all parties must submit differences to arbitration within 90 days of the payments made to the insured in accordance with this endorsement.

The insured agrees to cooperate with all arbitration procedures. Three arbitrators are involved. The commercial property carrier(s) appoints one and the equipment breakdown carrier(s) appoints one. These two arbitrators mutually agree on and select a third. If they cannot agree, either may request that a judge of a court having jurisdiction select the third arbitrator. Any decision agreed to by two of the three arbitrators binds both parties. Judgment on any award can be entered in any court having jurisdiction.

f. Final Settlement between Insurers

The carrier determined to be responsible for the larger portion of the ultimate loss returns the excess contribution to the other insurer(s). It must also pay liquidated damages to the other insurer(s) on the amount of its excess contribution.

Liquidated damages are interest that accrues on the disputed amount from the date the Joint or Disputed Loss Agreement is invoked until the excess amount is reimbursed. It is calculated at 1.5 times the highest prime rate from the Money Rates column of the Wall Street Journal that appears during the period of the Liquidated Damages.

Arbitration expenses are not part of the excess contribution used for the liquidated damages calculation. They are paid by the insurers on the same proportion that applies to the ultimate loss payment.

Example: Old Hotel, Ltd. uses a low-pressure steam boiler to provide heat for the premises. It has a monoline Equipment Breakdown Protection Coverage Form written with Boiler Coverage Inc. and a commercial property coverage form written with Fire Insurance, Inc. A small fire and explosion occurs but all of the damage is confined to the boiler room. The entire loss is valued at $100,000. Some of the damage is clearly a boiler loss while other damage is clearly a commercial property loss. However, a problem arises from a significant part of the loss that may be covered by either coverage form. Each carrier points out the parts of its coverage form that exclude coverage and suggests that the other carrier's coverage applies instead. Old Hotel wants to resume operations quickly but cannot do so because the two carriers cannot agree on the amount each should pay and neither insurer is willing give the hotel permission to proceed with the repairs.

Old Hotel, Ltd writes to each carrier requesting payment in accordance with the Joint or Disputed Loss Agreement.

Boiler Coverage Inc. pays $10,000 as its undisputed amount and Fire Insurance, Inc. pays $15,000 as its undisputed amount. Each then pays $37,500 as their ½ of the disputed amount. Old Hotel, Ltd is able to repair the damage.

The carriers agree to arbitration. The arbitrators determine that Fire Insurance, Inc. is responsible for 75% of the disputed amount so it must pay Boiler Coverage, Inc. $18,750 plus the interest owed on that amount starting with the date of the payment made to Old Hotel, Ltd. and ending on the date Fire Insurance Inc. reimburses Boiler Coverage, Inc.

F. DEFINITIONS

Defined words are used throughout the coverage form. Restricting their meaning to those definitions provides the means for all parties involved with the policy to have a clearer understanding of the coverage intended. EB 00 20–Equipment Breakdown Protection Coverage Form has 15 defined terms.

1. Breakdown is direct physical loss that causes such damage to covered equipment that must be repaired or replaced.

a. The direct physical loss must be one or more of the following except as excluded elsewhere is this coverage form:

· Pressure or vacuum equipment failure

· Rupture or bursting caused by centrifugal force and other types of mechanical failure

· Arcing and other types of electrical failure

b. The following situations are not covered as breakdown:

· Adjustment, alignment, calibration, cleaning, modification of equipment that results in malfunction

· Computer equipment and programs defects, erasures, errors, limitations or viruses. An inability to process date or time or to provide instructions to covered equipment is considered a defect.

· Leaking from valves, connections, joints, shaft seals, fittings or gland packing

· Vacuum tubes, gas tubes or brushes damage

· Structures or foundations damage even if the structures or foundations support covered equipment or its parts.

· Any safety or protective device function

· Cracking of any part of an internal combustion gas turbine exposed to the products of combustion.

Note: Despite this exhaustive definition, disputes arise concerning the policy’s coverage intent.

2. Business Income is the sum of the net income that would have been earned plus continuing normal operating expenses. Net income is net profit or loss before income taxes. Payroll is considered a continuing expense.

3. Business Income Actual Annual Value is the sum of net income that would have been earned plus continuing normal operating expenses incurred (including payroll that would have been earned) if an equipment breakdown loss had not occurred.

Note: This figure is used to calculate the coinsurance penalty.

4. Business Income Estimated Annual Value is the insured's estimated business income, as defined above, reported on the most recent Annual Report of Values Form filed with the insurance company.

Note: This figure is also used to calculate the coinsurance penalty.

5. Computer Equipment is programmable electronic equipment owned by the named insured that is used to store, retrieve and process data. It is also peripheral equipment that provides communication, printing and data transmission and would include such items as printers, keyboards and monitors.

Note: Computer equipment does not mean data and media.

6. Covered Equipment

a. Covered equipment is the following:

· Equipment designed and intended to operate under internal pressure or in a vacuum. It does not include equipment that operates only under the pressure of contents within it.

· Equipment that is electrical or mechanical and used to generate, transmit or use energy

· Communication equipment

· Computer equipment

· Equipment described above owned by a utility that is used exclusively to supply utility services to only the insured. If Utility Interruption coverage is provided, this equipment is not considered covered equipment.

Note: Covered equipment must be at a location on the declarations and be owned, leased or operated by the named insured. This requirement does not apply to Utility Interruption, Contingent Business Income and Extra Expense or Extra Expense Only coverages.

b. Covered equipment does not mean or include:

· Media

· Any part of pressure or vacuum equipment not under internal pressure of its contents or internal vacuum

· Insulating or refractory material except that the glass lining of covered equipment is covered.

· Non-metallic pressure or vacuum equipment unless constructed and used according to appropriate and approved regulating codes is covered.

· Catalysts

Note: A catalyst, as used in chemistry, is a substance that modifies and increases the rate of a reaction without being consumed in the process.

· Below ground vessels, piping and equipment when excavation is required in order to inspect, remove, repair or replace them

· Structures, foundations, cabinets or compartments that support or contain parts or all of covered equipment (also extends to penstock, draft tube or well casing part of this grouping).

· Vehicles, aircraft, self-propelled equipment or floating vessels, including covered equipment mounted on or used exclusively with any of these

Note: Equipment otherwise covered and occasionally used on vehicles, aircraft, self-propelled equipment or floating vessels is covered.

· Dragline, excavation or construction equipment. This includes any covered equipment mounted on or used exclusively with any of these.

Note: Equipment otherwise covered and occasionally used on dragline, excavation or construction equipment is covered.

· Maintenance property such as felt, wire, screens, dies, extrusion plates, swing hammers, grinding discs, cutting blades, non-electrical cable, chains, belts, ropes, clutch plates and brake pads. This also includes non-metal parts or any parts or tools subject to periodic replacement.

Note: The Equipment Breakdown Protection Coverage Form is not intended to insure relatively minor kinds of maintenance-type property.

· Machines or apparatus used solely for research, diagnosis, medication, surgical, therapeutic, dental or pathological purposes. This includes any covered equipment mounted on or used exclusively with any of these. Coverage can be provided for these items when Diagnostic Equipment is shown as included on the declarations.

· Equipment or equipment parts manufactured by the named insured with the intent to sell it.

7. Covered Property is property the named insured owns or property of others in its care, custody or control and for which it is legally liable.

8. Data is programmed and recorded material stored on media. It is also programming records used for electronic data processing or electronically controlled equipment.

9. Extra Expense are the additional costs the named insured incurs to operate its business during the period of restoration. These costs are in addition to its normal costs of operations during the same period had equipment breakdown loss not occurred.

