February 1, 2016
Equipment Breakdown Protection Coverage
Summary: In 2007, Insurance Services Office changed the named of the Boiler and Machinery program to Equipment Breakdown. This was done to more clearly emphasize the broadness of the coverage provided by the program. The Equipment Breakdown program is written under ISO's simplified commercial coverages program, using EB 00 20 01 13, Equipment Breakdown Protection Coverage Form. In addition, a variety of endorsements are available under the program that extend or modify the equipment breakdown coverage.
The equipment breakdown coverage declarations page, in addition to noting the policy number, named insured, mailing address, and policy period, provides spaces to show the limits of insurance for the various coverages offered through EB 00 20. Insurance applies only to a coverage for which a limit of insurance is shown on the dec page. The dec page also has spaces for listing optional coverages chosen by the insured, as well as for deductibles and additional insureds, mortgageholders, and loss payees.
For equipment breakdown coverage to apply properly, it is necessary that the declarations page be completed fully and accurately, because throughout the coverage forms and endorsements there are references to information “shown in the declarations.”
1.Covered Cause of Loss
Covered Cause of Loss is a “Breakdown” to “Covered Equipment”.
2.Coverages Provided
Each of the following coverages is provided if either a limit or the word INCLUDED is shown for that coverage in the Declarations. If neither a limit nor the word INCLUDED is shown, then that coverage is not provided.
These coverages apply only to that portion of the loss or damage that is a direct result of a Covered Cause of Loss.
a.Property Damage
We will pay for direct damage to “Covered Property” located at the premises described in the Declarations.
b.Expediting Expenses
With respect to direct damage to “Covered Property” we will pay for the extra cost you necessarily incur to:
(1)Make temporary repairs; and
(2)Expedite the permanent repairs or replacement of the damaged property.
Analysis
The covered cause of loss under EB 00 20 is a breakdown to covered equipment. These terms are defined later in the policy, but a “breakdown” is a direct physical loss that causes damage. “Covered equipment” includes not only boiler and machinery, but also electrical and communication equipment used in the generation, transmission, or utilization of energy.
The insurer will pay for direct damage to covered property that is any property that the named insured owns or that is in the care, custody, or control of the named insured and for which he is legally liable. So, nonowned property is given equal status under the property damage coverage agreement with the named insured's owned property. Note that the named insured need not directly assume the legal liability for care of the property of others; any way that the named insured becomes legally liable for the care of another's property will suffice to make such property covered property.
The insurer offers expediting expense coverage. This coverage pays the expenses the insured necessarily incurs to make temporary repairs and to get the permanent repairs done as soon as possible. The goal here is, of course, to keep the insured in business or to put him back in business as soon as possible. So, for example, if the insured calls a repairman to the place of business for quick service overnight or on a weekend, EB 00 20 will pay for that expense in order for the insured to keep operations going.
For these particular coverages, and for the ones that follow, a dollar limit or the word “included” must be shown on the dec page next to the desired coverage or there is no coverage. Using the example of the expediting expense coverage, if the insured had not put a limit of insurance next to the expediting expense column on the dec page, the cost of the overnight repair would be borne by the insured himself.
c.Business Income and Extra Expense Or Extra Expense Only
(1)We will pay:
(a)Your actual loss of “Business Income” during the “Period of Restoration”; and
(b)The “Extra Expense” you necessarily incur to operate your business during the “Period of Restoration”.
However, if coverage for “Extra Expense” only is indicated in the Declarations, then coverage for “Business Income” is not provided.
We will consider the experience of your business before the “Breakdown” and the probable experience you would have had without the “Breakdown” in determining the amount of our payment.
(2)If you have coverage for “Business Income” and “Extra Expense” or for “Extra Expense” only and:
(a)If a number of days is shown in the Declarations for Extended Period of Restoration Coverage, it will replace the five consecutive days in the definition of “Period of Restoration”.
(b)If you have coverage for Ordinance or Law, then the “Period of Restoration” is extended to include the additional period of time required for demolition, removal, repair, remodeling or reconstruction.
(c)If “Media” is damaged or “Data” is lost or corrupted, we will pay your actual loss of “Business Income” and/or “Extra Expense” during the time necessary to:
(i)Research, replace or restore the damaged “Media” or lost or corrupted “Data”; and
(ii)Reprogram instructions used in any covered “Computer Equipment”.
There shall be no coverage for any “Media” or “Data” that we determine is not or cannot be replaced or restored.
Unless a higher limit is shown in the Declarations, we will pay the lesser of your actual loss of “Business Income” and/or “Extra Expense” up to 30 days after the “Period of Restoration” or $25,000.
Analysis
Business income and extra expense coverage including ordinary payroll contemplates a single limit of loss being applicable to all covered equipment designated for coverage at the insured premises. The same percent of annual value applies to all covered equipment designated for coverage at any one premises. All base rates contemplate a limit of loss equal to 25 percent of the business income annual value.
The coverage for business income and extra expense heavily depends on the definitions of “business income,” “extra expense,” and “period of restoration.” The definitions will be discussed later in this article, but note here that the period of restoration under the terms of EB 00 20 is different from that found on the Business Income (and Extra Expense) Coverage Form, CP 00 30 10 12; see Business Income (and Extra Expense) Coverage Form.
The period of restoration on EB 00 20 begins at the time of the breakdown or twenty-four hours before the insurer receives notice of the breakdown, whichever is later, and ends five consecutive days after the damaged property is repaired or replaced (although this five-day time span can be changed if the insured so indicates on the dec page). The policy emphasizes that this should be done with reasonable speed and the replacement equipment should be of similar quality. This restoration period is a shorter time span than the insured may be used to when dealing with usual business income coverage. However, the period of restoration under EB 00 20 does take into account the extra time that may be required for repair or reconstruction due to an ordinance or law; CP 00 30 does not do this.
Another item that insureds should note concerns the amount of payment for a business income or extra expense claim. The coverage agreement states that the insurer will pay the named insured's actual loss of business income and the extra expense the named insured necessarily incurs. This means that the limit of insurance set on the declarations page by the insured for these coverages is not necessarily what the insured will be paid if a loss occurs. For example, if the insured has listed $50,000 as a limit of insurance for business income coverage and has a loss that the insurer determines to be actually worth $30,000, the insured will receive that lesser amount; the limit listed on the dec page is a ceiling on the amount of compensation the insured could receive for a business income loss.
The insured needs to keep clear records of business income since the insurer will consider the insured's experience before the loss in determining the actual loss that will be paid; good guesses or educated estimates by the insured will not be used.
EB 00 20 recognizes the world of e-commerce by declaring that if media or data is damaged or lost, it will cover actual loss of business income and extra expense during the time necessary to research and replace the damaged media and lost data. For example, if a computer virus destroys the insured's data system and he has to shut down operations in order to restore the lost data, EB 00 20 will pay for the actual loss of business income suffered by the insured. However, there are restrictions on this coverage. There is no coverage if the insurer determines that the media or data is lost forever and cannot be replaced or restored. And, there is a $25,000 cap on the amount the insurer will pay for this coverage (unless the insured has chosen a higher limit and indicated this on the dec page).
d.Spoilage Damage
(1)We will pay for the spoilage damage to raw materials, property in process or finished products, provided all of the following conditions are met:
(a)The raw materials, property in process or finished products must be in storage or in the course of being manufactured;
(b)You must own or be legally liable under written contract for the raw materials, property in process or finished products; and
(c)The spoilage damage must be due to the lack or excess of power, light, heat, steam or refrigeration.
