March 2012

Checklist for Boiler & Machinery Exposures

An agent should always consider the possible need for boiler and machinery insurance for all accounts surveyed—even if there is not an obvious boiler or machinery exposure. Things to check include such typical items as air conditioning equipment, vital machines (or their key parts) that are not readily and quickly replaceable, and off-premises utilities with on-premises service entrance, piping, plumbing, or wiring.

The survey of boiler and machinery exposures requiring insurance should begin with an inspection by the insurer's boiler and machinery specialists. This inspection should encompass all boilers and other pressure vessels, as well as all other machinery and equipment eligible for boiler and machinery insurance. The resulting report should include a description of every item of eligible equipment, a statement about its condition and what it is used for, and its cost to insure.

The following items should be checked for their applicability for an insured. In this regard, it is generally good to consult with the insured's operating management to obtain information about the operations firsthand.

Named Insured:

D/B/A:

Address:

City, State:

Phone:

Fax:

Named Insured is a(n):     ___Individual     ___Partnership          ___Corporation     
     ___Limited Liability Corporation     ___Joint Venture     ___Other

General business operations:

States/territories in which insured has operations:

Location addresses:

Loss control contact name/phone:

____     1.     Description of each object to be insured. Include age, present condition, and a summary of the maintenance practices in use.

____     2.     For each object or group of similar objects, evaluate the maximum dollar loss exposure to the object, and to other property, that could result from an accident (as defined in the coverage) to that object under the worst loss situation imaginable.

____     3.     Determine the impact on the insured's operations—and the possible need for business interruption or extra expense insurance, or both—that might result from accidents to each of these objects. Consider the worst possible loss situation in terms of both the length of interruption or downtime and the dollar impact to the insured's operations.

____     4.     Consider for each object or group what emergency measures would be available to maintain operations. If operations cannot be maintained, then consider the necessary measures to restore them more quickly or to reduce the impact of the accident on the insured's operations and estimate the probable cost of such emergency measures.

____     5.     Compare the cost to insure each of the objects—with adequate limits for direct damage and for business interruption or extra expense or both—with the exposure to loss. Use this comparison to assist the insured in deciding which objects should be insured and for what coverages and amounts.

____     6.     Since some pressure vessels (e.g., air tanks or storage water heaters not operating under steam pressure) are already covered under the property insurance against loss from explosion, should they also be included under the boiler and machinery schedule? By including them in the boiler and machinery schedule, they might obtain broader coverage and would then be subject to the insurer's inspection service. Consider an exclusion of explosion (for a reduction in premium) on the property insurance for these objects to eliminate overlap with the property insurance.

____     7.     For equipment with multiple insurable components, are all components requiring insurance included in this schedule?

____     8.     Are there reserve objects, operated ninety days or less in the previous three years, eligible for premium discount?

____     9.     Compare the results of this evaluation with the current boiler and machinery insurance to determine what additions, increases, or deletions in coverage are needed.

____     10.     After evaluating the accident potential for the various insurable objects, the agent should then determine what limits of insurance should be selected for coverage A for the various objects or groups. In establishing the direct damage insurance limit, be sure to consider not only loss to insured's property but the value of property of others in the care, custody, or control of the insured also subject to damage by an insured accident.

____     11.     Has the value of boilers and other insured machinery also been included in the property insurance values? Remember, boiler and machinery insurance is not a substitute for property insurance on this equipment.

____     12.     Is the expediting expense limit adequate or (under standard policy) should it be increased? Consider in relation to extra expense insurance.

____     13.     Are all boilers and steam generators eligible (and insured) for broad coverage (including coverage against bulging, burning and cracking, as well as explosion)? If not, can recommendations be offered to make them eligible?

____     14.     Consider use of the blanket group plan, which automatically covers all objects within the groups described and also gives the insured the advantage of the automatic coverage provision of the policy. However, there are two items to be cautious of when using the blanket group plan:

a.     Be sure that the object group descriptions are broad enough to include all types and sizes of objects so that any appropriate newly acquired objects are covered.

b.     However, also be sure that the object group descriptions are not so broad that unintended objects are covered automatically at an unwanted extra premium.

____     15.     Consider whether all objects should have repair or replacement coverage or whether some could be covered for actual cash value only. Take into account the age and state of repair or obsolescence of the objects. Also consider other property that might be damaged by an insured accident to one or more covered objects and the availability of used replacement equipment. Does the lower rate and possible reduction in amount of coverage needed justify the more limited coverage?

____     16.     Does the present coverage include liability for damage to property of others not in insured's care? Bodily injury liability? Consider whether these are needed or whether the general liability coverage is adequate to cover the worst possible liability consequences of a boiler or machinery accident.

____     17.     For refrigeration or air conditioning equipment, is there a water damage loss potential from accident to this equipment greater than the $25,000 basic water damage limit? If so, has the limit been increased? For ammonia systems (or for risks with ammonia on the premises), check need for increase in the ammonia contamination limit (from $25,000 basic limit), as well.

____     18.     Is the insured subject to building, zoning, antipollution, or other laws restricting repair or replacement of buildings or equipment after a boiler or machinery accident? If so, such laws may impose a greater cost or require demolition of undamaged portions of the property. What, if any, coverage is provided against these exposures?

____     19.     Does the insured have an exposure to contamination of property by hazardous substances as a result of boiler or machinery accident? Is the boiler and machinery insurance limited as to this exposure (current standard and small business broad form policies have a $25,000 limit), and is the limit adequate to cover the exposure? If not, can adequate coverage be arranged?

____     20.     Consider the need for consequential damage insurance (spoilage option under the small business broad form) if there is property that would suffer loss or damage from change in temperature or humidity, loss of power or light, or other indirect type of loss.

____     21.     Consider with insured what combination of business interruption and extra expense insurance is needed, and the amounts and daily or monthly limit or coinsurance percentage to use.

____     22.     For business interruption, consider whether the valued form or actual loss sustained form is best suited to the insured's particular needs.

____     23.     Is insured using extra expense coverage to cover payment of extra costs of emergency repair or replacement (above expediting expense coverage)? Is the coverage broad enough to do this? (Check for property repair limitation as to “amount by which extra expense loss is reduced.”)

____     24.     Are there objects that, although not presenting a major direct damage exposure, are critical to operations and should be covered to obtain the business interruption or extra expense protection? Determine whether insurer will provide only time element coverage without direct damage coverage on these objects.

____     25.     Could repair or reconstruction and resumption of operation be delayed due to operation of building, zoning, antipollution, or other laws? By a need to dispose of property contaminated by hazardous materials? Does time element coverage extend to these exposures?

____     26.     What deductibles should be chosen for direct damage and time element cover?

     The editors would like to thank Mr. Norm Settle and Mr. Jeff Grove of the Boiler and Machinery department at Cincinnati Insurance Company for their help with this survey.