10. Fungus is any type or form of fungus. It includes mold, mildew, mycotoxins, spores, scents or the byproducts produced or released by fungi.

Note: Mycotoxins are toxins or poisons produced by fungi.

11. Green is enhanced energy efficiency. It is also the use of sustainable materials or products. It is also when sustainable methods are used in construction, design, manufacturer or operations. In this form, any of these must be recognized as green by a green standards-setter. (09 11 addition)

12. Green standards-setter can be a governmental agency or another recognized organization that establishes, maintains and communicates standards for what is considered green in both products and practices. The following are currently considered green standards-setters but organizations similar to them can also be considered as such:

The U. S. Building Council Leadership in Energy and Environmental Design Program called LEED
A joint program of the U.S. Environmental Protection Agency and the U.S. Department of Energy called ENERGY STAR
A program of the Green Building initiative called Green Globes (09 11 addition)

13. Hazardous Substance is anything determined by a government agency to be a health hazard. Ammonia is an exception.

14. Media is electronic data processing or storage media. Examples are films, tapes, discs, drums or cells.

15. One Breakdown refers to an instance of an initial breakdown causes additional breakdowns, all are considered one breakdown. In addition, all breakdowns at a single location that occur at the same time as a direct result of the same event are treated as a single breakdown.

Note: This is important in the application of limits and deductibles. One breakdown means one deductible and one limit of insurance. Multiple breakdowns mean more than one deductible and multiple limits of insurance. This is similar to the 168-hour rule in earthquake and volcanic eruption.

16. Period of Restoration is a time period. It begins either when a breakdown occurs or 24 hours before the insurance company is notified of the breakdown, whichever is later.

Note: As a result, prompt loss reporting is extremely important to the insured. If notification is delayed, business income coverage does not begin until 24 hours before the notice is received.

Example: Jacklow International's equipment breaks down on 08/01/11. The insurance company is notified on 08/15/11. The period of restoration begins at the later of 08/1/11 or 08/14/11. In this case, coverage begins on 08/14/11. The delay in reporting the breakdown costs Jacklow 13 days of coverage.

It ends five days after the date that the damaged property is repaired or replaced with property of similar quality and on a timely basis.

Note: Even if unforeseen delays occur, coverage still ends when the damaged property could have been repaired or replaced on a timely basis.

17. Stock is merchandise held in storage or for sale. Raw materials, property in process and finished products are all considered stock. Supplies used to pack and ship the merchandise are also stock.

ISO EQUIPMENT BREAKDOWN PROTECTION COVERAGE FORM ANALYSIS (08 08 edition)

INTRODUCTION

The Equipment Breakdown Protection Coverage Form is more compact and easier to read. It includes provisions to include ten basic coverages, each of which is triggered by the appropriate entry on the declarations. This form was revised in 09 07 and again in 08 08.

Changes from the 09 07 edition are in bold print.

Equipment Breakdown Protection Coverage is needed because standard commercial property forms typically exclude loss or damage caused by machinery or equipment breakdowns.

EB 00 20 EQUIPMENT BREAKDOWN PROTECTION COVERAGE FORM ANALYSIS

The coverage form opens by stating that certain provisions in the form restrict coverage and encourages the insured to carefully read the entire policy to determine its rights and duties and to determine what is covered and not covered. It also points out that the insurance company uses the terms you and your to refer to the named insured and the terms we, us and our refer to the insurance company providing the coverage. It also directs attention to Section F–Definitions because understanding the definitions is critical to understanding the coverage form, along with the Coverage and Exclusions sections.

A. COVERAGE

1. Covered Cause Of Loss

The only covered cause of loss is a breakdown to covered equipment. Breakdown is a defined term, as is covered equipment, and these definitions should be examined carefully.

2. Coverages Provided

Insurance applies only to the coverages having a limit or the word INCLUDED indicated next to them on the declarations. If an entry is not made, that coverage is not provided.

Note: The limit of insurance provided for each coverage, if any, is the primary limit. If INCLUDED appears next to a coverage, that coverage is included in the total limit per breakdown.

Note: Each coverage provided applies only to the part of any loss that result directly from the covered cause of loss.

Ten coverages are available.

a. Property Damage

This coverage pays for direct damage to covered property located at the premises indicated on the declarations.

b. Expediting Expenses

This coverage applies to additional costs the insured incurs to make temporary repairs and expedite or hasten permanent repairs or replacement of the damaged property.

Example: Perfection Products incurs a covered loss to one of its production boilers. The damage is such that it cannot be repaired and a new boiler must be ordered. Delivery and installation normally takes three months but one of Perfection's customers has an identical boiler on hand if it needed to replace one of its units. The customer makes it available to Perfection at its cost and with an allowance for its storage costs. Perfection jumps at the opportunity because it will be operating again in two weeks instead of three months. Coverage applies to the additional costs because this enabled Perfection to resume operations sooner than expected.

c. Business Income And Extra Expense Or Extra Expense Only

The insured can choose to purchase combined business income and extra expense coverage or extra expense coverage only. There is no option to purchase business income coverage only.

If the insured purchases combined business income and extra expense coverage, the insurance company pays the insured’s actual loss of business income during the period of restoration, as well as the extra expenses necessarily incurred to operate the business during the period of restoration. If coverage for extra expense only is purchased, there is no coverage for business income.

The company determines its payment by analyzing the insured's operations before the loss and estimating the effect on continuing operations of the equipment breakdown.

The period of restoration ends five days after the covered equipment is back in service, unless a different number of days are indicated on the declarations.

If ordinance or law coverage is provided, the period of restoration also includes the additional time needed to demolish, remove, repair, remodel or rebuild.

If media is damaged or data is lost or corrupted, coverage applies to the actual loss of business income and/or extra expense during the period of time needed to research, replace or restore the media or data and to reprogram any instructions used with any computer equipment. Coverage does not apply to media or data not replaced or restored.

Example: Perfection Products sustains a covered loss that destroys half of its computer data. While restoring its records, Perfection decides that a business documents archive destroyed in the loss is no longer needed. The adjuster reduces the settlement to reflect that the obsolete records will not be replaced.

The insurance company pays the actual loss of business income and/or extra expense for a maximum of 30 days after the period of restoration, or $25,000, whichever is less.

d. Spoilage Damage

Coverage applies to loss or damage caused by spoilage to raw materials, property being processed and finished products. However, the insured must meet the following conditions:

The property described above must either be in storage or in the process of being manufactured;
The insured must either own the property or be legally liable under the terms of a written contract for it; and
Spoilage must be caused by a lack of or excess of power, light, heat, steam or refrigeration.

Note: Any expenses the insured incurs to reduce the amount of loss are covered, subject to the spoilage damage limit.

Example: Perfection Products' bad luck continues. This time a brownout causes a refrigerated line to go down for almost two hours. As a result, the raw milk product being processed spoils and must be discarded. This coverage applies to the value of the spoiled milk.

e. Utility Interruption

Note: This coverage is not available unless the insured purchases Business Income And Extra Expense, Extra Expense Only or Spoilage Damage coverage. That coverage then extends to include loss or damage resulting from utility services being interrupted at the insured's premises, subject to the insured meeting each of the following conditions:

The interruption must be the direct result of a breakdown to covered equipment owned, operated or controlled by the local private or public utility or distributor that directly generates, transmits, distributes or provides utility services to the insured;
The covered equipment must supply electric power, communication services, air conditioning, heating, gas, sewer, water or steam to the insured’s premises; and
The interruption of utility service must last longer than the time indicated on the declarations. At that time, coverage is effective at the initial time of the interruption, subject to any applicable deductible.

