Property & Casualty Insurance Exam (National Portion)Types of PoliciesHard
A manufacturing company has a Commercial Package Policy (CPP) and wants to add coverage for potential losses due to mechanical breakdown of their production machinery. Which coverage part would they typically add to their CPP to address this specific risk?
- AEquipment Breakdown Coverage
- BInland Marine Coverage
- CCommercial General Liability Coverage
- DCommercial Property Coverage
Show answer & explanationAnswer & explanation
Correct answer: A. Equipment Breakdown Coverage
Mechanical breakdown of machinery is typically excluded under standard Commercial Property policies. To cover this specific risk, a business would add Equipment Breakdown Coverage (formerly known as Boiler and Machinery insurance) to their Commercial Package Policy.
Why the other options are wrong
- B. Inland Marine Coverage is typically used for property that is mobile in nature, instruments of transportation/communication, or property in the course of construction, not for stationary production machinery's mechanical breakdown.
- C. Commercial General Liability Coverage addresses liability to third parties for bodily injury and property damage, not physical damage to the insured's own machinery from breakdown.
- D. Commercial Property Coverage usually excludes losses caused by mechanical breakdown, as it's typically covered by a specialized form.
Equipment Breakdown Coverage
A specialized property coverage that protects against losses caused by mechanical or electrical breakdown of equipment, boilers, and machinery, often added to a Commercial Package Policy.
- Covers direct damage to covered equipment.
- Can include business income and extra expense coverage resulting from equipment breakdown.
- Covers perils typically excluded by standard commercial property policies.
Memory trick: Equipment breaks, Inland moves, Builders build.