(2)We will also pay any necessary expenses you incur to reduce the amount of loss under this coverage. We will pay such expenses to the extent that they do not exceed the amount of loss that otherwise would have been payable under this Coverage Form.
e.Utility Interruption
If you have coverage for Business Income and Extra Expense, Extra Expense” only or Spoilage Damage, that coverage is extended to include loss resulting from the interruption of utility services provided all of the following conditions are met:
(1)The interruption is the direct result of a “Breakdown” to “Covered Equipment” owned, operated or controlled by the local private or public utility or distributor that directly generates, transmits, distributes or provides utility services which you receive;
(2)The “Covered Equipment” is used to supply electric power, communication services, air conditioning, heating, gas, sewer, water or steam to your premises; and
(3)The interruption of utility service to your premises lasts at least the consecutive period of time shown in the Declarations. Once this waiting period is met, coverage will commence at the initial time of the interruption and will be subject to all applicable deductibles.
f.Newly Acquired Premises
We will automatically provide coverage at newly acquired premises you have purchased or leased. This coverage begins at the time you acquire the property and continues for a period not exceeding the number of days indicated in the Declarations for Newly Acquired Premises, under the following conditions:
(1)You must inform us, in writing, of the newly acquired premises as soon as practicable;
(2)You agree to pay an additional premium as determined by us;
(3)The coverage for these premises will be subject to the same terms, conditions, exclusions and limitations as other insured premises; and
(4)If the coverages and deductibles vary for existing premises, then the coverages for the newly acquired premises will be the broadest coverage and highest limits and deductible applicable to the existing premises.
Analysis
If electrical power fails, it is no secret that sometimes perishable stock can spoil. An endorsement can be attached to the commercial property form to give the insured coverage for just such an event; see Spoilage Coverage. EB 00 20 needs no endorsement because spoilage damage coverage is written into the form. Under this coverage, the insurer agrees to pay for spoilage damage to raw materials, property in process, or finished products, under certain conditions. These items must be in storage or in the course of being manufactured, the named insured must own or be legally liable for these items, and the spoilage damage must be due to lack or excess of power, light, heat, steam, or refrigeration. The insurer also agrees to pay any necessary expenses incurred by the named insured to reduce the amount of loss under this spoilage coverage. This means, for example, that if the insured suffers a lack of power and wants to keep any spoilage damage under control, EB 00 20 will pay the expenses the insured incurs in moving the materials from his place to another place where the materials can be preserved.
Utility interruption coverage extends the business income and extra expense and spoilage damage coverages for loss resulting from breakdown to covered equipment that is owned, operated, or controlled by a local private or public utility serving the insured premises. This means, for example, that if a power generator at the local power company suffers a mechanical failure and the insured loses electrical power, resulting in the insured shutting down its business operations, the loss of income would be covered by EB 00 20.
If the insured has business income and extra expense coverage already, why is this utility interruption coverage needed? The utility interruption coverage serves as something of a backup. If the insured purchased business income and spoilage coverages, a breakdown happening on the insured's premises leading to business income losses or spoilage damage would be covered; but, if the breakdown happened off premises, would there be a question or dispute over the coverage? The utility interruption part of EB 00 20 acts to resolve the issue in favor of the insured.
Utility interruption coverage is subject to a waiting period. The insured chooses a certain number of hours—say, twelve hours—and if the interruption of services lasts at least twelve hours, the coverage commences. The coverage will apply at the initial time of interruption, but the insured must wait for a chosen, definite period of time to pass before the coverage can come into play. The idea here is that the insurer does not want to handle a claim for business income loss or spoilage damage every time the insured has a utility power interruption lasting only a few minutes. Electricity can suddenly go off at a business, shutting down computers and lights and other things, then, just as suddenly come back on. The waiting period is meant to address these short term power interruptions and, thus, control claim frequency.
If the named insured acquires new premises during the policy period, the coverage under EB 00 20 is automatically extended to that new premises. The coverage begins at the time the named insured acquires the property but continues only for a set period of time. The insured must mark a certain number of days on the dec page, after which the coverage will end unless the insured has done certain things: inform the insurer in writing of the newly acquired premises as soon as practicable and agree to pay an additional premium for the new place. The insured does have coverage for the new premises during that set time period even if he has not notified the insurer of the new acquisition; but, the insured does have the duty to inform the insurer before the time period elapses if the insured wants the coverage to continue. The coverage for the newly acquired premises is subject to the same terms, conditions, exclusions, and limitations as other insured premises.
g.Ordinance or Law Coverage
The following applies despite the Ordinance or Law Exclusion and provided these increases in loss are necessitated by the enforcement of or compliance with any ordinance or law that is in force at the time of the “Breakdown”, which regulate the demolition, construction, repair or use of the building or structure. With respect to the building or structure that was damaged as a result of a “Breakdown”:
(1)We will pay for:
(a)The loss in value of the undamaged portion of the building or structure as a consequence of enforcement of or compliance with an ordinance or law that requires the demolition of undamaged parts of the same building or structure;
(b)Your actual cost to demolish and clear the site of the undamaged parts of the same building or structure as a consequence of enforcement of or compliance with an ordinance or law that requires the demolition of such undamaged property; and
(c)The increased cost actually and necessarily expended to:
(i)Repair or reconstruct the damaged or destroyed portions of the building or structure; and
(ii)Reconstruct or remodel the undamaged portion of that building or structure with buildings or structures of like materials, height, floor area, and style for like occupancy, whether or not demolition is required on:
i.The same premises or on another premises if you so elect. However, if you rebuild at another premises, the most we will pay is the increased cost of construction that we would have paid to rebuild at the same premises; or
ii.Another premises if the relocation is required by the ordinance or law. The most we will pay is the increased cost of construction at the new premises.
(2)We will not pay for any:
(a)Demolition or site clearing until the undamaged portions of the buildings or structures are actually demolished;
(b)Increase in loss until the damaged or destroyed buildings or structures are actually rebuilt or replaced and approved by the regulating government agency;
(c)Loss due to any ordinance or law that:
(i)You were required to comply with before the loss, even if the building was undamaged; and
(ii)You failed to comply with;
(d)Increase in the loss, excess of the amount required to meet the minimum requirement of any ordinance or law enforcement at the time of the “Breakdown”;
(e)Increase in loss resulting from a substance declared to be hazardous to health or environment by any government agency;
(f)Loss or expense sustained due to the enforcement of or compliance with any ordinance or law which requires the demolition, repair, replacement, reconstruction, remodeling or remediation of property due to the presence, growth, proliferation, spread or any activity of “Fungus”, wet or dry rot; or
(g)Costs associated with the enforcement of or compliance with any ordinance or law which requires any insured or others to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of “Fungus”, wet or dry rot.
Analysis
Exclusions (2)(f) and (g) emphasize that the policy does not cover any loss resulting form the presence of fungus or wet or dry rot. This includes losses resulting from the enforcement of laws or ordinances requiring demolition, repair, replacement, testing, or monitoring for fungus or wet or dry rot.
The 2013 revision to the form added “compliance with” ordinances or laws to augment coverage for enforcement of ordinances or laws. This is consistent with updated policy language in other forms in the ISO commercial property program.
(3)If:
(a)The building or structure is damaged by a “Breakdown” that is covered under this policy;
(b)There is other physical damage that is not covered under this policy; and
(c)As a result of the building damage in its entirety you are required to comply with the ordinance or law;
then we will not pay the full amount of the loss under this coverage. Instead, we will pay only that proportion of such loss; meaning the proportion that the covered “Breakdown” loss bears to the total physical damage.
But if the building or structure sustains direct physical damage that is not covered under this policy and such damage is the subject of the ordinance or law, then there is no Ordinance or Law coverage under this Coverage Part even if the building has also sustained damage by a covered “Breakdown”.
Analysis
This coverage section is broken down into what the insurer will pay and will not pay when it comes to the ordinance or law issue. With respect to a building or structure that was damaged as a result of a breakdown, the insurer promises to pay for several things: the loss in value of the undamaged portion of the building or structure, the actual cost to demolish and clear the site of the undamaged parts of the building or structure, the increased cost to repair or reconstruct the damaged or destroyed portions of the building or structure, and the increased cost to reconstruct or remodel the undamaged portion of the building or structure with like materials for like occupancy.