Example: Continuing Perfection's bad luck story above, the production line cannot resume operations until it is cleaned thoroughly, inspected and approved by the Board of Health. This takes four days. Perfection's Spoilage Damage deductible is 24 hours. Perfection recovers three days of lost business income, after application of the deductible.

f. Newly Acquired Premises

This coverage extends insurance to automatically apply at premises the insured purchases or leases. It begins when the insured purchases or leases the property and lasts for the number of days indicated on the declarations for Newly Acquired Premises. The broadest coverage provided at any insured premises applies to the newly acquired property, subject to the terms, conditions and deductibles that apply. The insured must inform the insurance company of the acquisition in writing as soon as practicable and pay the appropriate additional premium.

g. Ordinance Or Law Coverage

The Ordinance Or Law exclusion eliminates coverage for any increase in loss due to enforcement of ordinances or laws regulating repair, replacement or reconstruction of a building or structure. This coverage pays such costs, within certain guidelines, if the increase in the amount of loss is necessary due to the enforcement of any laws or ordinances in force at the time of the breakdown that regulate demolition, construction, repair or use of the building or structure. It pays:

Loss in value of the undamaged part of the building or structure due to enforcement of ordinances or laws requiring demolition of undamaged property;
The insured's costs to demolish and clear the site of such undamaged parts due to enforcement of ordinances or laws concerning demolition of undamaged property; and
Increased costs actually incurred to repair and reconstruct the building's damaged portions and reconstruct or remodel undamaged portions with similar property, either on the same premises or another.

It does not pay:

Costs to demolish and clear the site until the building is demolished and cleared;
Increases in loss until the damaged building or structure is actually rebuilt and approved by the appropriate government agency;
Losses due to ordinances or laws required to be complied with before the loss that the insured did not comply with;
Increases in loss that are more than the amount needed to meet the minimum requirements of any ordinance or law in effect at the time of the breakdown;
Increases in loss due to a declaration concerning hazardous substances by any government agency;
Loss sustained or expense incurred due to enforcement of any ordinance or law concerning demolition or reconstruction resulting from the presence or any activity of fungus, wet rot or dry rot; or
Costs associated with enforcement of any ordinance requiring the insured to test for, monitor, and clean up or in any way respond to the effects of fungus, wet rot or dry rot.

The insurance company does not pay the full amount of loss under this coverage if the building is damaged by a breakdown insured under this coverage form and simultaneously sustains physical damage not insured by this coverage form. If the total building damage results in ordinances or laws are enforced, this coverage pays only the proportion of such loss that the covered breakdown portion of the loss bears to the total of all physical damage.

If the insured purchased Ordinance Or Law Coverage under its Commercial Property Coverage Form, it would respond to the remaining $60,000 of the additional loss due to enforcement of the ordinance.

Note: If the building damage not insured by this coverage form was the reason the ordinance or law provision was triggered, the insurance provided by this coverage form does not apply. The commercial property coverage form insuring the damaged building is responsible for the entire amount due under ordinance or law coverage.

h. Errors And Omissions

This coverage pays for loss or damage not otherwise payable because of:

The insured’s error or unintentional omission in describing the property or where it is located;
The insured’s unintentional failure to include any owned or occupied locations as of the coverage inception date; or
An error or unintentional omission by the insured that results in cancellation of coverage at one of the insured's locations.

Errors and unintentional omissions must be corrected and reported to the insurance company as soon as they are discovered and the premium adjusted accordingly.

Note: Coverage does not apply as a result of the insured's error or unintentional omission in reporting of values or the coverage it requested.

Example: Perfection Products has a second, much smaller, location that runs the same product line as its main location. Perfection accepts an offer from a competitor to buy it on the same date that its coverage renews and leaves that location off the renewal application. Unfortunately the sale falls through. Even more unfortunately, Perfection completely forgets to notify the insurance company that coverage on that location should continue. Even worse, a significant loss occurs at the location after the policy renews that suddenly reminds Perfection of its oversight in this matter. However, the story has a happy ending because this coverage pays for Perfection's unintentional omission of this location from its renewal specifications.

i. Brands And Labels

If covered property, consisting of branded or labeled merchandise, is damaged by a breakdown, the insurance company has the option to take all or part of it at either an agreed or appraised value. In that case, the insured may:

Stamp SALVAGE on the merchandise or its container. This is only if doing so does not physically damage the merchandise.
Remove the brands or labels and re-label the merchandise or its containers to comply with applicable laws. As with stamping SALVAGE on the merchandise or its container, removing the brands or labels must not damage the merchandise.

The insurance company pays reasonable costs the insured incurs to perform either of these tasks but the costs incurred and values of the merchandise cannot be more than the applicable limit of insurance on such property.

Example: Perfection Products manufactures and sells a line of action figures under its own name. It packages these in sealed metal containers, with a code stamped on the bottom of the container that identifies the figure inside. A covered breakdown in the sealing and labeling machine causes the wrong labels to be affixed to the wrong containers and also causes the containers to be dented, although the contents themselves are not damaged. Perfection and its insurer agree to a salvage value on the damaged merchandise and Perfection stamps SALVAGE on each container. Fortunately for Perfection, the value of this additional work added to the value of the merchandise is less than the limit of insurance and is covered.

j. Contingent Business Income And Extra Expense Or Extra Expense Only Coverage

This coverage is subject to the same terms and conditions as Business Income And Extra Expense or Extra Expense Only coverage. It applies to any loss sustained by the insured that results from a breakdown of covered equipment at a premises the insured does not own or operate that negatively affects the insured's ability to deliver its products or services, or results in lower sales at any insured location indicated on the declarations. Coverage applies only to locations the insured does not own as indicated on the declarations.

The insured must do everything it can to influence the contributing or recipient business to do everything it can to resume operations and resume delivery of products or services to the insured or to accept the insured's products or services. The insured is encouraged to cooperate with contributing or recipient properties in every way possible, except for providing financial assistance not authorized by the insurance company.

Example: Teeter Totter Toys manufactures additional action figures for Perfection to meet seasonal and holiday demands that exceed Perfection's manufacturing capabilities. Unfortunately, Teeter's production line's primary power train breaks down under the strain of the additional demands on it and all production ceases. Perfection, sensing its huge sales and enormous profits slipping away, tries to influence Teeter to spend additional sums to expedite replacing the drive train and resuming production, but to no avail. Replacement parts are simply not available outside normal distribution channels and time frames. Perfection has to swallow hard and watch the holiday sales of its enormously popular line of toys dry up.

B. EXCLUSIONS

Note: Several of the exclusions are similar to exclusions found in commercial property coverage forms.

1. Ordinance Or Law

Coverage does not apply to any increase in loss due to enforcement of any ordinance or law regulating repair, use, operation, installation, clean up or disposal of covered property. This exclusion has one exception. It does not apply to a covered breakdown to electrical supply and emergency generating equipment situated on the premises of a hospital.

2. Earth Movement

Loss or damage due to earth movement is excluded. This includes earthquake, landslide, land or mine subsidence and volcanic action but is not limited to these.

Note: This exclusion is more restrictive than the same exclusion in the Commercial Property Coverage Form. Since it has no exceptions, all earth movement is excluded.

