Property & Casualty Insurance Exam (National Portion)Property InsuranceMedium
A client operates a small manufacturing business. They are concerned about damage to their specialized machinery due to electrical surges. Which type of commercial property coverage would typically address this specific concern?
- AStandard Commercial Property Policy
- BEquipment Breakdown Coverage
- CBuilders Risk Coverage
- DBusiness Income Coverage
Show answer & explanationAnswer & explanation
Correct answer: B. Equipment Breakdown Coverage
Equipment Breakdown Coverage (formerly Boiler and Machinery) is designed to cover direct physical damage to covered equipment caused by mechanical breakdown, electrical arcing, artificially generated electrical current (like power surges), and other internal pressures. A standard commercial property policy typically excludes such perils.
Why the other options are wrong
- A. A standard commercial property policy generally excludes damage from electrical surges or mechanical breakdown, unless caused by an external covered peril like lightning.
- C. Builders Risk Coverage is for buildings under construction.
- D. Business Income Coverage covers loss of income due to covered property damage, not the damage to the equipment itself.
Equipment Breakdown Coverage
A type of commercial property insurance that covers direct physical damage to various types of equipment (e.g., boilers, machinery, electrical systems) caused by internal failures like mechanical breakdown, electrical arcing, or power surges, which are typically excluded from standard property policies.
- Covers internal breakdown of equipment.
- Includes damage from electrical surges.
- Often purchased as a separate policy or endorsement.
- Broadens coverage beyond standard property perils.
Memory trick: BROAD policies DON'T cover BREAKDOWN.