As an example, if the bursting of covered equipment blasts a hole in the insured's building, EB 00 20 would cover the increased cost to rebuild the damaged part of the building to make it comply with a local ordinance that requires entrance and exit ramps, the cost to demolish and clear the site of the undamaged part of the building because a local ordinance requires such action, the loss in value that the insured suffers for the undamaged part of the building since it has to be torn down, or the increased cost to remodel the undamaged part of the building to make it comply with the local ordinance requiring entrance and exit ramps.
As for the items that the insurer will not pay for under the ordinance or law coverage, EB 00 20 lists several items. Basically, the insurer will not pay for demolition or site clearing or the increased cost of construction until such actions occur; the insured will not get the money up front. The insurer will not pay for loss due to any ordinance or law that the insured was required to comply with before the loss but failed to do so. The insurer will not pay for any increase in the loss in excess of the minimum required by the ordinance or law. For example, if the ordinance requires two entrance and exit ramps and the insured wants to build three, EB 00 20 will pay only for the two ramps. Finally, the insurer will not pay for an increase in loss resulting from a substance that has been declared to be hazardous to health or environment. For instance, if the rebuilding or remodeling requires tearing out or otherwise disturbing asbestos, EB 00 20 will not pay for the asbestos abatement process.
There is another paragraph in the ordinance or law coverage section. Here, the insurer declares that it will pay only on a pro rata basis if the building damage is caused by both a covered breakdown and another cause that is not covered under EB 00 20.
h.Errors And Omissions
We will pay for any loss or damage, which is not otherwise payable under this Coverage Part solely because of the items listed below:
(1)Any error or unintentional omission in the description or location of property as insured under this Coverage Part or in any subsequent amendments;
(2)Any failure through error to include any premises owned or occupied by you at the inception date of this Coverage Part; or
(3)Any error or unintentional omission by you that results in cancellation of any premises insured under this policy.
No coverage is provided as a result of any error or unintentional omission by you in the reporting of values or the coverage you requested.
It is a condition of this coverage that such errors or unintentional omissions shall be reported and corrected when discovered. The policy premium will be adjusted accordingly to reflect the date the premises should have been added had no error or omission occurred.
Analysis
This coverage part recognizes that the insured may make a mistake in describing the property to be insured or in listing all the premises owned by the insured. If the insured has made an honest mistake, that is, unintentional, EB 00 20 will extend coverage for any loss or damage. The exception to this grant of coverage is a mistake in the reporting of values or the coverage requested by the insured. So, if, for example, the insured wants spoilage damage coverage but neglects to tell his agent about this or does not put a limit of insurance next to the spoilage damage column, there is no spoilage damage coverage. The insurer is requiring the insured to take some responsibility in selecting the desired coverages and fighting possible fraud on the part of the insured.
i.Brands And Labels
(1)If branded or labeled merchandise that is “Covered Property” is damaged by a “Breakdown”, we may take all or any part of the property at an agreed or appraised value. If so, you may:
(a)Stamp the word SALVAGE on the merchandise or its containers if the stamp will not physically damage the merchandise; or
(b)Remove the brands or labels if doing so will not physically damage the merchandise. You must re-label the merchandise or its containers to comply with any law.
(2)We will pay reasonable costs you incur to perform the activity described in Paragraphs (1)(a) and (1)(b), but the total we pay for these costs and the value of the damaged property will not exceed the applicable Limit of Insurance on such property.
Analysis
This coverage section extends the property damage coverage to allow the insured to stamp the word “salvage” on or remove the label from damaged merchandise at the insurer's expense, as long as the total cost does not exceed the limit of insurance noted by the insured on the dec page for such coverage. This coverage applies to covered property, that is, any property that the named insured owns or that is in the care, custody, or control of the named insured, and for which the named insured is legally liable.
If such property is damaged by a breakdown (as defined on EB 00 20), the insured most probably cannot use the property, especially if the property has a brand name on it; at the very least, such property would have to be sold at a discount price. Since the insured has thus suffered a loss, this coverage agreement provides a way for the insured to recoup some of that loss and allows the insurer to take the property for which it has paid. The stamping of the word salvage on the merchandise or the removing of the brand names is just a way to guarantee that the insurer cannot take the damaged merchandise and somehow manage to resell it as a brand name product.
j.Contingent Business Income And Extra Expense Or Extra Expense Only Coverage
(1)Subject to the same terms and conditions, the “Business Income” and “Extra Expense” or “Extra Expense” only coverage provided by this Coverage Part is extended to cover your loss, if any, resulting from a “Breakdown” to “Covered Equipment” at a premises shown in the Declarations, that is not owned or operated by you which:
(a)Wholly or partially prevents the delivery of services or materials shown in the Declarations, to you or from you to others for your account; or
(b)Results in the loss of sales at your premises shown in the Declarations.
(2)You shall use your influence to induce the contributing or recipient premises to make use of any other machinery, equipment, supplies or premises available in order to resume operations and delivery of services or materials to you, or the acceptance of products or services from you. You shall cooperate with the contributing or recipient premises to this effect in every way, but not financially unless authorized by us.
Analysis
This agreement allows an insured to extend its business income coverage due to a breakdown at a nonowned premises that is crucial to the operation of its business. For example, if the insured is located in a shopping mall and a breakdown of an electrical generator in another store causes the whole mall to close down because of a total blackout, the insured will suffer loss of business. This particular coverage agreement allows the insured to have coverage for that loss of business even though the breakdown occurred off its own premises and to equipment not owned by the insured.
We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.
The exclusions apply whether or not the loss event results in widespread damage or affects a substantial area.
1.Ordinance or Law
Increase in loss from the enforcement of or compliance with any ordinance, law, rule, regulation or ruling which restricts or regulates the repair, replacement, alteration, use, operation, construction, installation, clean-up or disposal of “Covered Property”.
However, the words use and operation shall be eliminated as respects a covered “Breakdown” to electrical supply and emergency generating equipment located on the premises of a Hospital.
2.Earth Movement
Earth movement, including, but not limited to, earthquake, tremors and aftershocks relating to earthquake, landslide, land subsidence, mine subsidence or volcanic action.
3.Water
a.Flood, surface water, waves (including tidal wave and tsunami), tides, tidal water, overflow of any body of water, or spray from any of these, all whether or not driven by wind (including storm surge);
b.Mudslide or mudflow;
c.Water that backs up or overflows or is otherwise discharged from a sewer, drain, sump, sump pump or related equipment;
d.Water damage caused by the discharge or leakage of a sprinkler system or domestic water piping;
e.Water under the ground surface pressing on, or flowing or seeping through:
(1)Foundations, walls, floors or paved surfaces;
(2)Basements, whether paved or not;
(3)Doors, windows or other openings; or
f.Waterborne material carried or otherwise moved by any of the water referred to in Paragraph a., c. or e., or material carried or otherwise moved by mudslide or mudflow.
This exclusion applies, regardless of whether any of the above, in Paragraphs a. through f., is caused by an act of nature or is otherwise caused. An example of a situation to which this exclusion applies is the situation where a dam, levee, seawall or other boundary or containment system fails in whole or in part, for any reason, to contain the water.
4.Nuclear Hazard
Nuclear reaction or radiation, or radioactive contamination, however caused.
5.War Or Military Action
a.War, including undeclared or civil war;
b.Warlike action by a military force, including action in hindering or defending against an actual or expected attack, by any government, sovereign or other authority using military personnel or other agents; or
c.Insurrection, rebellion, revolution, usurped power or action taken by governmental authority in hindering or defending against any of these.