3. Water

a. The first part of this exclusion has four terms that are unchanged, three terms that are modified and one new term compared to the exclusion being replaced. The terms that are unchanged are "flood," "surface water," "tides," and "overflow of any body of water." The new term is ‘’tidal water." The modified terms are:

"waves" is broadened to be "waves, including tidal wave and tsunami." "Tidal wave" was included in the version being replaced but as a stand-alone term, not as part of the term "waves."
"or their spray" is broadened to "or spray from any of these."
"all whether driven by wind or not" is broadened to "all whether or not driven by wind, including storm surge."

Note: "Tsunami" and "storm surge" are new terms. Since neither is defined, judicial interpretation will be based on common usage and definitions in the dictionary.

b. The second part of this exclusion is unchanged. Mudslide or mudflow are not covered and were not covered previously.

c. The third part of the exclusion is broadened in two ways. The first is the how and the second is the what. In the version being replaced, water had to back up or overflow. In this new version, the water can be discharged in other ways and those other ways are not described. In the version being replaced, the water came from a sewer, drain or sump. In this new version, it can also come from a sump pump or related equipment, and the related equipment is also not described.

d. The fourth part is unchanged and sprinkler system or domestic water piping discharge that causes water damage is not covered.

e. The fifth section is new and excludes water damage from underground water seeping into doors, windows, floors, surfaces, foundations and basements.

f. The sixth section is also new. This section introduces the term "waterborne material." Damage caused by this material carried by waters described in sections a., c, and e. above, or by any material moved or carried by mudslides or mudflow described in section b. above, is not covered.

Example: The river was moving fast and picked up trees, docks and more. Mavis was thrilled that the flood did not enter her warehouse but was upset that a tree pushed against her foundation and caused an opening that allowed water into her air conditioning units. Because of this exclusion the breakdown of the air conditioning unit is not covered.

4. Nuclear Hazard

The insurance company does not pay for loss or damage arising out of nuclear reaction, radiation or radioactive contamination, however caused.

5. War Or Military Action

This exclusion lists three specific types of warlike activity. War can be undeclared or a civil war. It is important to determine who can declare war. In any action that constitutes war, coverage does not apply. In addition, any action involving military forces and/or military agents is not covered. Finally, rebellions, revolution, usurped power, insurrection and any government response to any of them are not covered.

Note: Terrorism is not listed.

6. Explosion

There is no coverage for loss or damage caused by explosion. However, coverage does apply to explosions of covered equipment involving steam boilers, piping, turbines or engines, electric steam generators, gas turbines and moving or rotating machinery when an explosion is caused by centrifugal force or mechanical breakdown.

7. Fire Or Combustion Explosion

Loss or damage caused by a fire or combustion explosion that results in a breakdown or that occurs at the same time as or ensues from a breakdown is excluded.

8. Fungus, Wet Rot And Dry Rot

Coverage does not apply to loss or damage caused by the presence or any activity of fungus, wet rot or dry rot. However, loss or damage resulting from a covered breakdown is covered.

Note: This exclusion does not apply with respect to any other coverage provided for fungus, wet rot or dry rot by this coverage form. Even then, coverage only applies for the portion of loss or damage caused by the presence or activity of fungus, wet rot or dry rot resulting from a covered breakdown.

9. Virus, Bacterium Or Other Microorganism

There is no coverage for any loss arising out of or resulting from any virus, bacterium or other microorganism that causes physical distress, illness or disease. This exclusion does not apply to loss or damage resulting from a breakdown or loss or damage caused by or resulting from fungus, wet rot or dry rot.

Note: If this exclusion is applied to a particular loss, its provisions do not create coverage for any loss otherwise excluded by the coverage form.

10. Furnace Explosion

Loss or damage caused by or resulting from an explosion within the furnace of a chemical recovery boiler or its piping to the atmosphere is not covered.

Note: These explosions are covered under the Commercial Property Coverage Form.

11. Pressure Or Electrical Testing

Coverage does not apply to loss or damage to covered equipment being tested by pressure or electrical means.

12. Fire Extinguishing Agents

The insurance company does not pay for any loss or damage caused by or resulting from water or any other agents used to extinguish a fire.

Note: This exclusion applies even when such attempts are unsuccessful.

13. Depletion, Deterioration, Corrosion, Erosion, Wear Or Tear

Loss or damage caused by depletion, deterioration, corrosion, erosion, wear and tear is excluded.

Note: The loss or damage resulting from a covered breakdown is covered.

14. Other Insurance

Loss or damage resulting in a breakdown caused by aircraft, vehicles, freezing, lightning, sinkhole collapse, smoke, riot, civil commotion, vandalism, weight of ice, sleet or snow is not covered. This exclusion applies only if coverage against these causes of loss is provided by other insurance coverage.

Note: This applies whether the insured can collect on the other insurance or not.

15. Windstorm Or Hail

Loss or damage resulting from a breakdown caused by windstorm or hail is excluded.

Note: Breakdowns due to these causes of loss are excluded, regardless of whether other coverage is available.

16. Delay Or Interruption

There is no coverage for delays or interruptions of any business, manufacturing or processing activities except as provided by Business Income And Extra Expense, Extra Expense Only or Utility Interruption coverages available under this coverage form.

17. Business Income And Extra Expense, Extra Expense Only And Utility Interruption Coverages

The following additional exclusions apply to these coverages.

There is no coverage if operations would have ended even if a breakdown had not occurred.
Coverage does not apply if the insured does not do everything needed and reasonable to resume or continue operations at the covered premises where the loss occurred.

Coverage does not extend to the period of time between when business operations could have resumed and when they actually did because of the suspension, lapse or cancellation of a contract that took place after a covered breakdown event.

18. Power, Light, Heat, Steam Or Refrigeration

Indirect loss after covered equipment breaks down due to too much or too little power, light, heat, steam or refrigeration is excluded except for the coverage provided by Business Income And Extra Expense, Extra Expense Only or Utility Interruption coverages available under this coverage form.

19. Utility Interruption Coverage

With respect to this coverage, any loss or damage caused by or resulting from acts of sabotage, collapse, deliberate acts of load shedding by the supplying utility, freezing caused by cold weather, impact of aircraft, missile or vehicle or objects falling from an aircraft or missile, lightning, riot, civil commotion, vandalism, sinkhole collapse, smoke, and weight of ice, sleet or snow is excluded. This exclusion applies whether coverage against these causes of loss is provided by other insurance coverage or not.

Note: Load shedding is the intentional reduction or cutting off of service to control overall power requirements.

20. Indirect Breakdown Damage

Indirect loss or damage caused by or resulting from a breakdown to covered equipment is excluded except for the coverage provided under Business Income And Extra Expense, Extra Expense Only, Spoilage Damage or Utility Interruption coverages available under this coverage form.

21. Neglect

There is no coverage for loss or damage that results from the insured failing to use every reasonable means to save and keep covered property from further damage during and after a loss.

C. LIMITS OF INSURANCE

1. The most the insurance company pays for any loss or damage from a single breakdown event is the applicable limit of insurance indicated on the declarations.

