Florida 2-20 General Lines Agent (Property, Casualty, Commercial Lines and Florida Law)Property InsuranceEasy
A client owns a high-end restaurant and has a Commercial Property Policy. They recently installed a new, custom-built refrigeration system, which cost $75,000. They are concerned about the financial impact if this system were to suddenly break down due to an internal mechanical failure. Which type of coverage would be essential to protect this investment?
- AExtra Expense Coverage
- BBusiness Income Coverage
- CEquipment Breakdown Coverage
- DOrdinance or Law Coverage
Show answer & explanationAnswer & explanation
Correct answer: C. Equipment Breakdown Coverage
Equipment Breakdown Coverage is specifically designed to cover direct physical damage to covered equipment resulting from mechanical breakdown, boiler explosion, or artificially generated electrical current. A custom refrigeration system breaking down due to an internal mechanical failure falls directly under this coverage.
Why the other options are wrong
- A. Extra Expense Coverage covers expenses incurred to minimize business suspension, not the cost to repair or replace damaged equipment.
- B. Business Income Coverage covers lost profits and continuing expenses, not the physical damage to the equipment itself.
- D. Ordinance or Law Coverage addresses increased costs due to building code compliance after a loss, not equipment failure.
Equipment Breakdown Coverage
Insurance that covers direct physical loss to covered equipment caused by mechanical breakdown or sudden and accidental damage from perils like power surges, boiler explosions, and internal electrical failures.
- Covers internal equipment failures, not just external perils.
- Includes damage from mechanical breakdown, electrical arcing, pressure vessel explosion.
- Often added as an endorsement or separate policy to a Commercial Property Policy.
Memory trick: When machines fail, breakdown coverage prevails.