Analysis
The exclusions section of EB 00 20 begins with the concurrent causation language that ISO has put on its current insurance coverage forms. This is an attempt to avoid recovery under the policy in concurrent causation situations. For more information on concurrent causation, see Concurrent Causation.
This particular set of exclusions presents no out of the ordinary items. Insureds should be aware of the exception for hospitals in the ordinance or law exclusion. And, of course, that exclusion is not applicable if the insured has chosen to purchase ordinance or law coverage in accordance with the insuring agreement discussed previously.
The 2013 revision to the form adds “compliance with” ordinances or laws to augment enforcement of ordinances or laws. This is consistent with updated policy language in other forms in the ISO commercial property program.
The earth movement exclusion applies to any such movement. The movements listed in the exclusion are not exclusive. The 2013 revision added “tremors and aftershocks relating to earthquake” as part of the term “earth movement.”
The water exclusion specifically identifies tidal wave, tsunami, and storm surge as excluded causes of loss. Also, not only water, but waste that backs up from a sewer, drain, or sump pump or related equipment is excluded, as is water under the ground pressing on, flowing, or seeping through walls, foundations, paved surfaces, basements, doors, and other openings. How the water escapes is not an issue; whether caused by nature or some other reason, it is excluded. For example if a dam breaks, that rush of water is excluded.
6.An explosion. However, we will pay for loss or damage caused by an explosion of “Covered Equipment” of a kind specified in a. through g. below, if not otherwise excluded in this Section B.:
a.Steam boiler;
b.Electric steam generator;
c.Steam piping;
d.Steam turbine;
e.Steam engine;
f.Gas turbine; or
g.Moving or rotating machinery when such explosion is caused by centrifugal force or mechanical breakdown.
7.Fire or combustion explosion including those that:
a.Result in a “Breakdown”;
b.Occur at the same time as a “Breakdown”; or
c.Ensue from a “Breakdown”.
8.”Fungus”, Wet Rot And Dry Rot
Presence, growth, proliferation, spread or activity of “Fungus”, wet or dry rot. However, if a “Breakdown” occurs, we will pay the resulting loss or damage.
This exclusion does not apply to the extent that coverage for “Fungus”, wet rot or dry rot is provided elsewhere in this Coverage Form and then only for that portion of any loss or damage resulting from the presence, growth, proliferation, spread or activity of “Fungus”, wet or dry rot as a result of a “Breakdown”.
9.Any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease. However:
a.If a “Breakdown” occurs, we will pay the resulting loss or damage;
b.This exclusion does not apply to loss or damage caused by or resulting from “Fungus”, wet rot or dry rot. Such loss or damage is addressed in Exclusion B.8.;
c.Regardless of the application of this exclusion to any particular loss, the provisions of this Exclusion 9. do not serve to create coverage for any loss that would otherwise be excluded under this Coverage Form.
Analysis
Exclusion 8 eliminates coverage for damage caused by fungus, which is a defined term. Coverage is also excluded for dry and wet rot. These terms are not defined. The dictionary includes mold and mildew in the definitions of wet or dry rot. This exclusion is intended to close what some courts have found to be an ambiguity in policy language concerning decay and hidden damage by being more clear as to the intent of what is not to be covered.
Exclusion 9 clarifies that although there is no coverage for the direct or indirect loss or damage from virus, bacterium, or other microorganism, the policy will pay for a resulting equipment breakdown when all other conditions are met. This exclusion is intended to prevent unintended coverage due to an unorthodox transmission of infectious material in a pandemic.
10.Explosion within the furnace of a chemical recovery type boiler or within the passage from the furnace to the atmosphere.
11.Damage to “Covered Equipment” undergoing a pressure or electrical test.
12.Water or other means used to extinguish a fire, even when the attempt is unsuccessful.
13.Depletion, deterioration, corrosion, erosion, or wear or tear. However, if a “Breakdown” occurs, we will pay the resulting loss or damage.
Analysis
These parts of the exclusion section of EB 00 20 deal with explosion loss. The reason that an equipment breakdown coverage form excludes damage from explosion is that the commercial property form covers such loss. The exclusions discussed here simply try to eliminate overlap between the boiler and machinery coverage and other property insurance.
Exclusion 6 applies to loss or damage caused by an explosion but does offer some exceptions. If the damage or loss is caused by an explosion of an object specifically listed in this exclusion, EB 00 20 will cover the loss or damage. Exclusion 11 applies to damage to covered equipment while being tested. In previous boiler and machinery policies, specific kinds of tests for specific classes of object—such as hydrostatic, pneumatic, or gas pressure test for boilers, fired vessels, and electric steam generators—were excluded under the special provisions section of some but not all object schedules. This exclusion applies to pressure or electrical testing only of covered equipment, which is a defined term on EB 00 20. Note that the exclusion applies only while the object is being tested.
14.A “Breakdown” that is caused by any of the following causes of loss if coverage for that cause of loss is provided by another policy of insurance you have, whether collectible or not:
a.Aircraft or vehicles;
b.Freezing caused by cold weather;
c.Lightning;
d.Sinkhole collapse;
e.Smoke;
f.Riot, civil commotion or vandalism; or
g.Weight of snow, ice or sleet.
15.A “Breakdown” that is caused by Windstorm or Hail.
16.A delay in, or an interruption of any business, manufacturing or processing activity except as provided by the “Business Income” and “Extra Expense”, “Extra Expense” only and Utility Interruption Coverages.
17.With respect to “Business Income” and “Extra Expense” “Extra Expense” only and Utility Interruption Coverages, the following additional exclusions shall apply:
a.The business that would not or could not have been carried on if the “Breakdown” had not occurred;
b.Your failure to use due diligence and dispatch and all reasonable means to operate your business as nearly normal as practicable at the premises shown in the Declarations; or
c.The suspension, lapse or cancellation of a contract following a “Breakdown” extending beyond the time business could have resumed if the contract had not lapsed, been suspended or cancelled.
18.Any indirect loss following a “Breakdown” to “Covered Equipment” that results from the lack or excess of power, light, heat, steam or refrigeration except as provided by the “Business Income” and “Extra Expense”, “Extra Expense” only, Spoilage Damage and Utility Interruption Coverages.
19.With respect to Utility Interruption Coverage, any loss resulting from the following additional causes of loss whether or not coverage for that cause of loss is provided by another policy you have:
a.Acts of sabotage;
b.Collapse;
c.Deliberate act(s) of load-shedding by the supplying utility;
d.Freezing caused by cold weather;
e.Impact of aircraft, missile or vehicle;
f.Impact of objects falling from an aircraft or missile;
g.Lightning;
h.Riot, civil commotion or vandalism;
i.Sinkhole collapse;
j.Smoke; or
k.Weight of snow, ice or sleet.
20.Any indirect result of a “Breakdown” to “Covered Equipment” except as provided by the “Business Income” and “Extra Expense”, “Extra Expense” only, Spoilage Damage and Utility Interruption Coverages.
21.Neglect by you to use all reasonable means to save and preserve “Covered Property” from further damage at and after the time of the loss.
Analysis
Exclusions 14 and 15 apply to causes of loss that are covered by commercial property forms. As with the previously mentioned exclusions dealing with loss caused by fire or explosion, exclusions 14 and 15 act to prevent duplicate coverage between equipment breakdown coverage and other property coverage forms. Of course, exclusion 14 does add the proviso that the exclusion applies if coverage for the cause of loss is provided by another policy; therefore, if the named insured has no other policy, EB 00 20 will provide coverage for the breakdown.
Exclusions 16 and 20 deal with indirect causes of loss; EB 00 20 is applicable to direct physical loss to covered equipment. Exclusions 17 and 21 try to force the named insured to participate in managing the amount of loss by using reasonable methods to operate the business on a normal basis after a breakdown and to preserve covered property from further damage at and after the time of loss.
1.The most we will pay for any and all coverages for loss or damage from any “One Breakdown” is the applicable Limit of Insurance shown in the Declarations.