2. Payments are not increased if more than one insured appears on the declarations.

Example: These are the entries made on two different declarations:

Coverage	Declarations A	Declarations B
Limit Per Breakdown	$ 1,000,000	$ 1,205,000
Property Damage	$ 1,000,000	$ 1,000,000
Expediting Expense	$ INCLUDED	$ 25,000
Business Income/Extra Expense	$	$
Extra Expense Only	$ INCLUDED	$ 50,000
Extended Period Of Restoration (Number Of Days Of Coverage)	_______ Days	_______ Days
Data Or Media ($25,000 Limit of Insurance) or	$	$
Spoilage Damage	$ INCLUDED	$ 25,000
Utility Interruption	$ INCLUDED	$ 10.000
Coverage applies only if services are interrupted at least	24 Hours	24 Hours
Newly Acquired Premises	INCLUDED	INCLUDED
Number Of Days Of Coverage	_______ Days	_______ Days
Ordinance Or Law	$ INCLUDED	$ 25,000
Errors And Omissions	$ INCLUDED	$ 10,000
Brands And Labels	$ INCLUDED	$ 10,000
Contingent Business Income/Extra Expense	$ INCLUDED	$ 50,000
Covered Premises:	$	$
Sales, Services Or Materials:	$	$

4. If covered equipment is for the exclusive use of supplying utility services to the insured's premises, is owned by a private or public utility, is not in the insured's possession or for which it is legally liable, and insured under this coverage form, the Property Damage limit indicated on the declarations is deleted. It is replaced by the sum of one dollar. A slightly different provision applies if the insured is a public or private utility. If the insured is a public or private utility, this provision applies only when the covered equipment is owned by a public or private utility other than that insured.

Note: The nominal one-dollar limit exists as a technicality. Providing this limit permits the coverage form to provide indirect damage protection for consequential loss to an insured as a result of damage to this non-owned utility equipment.

5. This coverage form automatically includes five additional coverages. Each is subject to a $25,000 limit, unless a higher limit or INCLUDED is entered on the declarations. These limits are part of the Limit Of Insurance for Property Damage or the Limit Per Breakdown, not in addition to them.

a. Ammonia Contamination

This coverage applies to spoilage to covered property contaminated by ammonia. It also applies to any salvage expense.

b. Consequential Loss

This coverage applies to the reduction in value of undamaged stock parts of a product that is unmarketable.

Note: The reduction in value must be caused by physical loss or damage to another part of the product.

c. Data And Media

These are the costs incurred by the insured to research, replace or restore damaged data or media. They include the costs to reprogram instructions used in any computer equipment.

d. Hazardous Substance

Coverage applies to the additional expenses incurred by the insured to clean-up, repair, replace or dispose of covered property damaged, contaminated or polluted by a hazardous substance as defined in the coverage form. This coverage is an exception to the Ordinance Or Law exclusion.

Note: The covered expenses are additional costs incurred over and above the amount payable if no hazardous substance was involved with the loss.

e. Water Damage

Coverage applies to loss or damage to covered property damaged by water, except for damage resulting from leakage from a sprinkler system or domestic water piping.

6. Limited Coverage For Fungus, Wet Rot And Dry Rot

This coverage and limit is added:

a. Property damage

The insurance company pays for loss or damage caused by fungus, wet rot and dry rot that is a direct result of a breakdown to covered equipment that occurs during the policy period. The limit is $15,000 for all occurrences that take place during any 12-month period and does not increase the limit of insurance for covered property. A higher limit for this coverage can be indicated on the declarations.

b. Business Income And Extra Expense Or Extra Expense Only

This coverage also applies to Business Income And Extra Expense or Extra Expense Only if these coverages are provided. The loss of business income or extra expense must be due solely to loss or damage to covered property caused by fungus, wet rot or dry rot. It is limited to the loss or expense sustained in a period not exceeding 30 days, unless a different number of days is indicated on the declarations.

D. DEDUCTIBLES

1. Application Of Deductibles

The insurance company pays for loss or damage resulting from a breakdown when the amount of loss or damage exceeds the deductible for the applicable coverage indicated on the declarations, up to its limit of insurance.

Note: Deductibles apply to each applicable coverage separately, with two exceptions:

If a COMBINED deductible is shown for any coverage on the declarations. In that case, the insurance company subtracts the combined deductible amount from the aggregate amount of loss to which it applies.
If more than one type of covered equipment is involved in a single breakdown, only the highest deductible is applied to the applicable coverages.

2. Determination Of Deductibles

This coverage form has five different deductibles:

a. Dollar Deductible

This is a flat deductible the insured must pay before the insurance company makes any payment.

b. Time Deductible

A time deductible can also be referred to as a waiting period. The insurance company does not pay until the number of hours or days indicated on the declarations after the occurrence of a covered loss have passed. Loss amounts between the time of the occurrence and the end of the designated time or waiting period are the insured's financial responsibility.

Note: A day equals 24 hours.

Example: Lizzie owns a laundry. She has a five-day waiting period on her Equipment Breakdown Protection Coverage Form Business Income And Extra Expense Coverage. A critical item of equipment breaks down at
3:20 p.m. on 04/01/08. The breakdown results in the laundry being shut down until the equipment is repaired. Repairs are finished on 04/06/08 at 1:45 p.m. While business does not resume until the fifth day after the accident, the repairs are made before five 24-hour periods pass. As a result, Lizzie receives no payment under the Business Income And Extra Expense coverage.

c. Multiple Of Daily Value Deductible

A time deductible can be quite disadvantageous to the insured. The initial period after a loss frequently involves the most loss or expense. Subsequent periods involve less loss or expense because some business activity can begin or contracts can be cancelled in some cases. The consequences of such a loss can be mitigated by use of the Multiple Of Daily Value Deductible. It is calculated as follows:

1. Determine the business income that would have been earned for the entire premises where the breakdown loss occurred during the period of restoration if there was no loss.

2. Divide the figure in 1 above by the number of days the business would have operated during the period of restoration. The result is the daily value.

3. Multiply the daily value in 2 above by the number of days indicated on the declarations. The insurance company subtracts this deductible amount from the amount of loss for which it is liable. It then pays the amount of loss or damage that exceeds this deductible amount up to the applicable limit of insurance.

d. Percentage Of Loss Deductible

Example: Major Manufacturing Company has a $1,000,000 Property Damage limit on its Equipment Breakdown Protection Coverage Form. Major sustains a $300,000 loss when its primary assembling equipment breaks down. Here is what Major recovers under three different deductible approaches:

$50,000 Flat Deductible	Regular 5% Deductible	5% Percentage of Loss Deductible
$300,000 loss	$300,000 loss	$300,000 loss
–$50,000 deductible	–$50,000 deductible	–$15,000 deductible
$250,000 payment	$250,000 payment	$285,000 payment

e. Minimum Or Maximum Deductibles

This deductible is used with the Multiple Of Daily Value Deductible or the Percentage Of Loss Deductible. It allows the insured to have a definite range of payment.

If the insured selects the Multiple Of Daily Value Deductible or the Percentage Of Loss Deductible, the deductible amount is calculated and then compared to the minimum and maximum deductible indicated on the declarations. If the calculated deductible falls between the minimum and the maximum, the insured pays the calculated deductible. If the calculated deductible is less than the minimum, the insured pays the minimum deductible. If the calculated deductible is more than the maximum, the insured pays the maximum deductible.

Example: Lizzie chooses a 10% Percentage Of Loss Deductible for Property Damage and a five-day Multiple Of Daily Value Deductible for Business Income And Extra Expense. Both coverages are subject to a $500 minimum and $5,000 maximum deductible. Lizzie's boiler breakdown causes $60,000 in covered property damage and $15,000 loss of income for the 30 days her operation is shut down. Her daily value is $500.

The Property Damage deductible is $60,000 X .10 (10%) = $6,000. Since $6,000 is more than the $5,000 maximum, she is responsible for only $5,000.

The Business Income deductible is $500 X 5 (days) = $2,500. Since $2,500 falls between $500 and $5,000, Lizzie is responsible for $2,500.

E. EQUIPMENT BREAKDOWN PROTECTION CONDITIONS

These conditions are in addition to the Common Policy Conditions.

