Q

Our insured is a food processor who uses an extruder to process meat for sale. The metal tub that supplies meat to the extruder has a shaft to which is attached a metal arm that scoops the unprocessed meat into the extruder. The metal arm extends in opposite directions from the shaft until it reaches the sides of the tub from which it sweeps the unprocessed meat into the extruder.

The bearing on the shaft broke, but the breakage was not discovered until customers started finding metal shavings in their meat a month later. It seems that the broken bearing made the shaft wobble just enough to cause the sweeping arm to scrape metal off the side of the tub.

The insured has a standard ISO boiler and machinery coverage form BM 00 25. The policy agrees to pay for direct damage to the insured's property caused by an “accident” to an “object” that is manifested by a physical breakdown of the object requiring that it be repaired.

Some in our office say that the breakdown of the bearing did not become manifest until the reports of metal shavings in the meat started coming in—in other words, the break became manifest when it was discovered, not when it happened. If that is the case, none of the meat processed between the time the bearing broke and when the bad meat was discovered (over a month's worth of meat) is covered.

Others say that the breakdown of the insured object became manifest when the bearing broke, in which case the meat processed during that month is covered property.

What is your opinion?

Pennsylvania Subscriber

A

The answer to this question hinges on the interpretation of the form's definition of the term “accident.” The policy defines the term as follows: “Accident” means “a sudden and accidental breakdown of the 'object' or part of the 'object.' At the time the breakdown occurs, it must manifest itself by physical damage to the 'object' that necessitates repair or replacement.”

The bearing on the tub's shaft qualifies as a part of an “object” under the terms of the policy, so the first part of the definition is satisfied. There was a sudden and accidental breakdown of an object.

The second part of the definition requires that the breakdown of the object include physical damage (which there was) that requires repair or replacement (which it did). Having satisfied that portion of the definition of “accident,” the broken bearing appears to qualify as a covered cause of loss that caused direct damage to covered property (the meat). If that were all there was to the definition of “accident,” all the bad meat processed after the breakdown would be covered.

However, the first clause of the last sentence in the definition introduces a temporal aspect to the definition. It requires that the breakdown manifest itself by physical damage to the object that necessitates repair or replacement at the time the breakdown occurs.

Now that we recognize that the breakdown must manifest itself when it occurs, what exactly does “manifest itself” mean? One dictionary definition of the verb, “to manifest” is “to make evident or certain by showing or displaying” (Webster's Ninth New Collegiate Dictionary). The Random House Dictionary of the English Language connects the term to being readily perceived by the eye or the understanding: “evident; obvious; apparent; plain; to make manifest to the eye; show plainly.” These definitions all indicate that in order to “manifest itself,” the breakdown must show itself plainly through physical damage to the object requiring repair or replacement. And it must show itself plainly at the time of the breakdown.

This requirement that the breakdown constitute plainly visible physical damage to the object when it happens seems designed to exclude coverage for property damage caused by hidden breakdowns that may not become obvious for months after the breakdown occurs. A hidden breakdown is exactly what happened to the tub used with your insured's extruder. The breakdown was not discovered until reports of metal filings in the meat led to a tear down of the tub's mechanism. The manifestation of the physical damage occurred during the tear down, when the broken bearing was discovered.

Since the breakdown did not manifest itself at the time it occurred, but a month later, this breakdown does not meet the definition of accident in the ISO boiler and machinery coverage form. Consequently, the damaged meat is not covered.