2.Any payment made will not be increased if more than one insured is shown in the Declarations.
3.For each coverage in Paragraph A.2. if:
a.INCLUDED is shown in the Declarations, the limit for such coverage is part of, not in addition to, the Limit per Breakdown.
b.A limit is shown in the Declarations, we will not pay more than the Limit Of Insurance for each such coverage.
4.For any “Covered Equipment” that is:
a.Used solely to supply utility services to your premises;
b.Owned by a public or private utility;
c.Not in your care, custody or control and for which you are not legally liable; and
d.Covered under this Coverage Form;
the Limit Of Insurance for Property Damage stated in the Declarations is deleted and replaced by the sum of one dollar.
If you are a public or private utility, 4.b. is deleted and replaced by the following:
b.Owned by a public or private utility other than you.
5.Unless a higher limit or INCLUDED is shown in the Declarations, the most we will pay for direct damage as a direct result of a “Breakdown” to “Covered Equipment” is $25,000 for each of the following. The limits are part of, not in addition to the Limit of Insurance for Property Damage or Limit per Breakdown.
a.Ammonia Contamination
The spoilage to “Covered Property” contaminated by ammonia, including any salvage expense.
b.Consequential Loss
The reduction in the value of undamaged “Stock” parts of a product which becomes unmarketable. The reduction in value must be caused by a physical loss or damage to another part of the product.
c.Data and Media
Your cost to research, replace or restore damaged “Data” or “Media” including the cost to reprogram instructions used in any “Computer Equipment”.
d.Hazardous Substance
Any additional expenses incurred by you for the clean-up, repair or replacement or disposal of “Covered Property” that is damaged, contaminated or polluted by a “Hazardous Substance”.
As used here, additional expenses means the additional cost incurred over and above the amount that we would have paid had no “Hazardous Substance” been involved with the loss.
Ammonia is not considered to be a “Hazardous Substance” as respects this limitation.
This coverage applies despite the operation of the Ordinance or Law Exclusion.
e.Water Damage
The damage to “Covered Property” by water including any salvage expenses, except no coverage applies to such damage resulting from leakage of a sprinkler system or domestic water piping.
If “Fungus”, wet or dry rot results from damage by water as limited in this paragraph, loss or damage attributable to “Fungus”, wet or dry rot will be: (1) Limited as described in Paragraphs C.6. a.(1) through C.6.a.(5); and (2) Part of the Water Damage limit, not in addition to it.
Analysis
The limits of insurance provision specifies that the insurer will not pay more than the applicable limit of insurance shown in the declarations for all direct damage to covered property resulting from any one breakdown. What constitutes “one breakdown,” a defined term, is discussed under the definitions section in this article. This is something of an aggregate limit of insurance in that, regardless of how many of the coverages the insured has purchased, there is one overall limit that the policy will not exceed. For example, if the insured has chosen a limit per breakdown of $500,000, that is the most the insurer will pay in any one breakdown even if the various coverage parts that the insured has purchased total up to a figure above the $500,000 limit.
Furthermore, if the insured has chosen a limit of insurance for any of the coverages offered by EB 00 20, that limit is the most the insurer will pay in any one breakdown. For example, if the insured has listed $50,000 as the limit of insurance for spoilage damage, that is the most the insurer will pay for spoilage damage to raw materials, property in process, or finished products in any one breakdown even if the total spoilage damage exceeds that amount. Note here that the spoilage damage coverage agreement declares that while the insurer will pay necessary expenses to reduce the amount of loss under the coverage, these expenses are included in the limit of insurance figure. So, any expenses paid will be subtracted from the available limit of insurance.
Paragraph 4 under the limits of insurance provision pertains to covered equipment that is used solely to supply utility services to the named insured's premises but which is not owned by the named insured. This paragraph is interesting in that the limit of insurance is limited to one dollar. According to ISO, the reason for the one dollar limit is because the insured generally does not have an insurable interest in nonowned utility equipment for property damage coverage, but EB 00 20 requires that property damage coverage is needed to trigger a business income loss payment. So, in order for the insured to have the insurable interest and in turn and have the business income coverage, an insurable interest in the amount of one dollar is made part of the policy.
In addition, the policy has several items where a specific limit of insurance applies that is part of and not in addition to the limit of insurance specified in the declarations for property damage or limit per breakdown. The set limit here is $25,000, unless a higher limit is shown in the declarations.
A $25,000 limit applies to spoilage to covered property contaminated by ammonia as a result of a breakdown to covered equipment. In earlier policies, this limitation was included in the schedule for air conditioning and refrigeration equipment but not as a general limitation.
There is a $25,000 limit applicable to the reduction in value of undamaged stock parts that become unmarketable. If an item cannot be sold, it loses value. EB 00 20 will not pay for the complete loss in value but will pay up to $25,000 to the insured if this consequential loss is caused by direct damage to covered property.
Actual data or media is not covered equipment under EB 00 20. However, if media is damaged or if data is lost or corrupted, EB 00 20 will pay for actual loss of business income during the time necessary to research and restore the damaged media or lost data. In order to expedite this research and restoration and to, thus, diminish the loss of business income, EB 00 20 will pay for the cost to research and restore the damaged data or media. However, the policy will pay no more than $25,000.
There is also a $25,000 limit of coverage on the additional cost incurred by the named insured for clean up, repair or replacement, or disposal of covered property that is damaged, contaminated, or polluted as a result of a breakdown to covered equipment by any substance declared by a governmental agency to be hazardous to health; this makes the limitation apply to substances declared to be hazardous by any governmental agency—federal, state, or city. The limit applies only to the additional expenses beyond the normal expenses for which the insurer would be liable if no substance hazardous to health had been involved. It does not apply to contamination or pollution caused by ammonia (the subject of a separate limitation). Also noted in the hazardous substance limitation is the provision that it applies despite the operation of the ordinance or law exclusion.
EB 00 20 has a water damage exclusion; however, the policy does offer a small exception to that exclusion. There is $25,000 available for damage to covered property by water unless the damage results from leakage of a sprinkler system or domestic water piping. The sprinkler system leakage is, of course, a cause of loss covered by the commercial property form.
Water damage includes fungus and wet or dry rot. Courts have found that exclusions for damages caused by rot preclude recovery for any damage caused by wet or dry rot. However, courts have also found that even in the presence of water, damage from fungus cannot be said to be water damage. Removed from this section is the restriction of coverage if the damage is caused by leakage from a sprinkler system or water piping.
a.Property Damage
We will pay for loss or damage by “Fungus”, wet or dry rot only when the “Fungus”, wet or dry rot is the direct result of a “Breakdown” to “Covered Equipment” that occurs during the policy period. As used in this Limited Coverage, the term loss or damage means:
(1)Direct physical loss or damage to “Covered Property” caused by “Fungus”, wet or dry rot including the cost of removal of the “Fungus”, wet or dry rot:
(a)The cost to tear out and replace any “Covered Property” as needed to gain access to the “Fungus”, wet or dry rot; and
(b)The cost of testing performed after removal, repair, replacement or restoration of the damaged property is completed, provided there is a reason to believe that “Fungus”, wet or dry rot are present.
(2)The coverage described under Paragraph 6.a.(1) of this Limited Coverage is limited to $15,000. Regardless of the number of claims, this limit is the most we will pay for the total of all loss or damage arising out of all occurrences of “Breakdown” to “Covered Equipment” which take place within the 12-month period starting with the beginning of the present annual policy period. With respect to a particular occurrence of loss which results in “Fungus”, wet or dry rot, we will not pay more than a total of $15,000 even if the “Fungus”, wet or dry rot continues to be present or active or recurs in a later policy period.