Note: Many of these loss conditions are similar to those found in commercial property coverage forms.

1. Loss Conditions

a. Abandonment

The insured cannot surrender or turn over property to the insurance company without its permission.

Example: Montgomery Metals Manufacturing's secondary production line sustains a covered equipment breakdown loss. Since business is slow, Montgomery decides it can handle all its production on its main production line and informs its insurance company that it will accept a cash settlement if it takes the equipment off Montgomery's hands. The insurance company is not interested and refuses to accept the property. Montgomery has to rethink its decision and determine its next step.

b. Appraisal

If the insured and the insurance company cannot agree on the value of property or the amount of loss, either may request an appraisal of the loss. Each party selects its own competent and impartial appraiser and they, in turn, select an umpire or have one appointed for them. Differences in value or amount that cannot be resolved are submitted to the umpire. A decision by any two parties is binding on all parties. Each party pays its own appraiser and shares the cost of the umpire equally.

Note: Even if there is an appraisal, the insurance company retains its right to deny the claim.

Example: Jane's production boiler breaks down. Jane and Cheapskate Mutual, her insurance company, cannot agree on its value. They both agree to submit the dispute to appraisal. Jane selects an experienced appraiser who just happens to be her brother. Cheapskate selects a totally impartial party who has no appraisal credentials. Both "appraisers" are rejected because Jane’s selection is biased and Cheapskate's selection is not qualified.

c. Defense

At its option, the insurance company can choose to defend the insured against suits resulting from claims by the property owners. If it does, it does so at its own expense.

d. Duties In The Event Of Loss Or Damage

The named insured has a number of duties to perform if a claim or demand for coverage occurs. It must:

Inform the insurance company of the loss or damage as soon as possible, including a description of the property involved. As a minimum, the notice should include information concerning how, when and where the loss or damage took place.
Give the insurance company a reasonable amount of time and ample opportunity to examine the damaged property before repairs begin and the physical damage of the breakdown is removed. The insured must also do whatever is needed to protect covered property from further loss or damage.
Allow the insurance company to inspect the property proving the loss or damage. This includes taking samples of both damaged and undamaged property for inspection, testing and analysis. The company must also be permitted to examine the insured's books and records and make copies of any information needed.
Send the insurance company a properly executed proof of loss on its forms within 60 days of its request to do so.
Cooperate with the insurance company as it investigates and settles the claim.

The insurance company has the right to examine any insured under oath at reasonable times concerning the claim or the insurance coverage provided. This includes the insured's books and records. The insured must acknowledge any examination by its signature.

Note: The insurance company has the option of examining anyone alone and not in the presence of any other insured.

e. Insurance Under Two Or More Coverages

When more than one coverage applies to a single loss, payment is limited to the actual amount of loss or damage, subject to any applicable deductible. No duplicate payments are made.

f. Legal Action Against Us

g. Loss Payable Clause

The insurance company pays any loss to the insured and the loss payee as their interests may appear, subject to it not being caused by the insured's conversion, secretion or embezzlement. If a cancellation notice is mailed to the insured, a similar notice must also be mailed to the loss payee. When payment is made to the loss payee, all of its rights that apply to that loss pass to the insurance company.

Note: An important right that passes to the insurance company is the right to subrogate against third parties possibly responsible for the loss.

h. Other Insurance

If other coverage identical to that provided under this coverage form applies to the same loss, this coverage form pays on a proportional basis.

If other coverage on a different basis applies to the same loss, this coverage is excess over that that other coverage.

Note: In the event of other identical coverage, the insured's obligation is on a proportional basis, not on an equal shares basis.

i. Privilege To Adjust With Owner

j. Reducing Your Loss

The insured must resume business, either partially or completely, within a reasonable period of time after a covered breakdown loss. It must also attempt to make up for lost business within a reasonable period of time that may not necessarily end when operations resume.

The insured must also use every reasonable means to reduce or avoid a business income loss. This includes:

Working extra time or overtime to continue operations at the same or another owned or acquired premises;
Working with and/or sharing property or services of other business;

Example: Sharing or leasing space and/or equipment.

Using other owned equipment, property or merchandise on hand or readily available; or
Using the salvage from damaged covered property.

k. Transfer Of Rights Of Recovery Against Others To Us

Any rights of the insured to recover damages from others are transferred to the insurance company to the extent of payments it makes. The insured must secure those rights and do nothing after a loss that negatively affects them. The insured can waive its rights against others in writing in two situations:

Before a loss to covered property or income; or
After a loss to covered property or income but only if the other party is another insured, a business the insured owns, a business that owns the insured or a tenant of the insured.

l. Valuation

Improved Equipment

The insurance company pays up to an additional 25% of the property damage loss amount to repair or replace the damaged equipment with equipment that improves the environment, increases efficiency or enhances safety. Two limitations apply. The 25% increase cannot exceed the limit of insurance indicated on the declarations and the function of the equipment must be the same after the repair as it was before the loss occurred.

Example: Maypole Metalmakers is insured under an Equipment Breakdown Protection Coverage Form with a $500,000 limit for property damage. Maypole's insurance adjuster tells Maypole's owner that its recent loss to a hydraulic press is covered. The adjuster goes on to say that he was initially going to offer to replace it with a used machine of the same model and amount of use for $42,000. However, he decides to handle the loss by buying a new model of the same press for $53,000 because it is a cleaner operating model and uses 35% less power than the old model.

Extended Warranty

Time Limit on Replacement Cost

Selling Price

Property held by the insured for sale is valued at its selling price. For the purpose of this coverage, selling price means the sales price reduced by the insured's discounts and adjusted for expenses that would have been incurred. This provision only applies to property that was manufactured by the insured, could not be replaced before its anticipated sale and is valued at more than its replacement cost.

Data and Media Damage or Loss

Loss involving mass-produced data and media is adjusted according to its replacement cost. Other data and media losses are paid based on the cost to research assemble and reproduce the data and media on blank material. However, the insurance company does not pay for any data or media, either mass-produced or custom made, that cannot be replaced with data or media of similar kind and quality or property having similar functional use.

Spoilage

Note: This provision only refers to overhead. Profit is not mentioned.

Finished products are valued at their selling price, adjusted for any discounts offered and expenses the insured otherwise would have had.

· Salvage Value of Property

If property is used for temporary repairs or other valid uses after a breakdown, its value is considered in the adjustment of any loss. This property may be purchased as expediting expenses but the insured continues to have use of it after repairs are completed. The salvage value of this property is deducted from the insurance valuation at settlement since it is a new asset the insured did not have before the loss.

m. Business Income And Extra Expense Coverage Conditions

These additional conditions apply only to Business Income And Extra Expense Coverage:

Annual Reports

The insured must complete an Annual Report of Values Form approved by the insurance company once each year. The report must reach the company within three months of the annual report date indicated on the declarations and annually afterwards.

Adjustment Of Premium

Coinsurance

If a covered business income and extra expense loss occurs and the insured did not submit the reports of value indicated above within three months of the due date, this coinsurance condition applies. The insurance company does not pay the full value of any loss if the actual business income annual value is more than the estimated business income annual value, the report is received more than three months after its due date, or the report is otherwise overdue. The amount paid is determined by the following formula:

1. Divide the estimated business income annual value by the actual business income annual value at the time of the breakdown. The result is a multiplier factor.

2. Multiply the total business income loss amount by the multiplier factor calculated in 1 above.

3. Subtract any applicable deductible from the amount determined in 2 above.

Note: The insurance company pays the lesser of the amount determined in the last step above or the business income and extra expense limit of insurance. Any remaining amount must be paid by other insurance or from the insured's own financial resources.

Note: The penalty applies separately to each location when coverage applies to more than one location.

2. General Conditions

Many of the Equipment Breakdown Protection Coverage Form general conditions are similar to those found in commercial property coverage forms.

a. Additional Insured

Persons or organizations designated as additional insureds are considered insureds under the Equipment Breakdown Protection Coverage Form to the extent of their interest.

b. Bankruptcy

The insurance company's obligations under this coverage form are not affected or changed by the bankruptcy or insolvency of the insured or the insured's estate.

c. Concealment, Misrepresentation Or Fraud

Coverage is void in the event of fraud or if any insured at any time intentionally conceals or misrepresents material facts with respect to this coverage form, covered property, its interest in covered property or a claim under this coverage form.

d. Liberalization

If the insurance company adopts coverage form revisions that broaden this coverage without making an additional premium charge any time up to 45 days before its inception date or during the policy term, the broadened coverage automatically applies to this coverage form.

e. Mortgageholder

The insurance company pays the mortgageholder for direct damage to covered property caused by or resulting from a breakdown to covered equipment in their order of precedence and as their interests may appear.

Note: Trustees are also mortgageholders.

Foreclosure or similar proceedings on covered property does not void the mortgageholder's rights under this condition.
If the insurance company refuses to pay the insured's claim because of its acts or failure to comply with coverage terms, mortgageholders are still entitled to receive claim payments but must assume additional responsibilities. If the insured did not pay the premium, the mortgageholder must do so if requested. If the insured did not submit a proof of loss, the mortgageholder must do so within 60 days after the company requests. Mortgageholders must also notify the insurance company of any ownership change or change in material hazard at the risk they become aware of.
If the insurance company refuses to pay the insured's claim because of its acts or failure to comply with coverage terms, it pays the mortgageholder. In that case, the mortgageholder's mortgage rights are transferred to the insurance company to the extent of the amount paid and the mortgageholder's right to recover the full amount of its claims is not impaired.

Note: The insurance company has the option to pay the mortgageholder the entire principal and accrued interest on the mortgage. In that case, the mortgage and note is transferred to the insurance company and the insured pays any remaining mortgage debt to the company.

If the insurance company cancels or does not renew coverage, it must give notice to the mortgageholder at least 10 days notice before the expiration date for nonpayment of premium and 30 days for all other reasons. Notice of nonrenewal must be at least 10 days before the expiration date.

Note: Statutes in many states supersede these notice periods.

If the insurance company suspends coverage, it is suspended for both the insured and the mortgageholder. The mortgageholder receives written notice of any such suspension.

f. No Benefit To Bailee

This insurance is for the benefit of the insured. Parties entrusted with an insured's covered property do not receive that benefit.

g. Policy Period, Coverage Territory

The coverage provided under the Equipment Breakdown Protection Coverage Form applies to loss or damage that occurs during the policy period and in the coverage territory, consisting of the United States of America, its territories and possessions, Puerto Rico and Canada.

h. Premium and Adjustments

The insured must report the full 100% insurable values at each location to the insurance company every year as of the anniversary date. The value for each coverage must be reported separately. The renewal premium is determined based on the rates in effect as of the renewal date for all values at risk.

The insured must maintain the records needed to complete these reports and have them available for examination by the insurance company or its representatives during normal business hours during the policy year and for 12 months after coverage expires or is cancelled.

i. Suspension

Suspended coverage can only be reinstated by issuance of an endorsement for that covered equipment.

Note: Oral statements authorizing resumption of operations are unacceptable and do not reinstate coverage.

If coverage is suspended, the insured receives a pro rata refund of premium paid to insure that equipment. However, the suspension is effective even if a refund has not been offered or made.

3. Joint Or Disputed Loss Agreement

This agreement is intended to facilitate payment of insurance proceeds when two different carriers for the property and the equipment breakdown coverage disagree about the amount of loss each pays. This condition keeps the insured from being a victim of insurance companies that disagree as to whether coverage exists or the amount of loss each is obligated to pay. Under this provision, the insured's loss is paid and the insurance companies then determine their portion of the loss payment.

Note that this condition applies only when the insurers cannot decide or determine whether coverage applies at all or the amount each owes. It does not apply if there is no dispute between the insurers or when both insurers deny any liability whatsoever.

The following conditions must be met in order for the terms of this provision to apply:

The commercial property coverage form must have a Joint Or Disputed Loss Agreement similar to the one in this coverage form.
The damage to covered property must be caused by a loss where both carriers admit to some liability for payment under their respective policies, one carrier contends that the other carrier is responsible for the entire loss, or both carriers decline coverage but contend that the other carrier's coverage applies to all or part of the loss.
Both the insured and the insurance companies agree as to the total amount of the loss.

If these requirements are met, each company pays its entire undisputed amount and half of the disputed amount to the insured.

Note that this condition does not modify or waive any rights that any insurer has against another insurer or any rights an insured holds against the insurer.

The disputed amount of loss paid by the equipment breakdown carrier is not more than the same loss agreement in the commercial property coverage form or the amount it would have paid if property coverage had not been in force at the time of the loss. In any event, the carrier's liability does not exceed the applicable limit of insurance indicated on the declarations. Amounts paid and accepted by the insured do not alter, waive or surrender any other rights it has against the insurance company.

The arbitration section of the Joint Or Disputed Loss Agreement is similar to the Appraisal loss condition in commercial property coverage forms. If both insurers agree to submit their differences to arbitration, each pays its entire undisputed amount and half of the disputed amount to the insured within 90 days. Arbitration then takes place within 90 days after the insured receives these payments. The insured agrees to cooperate with all arbitration procedures. Three arbitrators are involved. Each carrier appoints one and these two arbitrators mutually agree on and select a third. If they cannot agree, either may request that a judge of a court having jurisdiction select the third arbitrator. Any decision agreed to by two of the three arbitrators binds both parties. Judgment on any award can be entered in any court having jurisdiction.

Note: Liquidated damages are interest that accrues on the disputed amount from the date the Joint Or Disputed Loss Agreement is invoked until the excess amount is reimbursed. It is calculated at 1.5 times the highest prime rate from the Money Rates column of the Wall Street Journal that appears during the period of the Liquidated Damages.

Note: Arbitration expenses are not part of the excess contribution used for the liquidated damages calculation. They are apportioned between insurers on the same basis that the ultimate loss is apportioned.

Example: Old Hotel, Ltd. uses a low-pressure steam boiler to provide heat for the premises. It has a monoline Equipment Breakdown Protection Coverage Form written with one insurance company and a commercial property coverage form written with a different carrier. A small fire and explosion occurs but all of the damage is confined to the boiler room. Some of the damage is clearly a boiler loss while other damage is clearly a commercial property loss. However, a problem arises from a significant part of the loss that may be covered by either coverage form. Each carrier points out the parts of its coverage form that exclude coverage and suggests that the other carrier's coverage applies instead. Old Hotel wants to resume operations quickly but cannot do so because the two carriers cannot agree on the amount each should pay and neither insurer is willing give the hotel permission to proceed with the repairs. Fortunately, the carriers agree to arbitration, the insured is paid according to the formula in the arbitration clause, the needed repairs are made and operations resume. In addition, the arbitration proceedings resolve the carriers' differences relatively quickly.