(3)The coverage provided under this Limited Coverage does not increase the applicable Limit of Insurance on any “Covered Property”. If a particular occurrence results in loss or damage by “Fungus”, wet or dry rot, and other loss or damage, we will not pay more, for the total of all loss or damage, than the applicable Limit of Insurance on the affected “Covered Property”. If there is covered loss or damage to “Covered Property” not caused by “Fungus”, wet or dry rot, loss payment will not be limited by the terms of this Limited Coverage, except to the extent that “Fungus”, wet or dry rot causes an increase in the loss. Any such increase in the loss will be subject to the terms of this Limited Coverage.
(4)If a Revised Limit is shown in the Declarations, the amount of $15,000 in Paragraph 6.a.(2) is deleted and replaced by the amount indicated in the Declarations.
(5)If the Declarations indicates that the Separate Premises Option applies, then the amount of coverage ($15,000, unless a higher amount is shown in the Declarations) is made applicable to separate premises as described in the Declarations. For each premises so described, the amount of coverage is an annual aggregate limit, subject to the terms set forth in Paragraph 6.a.(2).
Analysis
The limited coverage for fungus and wet rot and dry rot incorporates the language of withdrawn endorsement BM 99 54 into the basic policy. Under this provision, the policy will pay the cost of tearing out and replacing covered property to gain access to the fungus, wet or dry rot, or bacteria. The policy will also pay the cost of testing the repaired or replaced equipment if there is reason to believe that fungus, wet or dry rot, or bacteria is present. The policy will provide up to $15,000 for loss or damage by fungus when the fungus is the direct result of a breakdown to covered equipment that occurs during the policy period. This is an annual aggregate provision and is not additional insurance. The aggregate amount and the period of restoration may be increased.
b.Business Income And Extra Expense Or Extra Expense Only
(1)If you have coverage for “Business Income” and “Extra Expense” or “Extra Expense” only, then Paragraph b.(1)(a) or b.(1)(b) applies provided that the incurred loss or expense satisfies the terms and conditions applicable to the “Business Income” and “Extra Expense” or “Extra Expense” only coverage.
(a)If:
(i)The “Breakdown”; or
(ii)Any damage from water resulting from the “Breakdown”
which resulted in “Fungus”, wet or dry rot, does not in itself generate a loss of “Business Income” or an “Extra Expense” but the loss of “Business Income” or “Extra Expense” is solely due to loss or damage to property caused by “Fungus”, wet or dry rot, then our payment under “Business Income” and “Extra Expense” or “Extra Expense” only is limited to the amount of loss and/or expense sustained in a period of not more than 30 days. The days need not be consecutive.
(b)If a covered loss of “Business Income” or an “Extra Expense” was caused by loss or damage other than “Fungus”, wet or dry rot but remediation of “Fungus”, wet or dry rot prolongs the “Period of Restoration”, we will pay for loss and/or expense sustained during the delay (regardless of when such a delay occurs during the “Period of Restoration”), but such coverage is limited to 30 days. The days need not be consecutive.
(2)If a Revised Number Of Days is shown in the Declarations, the number of days (30) in Paragraph b.(1)(a) or b.(1)(b) is deleted and replaced by the number of days indicated in the Declarations.
c.If you have coverage for Ordinance Or Law then with respect to Property Damage, “Business Income” and “Extra Expense” or “Extra Expense” only, we will not pay under the Ordinance Or Law coverage for:
(1)Loss or expense sustained due to the enforcement of or compliance with any ordinance or law which requires the demolition, repair, replacement, reconstruction, remodeling or remediation of property due to the presence, growth, proliferation, spread or any activity of “Fungus”, wet or dry rot; or
(2)The costs associated with the enforcement of or compliance with any ordinance or law which requires any insured or others to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of “Fungus”, wet or dry rot.
Analysis
Business income and extra expense coverage including ordinary payroll contemplate a single limit of loss being applicable to all covered equipment designated for coverage at any one premises. This section incorporates language from withdrawn endorsement BM 99 54.
Coverage is provided for either of two occurrences. In the first, coverage is provided if the breakdown is due solely to damage caused by mold. In the second, coverage is provided when presence of mold prolongs the period of restoration that was originally caused by other conditions. In both cases, the loss is limited to the amount of loss sustained in a period of thirty days, which need not be consecutive.
7.Increased Cost Of Loss And Related Expenses For “Green” Upgrades
a.Property Damage
Coverage is extended to include the additional loss or damage and related expenses incurred by you that are attributable to “Green” upgrades as a direct result of a “Breakdown” to “Covered Equipment” that occurs during the policy period. As provided in this “Green” upgrades coverage, we will pay for:
(1)Additional expense to repair or replace the damaged “Covered Property” except raw materials, property in process, finished goods and “Stock”;
(2)Related additional expenses to:
(a)Reuse or salvage the damaged “Covered Property”;
(b)Remove, transport and dispose of the recyclable damaged “Covered Property” and its construction waste to appropriate sites; and
(c)Replace the damaged portions of roof section(s) of buildings or structures with a vegetated roof in accordance with the recommended procedures of a “Green standards-setter”;
(3)Additional reasonable and customary expense to hire the services of an accredited architect or engineer with respect to any necessary design and engineering recommendations in the course of repair or replacement of damaged portions of the building; and
(4)Additional reasonable expense to pay:
(a)Fees imposed by the “Green standards-setter” in order to determine if certification or recertification is appropriate according to the organization's standard;
(b)Fees to test “Covered Equipment” following its repair or installation as replacements, when such testing is undertaken in the course of submitting to the certification or recertification process; and
(c)After repair or reconstruction is completed, to flush out the renovated space and/or conduct air quality testing of the renovated space in accordance with the recommended procedures of a “Green standards-setter” and for the purpose of mitigating indoor air quality deficiencies resulting from the repair or reconstruction of the “Covered Property”.
As used here, additional expenses are limited to the additional cost incurred over and above the amount that we would have paid had no “Green” upgrades been involved with the loss.
In addition, we will not pay for any:
(i)Further modification if the “Covered Property” fails to obtain certification, recertification or a specific level of certification; or
(ii)Additional cost to repair or replace damaged property solely for the purpose of achieving points toward certification or recertification of the property by a “Green standards-setter”.
Unless a different limit or INCLUDED is shown in the Declarations, the most we pay under this “Green” upgrades coverage is an amount equal to 25% of the total Property Damage loss otherwise recoverable, subject to a maximum limit of $100,000.
b.Business Income And Extra Expense Or Extra Expense Only
If you have coverage for “Business Income” and “Extra Expense” or “Extra Expense” only and the terms and conditions applicable to the “Business Income” and “Extra Expense” or “Extra Expense” only coverage are satisfied, then:
(1)If the remediation of the damaged “Covered Property” using “Green” upgrades prolongs the “Period of Restoration”, we will pay for loss and/or expense sustained during the delay (regardless of when such a delay occurs during the “Period of Restoration”), but such coverage is limited to 30 days. The days need not be consecutive.
(2)If a Revised Number of Days is shown in the Declarations, the number of days (30) in Paragraph b.(1) is replaced by the number of days indicated in the Declarations.
(3)As used here, the prolonged “Period of Restoration” is limited to the additional days incurred over and above the amount needed had no “Green” upgrades been involved with the loss.
c.The coverage provided under this “Green” upgrades coverage:
(1)Does not increase any of the applicable Limits of Insurance;
(2)Applies despite the operation of the Ordinance Or Law Exclusion; and
(3)Does not reduce the coverage otherwise applicable for repair or replacement of “Covered Property” that qualified as “Green” prior to loss or damage, with comparable materials and products.
Analysis
This section deals with replacement of damaged property with green upgrades. “Green” is defined later in the policy as “enhanced energy efficient or use of environmentally friendly products.” Coverage is provided for additional expenses to dispose of damaged property in an environmentally friendly way, replace damaged portions of a roof with a vegetative roof, and the hiring of an architect to make any design modifications. Vegetative roofs need a particular substructure to support the weight of the plants and the water. Application fees for certification are covered as well.