F. DEFINITIONS

1. Breakdown is direct physical loss that causes damage to covered equipment requiring its repair or replacement. Direct physical loss includes failure of pressure or vacuum equipment, mechanical failure, including rupture or bursting caused by centrifugal force, or electrical failure, including arcing, unless the loss or damage is excluded elsewhere in the coverage form.

It does not mean or include loss or damage arising from inadequate or improper care and maintenance of the equipment. As a result, breakdown does not include:

Malfunction, meaning adjustment, alignment, calibration, cleaning, modification of equipment and similar actions.
Conditions in computer equipment and programs, such as defects, erasures, errors, limitations or viruses. This also includes the inability to provide instructions to covered equipment caused by or resulting from the inability to recognize and process calendar dates and times.
Damage to valves, connections, joints, shaft seals, fittings and gland packing leakage.
Damage to vacuum tubes, gas tubes or brushes.
Damage to structures or foundations that support covered equipment or its parts.
Failure of any safety or protective device to operate correctly.
Cracking of any part of an internal combustion gas turbine exposed to the products of combustion.

Note: Despite this exhaustive definition, disputes arise from time to time concerning the coverage intended.

2. Business Income is the total of the net income that would have been earned and continuing normal operating expenses. It includes payroll.

Note: Net income is net profit or loss before income taxes.

3. Business Income Actual Annual Value is the total of net income that would have been earned and continuing normal operating expenses if an equipment breakdown loss had not occurred.

Note: This figure is used to calculate the coinsurance penalty.

4. Business Income Estimated Annual Value is the insured's estimated business income, as defined above, reported on the most recent Annual Report Of Values Form filed with the insurance company.

Note: This figure is also used to calculate the coinsurance penalty.

5. Computer Equipment is the insured's programmable electronic equipment used to store, retrieve and process data. It includes peripheral equipment that provides communication, printing and data transmission, such as printers, keyboards and monitors.

Note: Computer equipment does not include data and media.

6. Covered Equipment

a. Covered equipment means or includes the following:

Equipment designed and intended to operate under pressure or in a vacuum. This can include equipment subject to mandatory state or municipal jurisdictional inspections.
Equipment used to generate, transmit or use energy
Communication equipment
Computer equipment
Equipment described above owned by a utility that supplies utility services to the insured exclusively. If Utility Interruption coverage is provided, this equipment is not considered covered equipment.

Note: Covered equipment not owned by the utility must be at a location indicated on the declarations and be owned, leased or operated by the named insured. This requirement does not apply to Utility Interruption, Contingent Business Income And Extra Expense or Extra Expense Only coverages.

b. “Covered equipment” does not mean or include:

Media
Any part of pressure or vacuum equipment not under internal pressure of its contents or internal vacuum
Insulating or refractory material

Note: The glass lining of covered equipment is covered.

Non-metallic pressure or vacuum equipment

Note: Such equipment constructed and used according to appropriate and approved regulating codes is covered.

Catalysts

Note: A catalyst, as used in chemistry, is a substance that modifies and increases the rate of a reaction without being consumed in the process.

Vessels, piping and other equipment below the surface of the ground requiring excavation to inspect, remove, repair or replace them
Structures, foundations, cabinets or compartments that support or contain parts or all of covered equipment

Note: This includes penstock, draft tube or well casing.

Vehicles, aircraft, self-propelled equipment or floating vessels, including covered equipment mounted on or used exclusively with any of these

Note: Equipment otherwise covered and occasionally used on vehicles, aircraft, self-propelled equipment or floating vessels is covered.

Dragline, excavation or construction equipment. This includes any covered equipment mounted on or used exclusively with any of these.

Note: Equipment otherwise covered and occasionally used on dragline, excavation or construction equipment is covered.

Maintenance property such as felt, wire, screens, dies, extrusion plates, swing hammers, grinding discs, cutting blades, non-electrical cable, chains, belts, ropes, clutch plates and brake pads. This also includes non-metal parts or any parts or tools subject to periodic replacement.

Note: The Equipment Breakdown Protection Coverage Form is not intended to insure relatively minor kinds of maintenance-type property.

Machines or apparatus used solely for research, diagnosis, medication, surgical, therapeutic, dental or pathological purposes. This includes any covered equipment mounted on or used exclusively with any of these unless Diagnostic Equipment is indicated as included on the declarations.
Equipment or equipment parts manufactured by the insured for sale.

7. Covered Property is property the named insured owns or property of others in its care, custody or control and for which it is legally liable.

8. Data is programmed and recorded material stored on media and programming records used for electronic data processing or electronically controlled equipment.

9. Extra Expense represents the additional costs the insured incurs to operate the business during the period of restoration. These costs are in addition to the insured's normal costs of operations during the same period if an equipment breakdown loss had not occurred.

10. Fungus is any type or form of fungus. It includes mold, mildew, mycotoxins, spores, scents or the byproducts produced or released by fungi.

Note: Mycotoxins are toxins or poisons produced by fungi.

11. Hazardous Substance is anything determined by a government agency to be a health hazard.

Note: This does not include ammonia.

12. Media is electronic data processing or storage media. Examples are films, tapes, discs, drums or cells.

13. One Breakdown. If an initial breakdown causes additional breakdowns, all are considered one breakdown. In addition, all breakdowns at a single location that occur at the same time as a direct result of the same event are considered one breakdown.

14. Period Of Restoration is a time period. It begins either when a breakdown occurs or 24 hours before the insurance company is notified of the breakdown, whichever is later.

Note: As a result, prompt loss reporting is extremely important to the insured. If notification is delayed, business income coverage does not begin until 24 hours before the notice is received.

Example: Jacklow International's equipment breaks down on 08/01/08. The insurance company is notified on 08/15/08. The period of restoration begins at the later of 08/1/08 or 08/14/08. In this case, coverage begins on 08/14/08. The delay in reporting the breakdown costs Jacklow 13 days of coverage.

It ends five days after the date that the damaged property is repaired or replaced with property of similar quality and on a timely basis.

Note: Even if unforeseen delays occur, coverage still ends when the damaged property could have been repaired or replaced on a timely basis.

15. Stock is merchandise held in storage or for sale. It also includes raw materials, property in process or finished products, including supplies used to pack and ship them.

ISO EQUIPMENT BREAKDOWN PROTECTION COVERAGE FORM ANALYSIS (09 07 edition)

INTRODUCTION

The Insurance Services Office (ISO) Boiler And Machinery Coverage Form was revised with the 07 01 edition and renamed Equipment Breakdown Protection Coverage Form. This name more accurately and completely responds to the coverage needs of the 21^st century. This change resulted in the development of completely new forms, provisions and endorsements. Coverages under the Equipment Breakdown Protection Coverage Form can be added to the Commercial Package Policy or be written on a monoline basis.

Changes from the 07 01 edition are in bold print.

Equipment Breakdown Protection Coverage is needed because standard commercial property forms typically exclude loss or damage caused by machinery or equipment breakdowns.

EB 00 20 EQUIPMENT BREAKDOWN PROTECTION COVERAGE FORM ANALYSIS

A. COVERAGE

1. Covered Cause Of Loss

The only covered cause of loss is a breakdown to covered equipment. Breakdown is a defined term, as is covered equipment, and these definitions should be examined carefully.

2. Coverages Provided

Insurance applies only to the coverages having a limit or the word INCLUDED indicated next to them on the declarations. If an entry is not made, that coverage is not provided.

Note: The limit of insurance provided for each coverage, if any, is the primary limit. If INCLUDED appears next to a coverage, that coverage is included in the total limit per breakdown.

Note: Each coverage provided applies only to the part of any loss that results directly from the covered cause of loss.