Further modifications if the construction does not meet certification requirements are not covered. The limit for green coverage is 25 percent of the total property damage loss otherwise recoverable, up to a maximum of $100,000.
1.Application of Deductibles
We will not pay for loss or damage resulting from any “One Breakdown” until the amount of covered loss or damage exceeds the deductible shown in the Declarations for each applicable coverage. We will then pay the amount of covered loss or damage in excess of the deductible, up to the applicable Limit of Insurance.
Deductibles apply separately for each applicable coverage except if:
a.A deductible is shown as COMBINED for any of the coverages in the Declarations, then we will first subtract the combined deductible amount from the aggregate amount of any loss to which the combined deductible applies; or
b.More than one “Covered Equipment” is involved in “One Breakdown”, then only one deductible, the highest, shall apply for each of the applicable coverages.
2.Determination of Deductibles
a.Dollar Deductible
If a dollar deductible is shown in the Declarations, we will first subtract the deductible amount from any loss we would otherwise pay.
b.Time Deductible
If a time deductible is shown in the Declarations, we will not be liable for any loss under that coverage that occurs during that specified time period immediately following a “Breakdown”. If a time deductible is shown in days, each day shall mean twenty-four consecutive hours.
c.Multiple of Daily Value Deductible
If a multiple of daily value is shown in the Declarations, this deductible will be calculated as follows:
(1)For the entire premises where the loss occurred, determine the total amount of “Business Income” that would have been earned during the “Period of Restoration” had no “Breakdown” taken place.
(2)Divide the result in Paragraph (1) by the number of days the business would have been open during the “Period of Restoration”. The result is the daily value.
(3)Multiply the daily value in Paragraph (2) by the number of days shown in the Declarations. We will first subtract this deductible amount from any loss we would otherwise pay. We will then pay the amount of loss or damage in excess of the deductible, up to the applicable Limit of Insurance.
d.Percentage of Loss Deductible
If a deductible is expressed as a percentage of loss in the Declarations, we will not be liable for the indicated percentage of gross amount of loss or damage (prior to the applicable deductible or coinsurance) insured under the applicable coverage.
e.Minimum or Maximum Deductibles
(1)If:
(a)A minimum dollar amount deductible is shown in the Declarations; and
(b)The dollar amount of the Multiple of Daily Value or the Percentage of Loss Deductible is less than the Minimum Deductible;
then the Minimum Deductible amount shown in the Declarations will be the applicable deductible.
(2)If:
(a)A maximum dollar amount deductible is shown in the Declarations; and
(b)The dollar amount of the Multiple of Daily Value or the Percentage of Loss Deductible is greater than the Maximum Deductible;
then the Maximum Deductible amount shown in the Declarations will be the applicable deductible.
Analysis
The deductibles listed on the declarations page next to each applicable coverage apply to that particular coverage. The deductibles apply separately for each applicable coverage in most circumstances; there are exceptions.
The insured can list an amount as a combined deductible on the dec page and then if more than one coverage is brought into the loss, the combined deductible amount is applied to the aggregate amount of loss. As an example, if the loss brings in the property damage coverage and spoilage damage coverage, then the deductibles listed separately for those particular coverages are not applied; the combined deductible listed on the dec page is applied by the insurer against the total property damage and spoilage damage loss.
The other exception is when more than one piece of covered equipment is involved in one breakdown. The insurer will not apply a deductible to each piece of equipment that has been damaged but will apply only the highest one listed on the dec page.
EB 00 20 allows for a variety of deductibles. The insured should choose one in agreement with the insurer that best fits the insured's needs and risk management plans. The descriptions of the applicability of the various deductibles are self-explanatory on EB 00 20, but the insured should be aware that EB 00 20 has a minimum deductible and a maximum deductible.
Equipment Breakdown Protection Conditions
The following conditions apply in addition to the Common Policy Conditions:
1.Loss Conditions
a.Abandonment
There can be no abandonment of any property to us.
b.Appraisal
If we and you disagree on the value of the property or the amount of loss, either may make written demand for an appraisal of the loss. In this event, each party will select a competent and impartial appraiser. The two appraisers will select an umpire. If they cannot agree, either may request that selection be made by a judge of a court having jurisdiction. The appraisers will state separately the value of the property and amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be binding.
Each party will:
(1)Pay its chosen appraiser; and
(2)Bear the other expenses of the appraisal and umpire equally.
If there is an appraisal, we will still retain our right to deny the claim.
c.Defense
We may elect to defend you against suits arising from claims of owners or property. We will do this at our expense.
d.Duties in the Event of Loss or Damage
(1)You must see that the following are done in the event of loss or damage to “Covered Property”:
(a)Give us a prompt notice of the loss or damage. Include a description of the property involved.
(b)As soon as possible, give us a description of how, when and where the loss or damage occurred.
(c)Allow us a reasonable time and opportunity to examine the property and premises before repairs are undertaken or physical evidence of the “Breakdown” is removed. But you must take whatever measures are necessary to protect the property and premises from further damage.
(d)As often as may be reasonably required, permit us to inspect the property proving the loss or damage and examine your books and records.
Also permit us to take samples of damaged and undamaged property for inspection, testing and analysis, and permit us to make copies from your books and records.
(e)Send us a signed, sworn proof of loss containing the information we request to investigate the claim. You must do this within 60 days after our request. We will supply you with the necessary forms.
(f)Cooperate with us in the investigation or settlement of the claim.
(2)We may examine any insured under oath, while not in the presence of any other insured and at such times as may be reasonably required, about any matter relating to this insurance or the claim, including an insured's books and records. In the event of an examination, an insured's answers must be signed.
e.Insurance Under Two Or More Coverages
If two or more of this policy's coverages apply to the same loss or damage, we will not pay more than the actual amount of the loss or damage.
f.Legal Action Against Us
No one may bring a legal action against us under this Coverage Part unless:
(1)There has been full compliance with all the terms of this Coverage Part; and
(2)The action is brought within 2 years after the date of the “Breakdown”; or
(3)We agree in writing that you have an obligation to pay for damage to “Covered Property” of others or until the amount of that obligation has been determined by final judgment or arbitration award. No one has the right under this policy to bring us into an action to determine your liability.
g.Loss Payable Clause
(1)We will pay you and the loss payee shown in the Declarations for loss due to a “Breakdown” to “Covered Equipment”, as interests may appear. The insurance covers the interest of the loss payee unless the loss results from conversion, secretion or embezzlement on your part.
(2)We may cancel the policy as allowed by the Cancellation Condition. Cancellation ends this agreement as to the loss payee's interest. If we cancel we will mail you and the loss payee the same advance notice.
(3)If we make any payment to the loss payee, we will obtain their rights against any other party.
h.Other Insurance
(1)You may have other insurance subject to the same plan, terms, conditions and provisions as the insurance under this Coverage Part. If you do, we will pay our share of the covered loss or damage. Our share is the proportion that the applicable Limit of Insurance under this Coverage Part bears to the Limits of Insurance of all insurance covering on the same basis.
(2)If there is other insurance covering the same loss or damage, other than that described in Paragraph (1), we will pay only for the amount of covered loss or damage in excess of the amount due from that other insurance, whether you can collect on it or not. But we will not pay more than the applicable Limit of Insurance.
i.Privilege to Adjust with Owner
In the event of loss or damage involving property of others in your care, custody or control, we have the right to settle the loss or damage with the owner of the property. A receipt for payment from the owner of that property will satisfy any claim of yours against us.
j.Reducing Your Loss
As soon as possible after a “Breakdown”, you must:
(1)Resume business, partially or completely;
(2)Make up for lost business within a reasonable period of time. This reasonable period does not necessarily end when operations are resumed; and
(3)Make use of every reasonable means to reduce or avert loss including:
(a)Working extra time or overtime at the premises or at another premises you own or acquire to carry on the same operations;
(b)Utilizing the property and/or services of other concerns;
(c)Using merchandise or other property, such as surplus machinery, duplicate parts, equipment, supplies and surplus or reserve stock you own, control or can obtain; or
(d)Salvaging the damaged “Covered Property”.
k.Transfer Of Rights Of Recovery Against Others To Us
If any person or organization to or for whom we make payment under this Coverage Part has rights to recover damages from another, those rights are transferred to us to the extent of our payment.
That person or organization must do everything necessary to secure our rights and must do nothing after loss to impair them. But you may waive your rights against another party in writing:
(1)Prior to a loss to your “Covered Property” or covered income.
(2)After a loss to your “Covered Property” or covered income only if, at time of loss, that party is one of the following:
(a)Someone insured by this insurance;
(b)A business firm:
(i) owned or controlled by you; or
(ii) that owns or controls you; or
(c)Your tenant.
This will not restrict your insurance.
Analysis
These loss conditions are in addition to common policy conditions on form IL 00 17 11 98, which also apply to this coverage part.
The abandonment and the appraisal conditions are not out of the ordinary for property coverage forms. The insured should note that either party (the insured or the insurer) can make a written demand for an appraisal if there is a disagreement over the value of the property or the amount of the loss. And, the insured should remember that even if there is an appraisal, the insurer can still deny coverage—its right to do so is not impaired by its participating in an appraisal.
The defense condition is placed in this policy because the property of others for which the insured is legally liable is considered covered property under EB 00 20, and a breakdown of the insured's covered equipment could easily damage the property of others. This damage to other people's property can lead to a lawsuit against the insured, and for this reason, EB 00 20 allows the insured defense coverage at the insurer's expense. The insurer declares that it may elect to defend, but the defense would probably be more forthcoming than such language might suggest.
The duties of the insured in the event of a loss are meant to assist the insurer in its evaluation and settlement of a claim. The insurer also declares that it may examine any insured under oath while not in the presence of any other insured and at such times as may be reasonably required, about any matter relating to the insurance or the claim; this examination includes an insured's books and records. In the event of an examination, an insured's answers must be signed. The insurer is, no doubt, trying to combat possible fraud or collusion by any insureds in either the purchase of the insurance or the making of a claim.
The loss payable clause is a provision that, together with the space for loss payee name and address on the declarations, replaces the need for loss payable clause endorsements. It provides for payment to the insured and loss payee as interests may appear and provides also that the insurance covers the interest of the loss payee unless the loss results from conversion, secretion, or embezzlement on the part of the insured. The loss payee loses its rights to payment if the named insured causes the loss through the noted crimes. The insurer agrees to mail the insured and the loss payee the same advance notice in the event of cancellation, and, if the policy is cancelled, this ends the rights of the loss payee under EB 00 20. When payment is made to the loss payee, the insurer is entitled to obtain the loss payee's rights against any other party.
Condition e. acts as an anti-stacking provision. Even if the insured has chosen more than one coverage that could apply to the same loss or damage, EB 00 20 will not pay more than the actual amount of loss. In other words, the insured cannot stack two or more coverage amounts and receive more than the actual amount of loss he suffered.
There are two separate parts to the other insurance provision. The first applies to other insurance on the same plan, terms, conditions, and provisions as under EB 00 20. It calls for pro rata sharing of the loss payment with all similar policies in proportion to the limits of insurance for each. The second other insurance provision relates to coverage other than that described in the first provision, and provides that the boiler and machinery coverage is excess of the other insurance, whether collectible or not. Of course, if that other coverage claims it is excess too, both policies will end up paying on a primary, pro rata basis.
The reducing your loss clause acts as a prod for the insured to get back into business as soon as possible after a loss. This clause requires the insured to resume business and make up for lost business as soon as possible and to try to reduce a loss as much as possible.
The transfer of rights clause is a standard simplified language subrogation clause retaining for the insurer the right of recovery against other parties when payment is made under the coverage. It requires that the person or organization to or for whom the insurer makes payment do everything necessary to secure the insurer's rights and do nothing after loss to impair them. The insured is allowed to waive his rights against another party either before or after a loss. Waiving rights to recovery prior to a loss is not that unusual, but waiving such rights after a loss is. EB 00 20 allows the named insured to waive rights to recovery after a loss if the party that receives the waiver is insured by EB 00 20, or is owned or owns the named insured business, or is a tenant of the named insured. Supposedly, these relationships would allow the insurer to adequately underwrite the risks involved so as to ease any concerns about possible fraud or collusion between the insured and a third party.
l.Valuation
(1)We will determine the value of “Covered Property” in the event of loss or damage as follows:
(a)The cost to repair, rebuild or replace the damaged property with property of same kind, capacity, size or quality on the same site or another site whichever is the less costly; or
(b)The cost actually and necessarily expended in repairing, rebuilding, or replacing on the same site or another site whichever is the less costly;
except we will not pay for such damaged property that is obsolete and useless to you.
(2)If you elect or we require that the repair or replacement of the damaged “Covered Equipment” be done in a manner that enhances safety while maintaining the existing function, then we will pay, subject to the limit of insurance, up to an additional 25% of the property damage amount for the “Covered Equipment” otherwise recoverable.
(3)If:
(a)Any damaged “Covered Property” is protected by an extended warranty, or maintenance or service contract; and
(b)That warranty or contract becomes void or unusable due to a “Breakdown”;
we will reimburse you for the unused costs of non-refundable, non-transferable warranties or contracts.
(4)Unless we agree otherwise in writing, if you do not repair or replace the damaged property within 24 months following the date of the “Breakdown”, then we will pay only the smaller of the:
(a)Cost it would have taken to repair or replace; or
(b)Actual cash value at the time of the “Breakdown”.
(5)If all of the following conditions are met, property held by you for sale will be valued at the selling price as if no loss or damage had occurred, less any discounts you offered and expenses you otherwise would have had:
(a)The property was manufactured by you;
(b)The selling price of the property is more than the replacement cost of the property; and
(c)You are unable to replace the property before its anticipated sale.
(6)We will pay for loss to damaged “Data” or “Media” as follows:
(a)Replacement cost for “Data” or “Media” that are mass produced and commercially available; and
(b)The cost you actually spend to reproduce the records on blank material for all other “Data” or “Media” including the cost of gathering or assembling information for such reproduction.
However, we will not pay for “Data” or “Media” that we determine is not or cannot be replaced with “Data” or “Media” of like kind and quality or property of similar functional use.
(7)We will determine the value of “Covered Property” under Spoilage Damage Coverage as follows:
(a)For raw materials, the replacement cost;
(b)For property in process, the replacement cost of the raw materials, the labor expended and the proper proportion of overhead charges; and
(c)For finished products, the selling price, as if no loss or damage had occurred, less any discounts you offered and expenses you otherwise would have had.
(8)Any salvage value of property obtained for temporary repairs or use following a “Breakdown” which remains after repairs are completed will be taken into consideration in the adjustment of any loss.
Analysis
The form provides for replacement cost recovery of damaged property as a part of the basic policy form. When replacement cost insurance is not desired, it is necessary to endorse the policy back to actual cash value through the use of the Actual Cash Value endorsement, EB 99 59 09 07, which deletes the property damage valuation clause of the policy form. Under the valuation provision, the insured will recover the less costly of the valuations. The insured should take note of the clause referring to the cost to replace the damaged property. The clause speaks of replacing the damaged property on the same site or another site, whichever is less costly. The insurer will pay for whichever option is less costly, but at least the insured has the option of choosing whether to remain or move after a loss.
No payment is made for lost or damaged property that is obsolete or useless to the insured. The insurer is assuming that the insured has no use for such property and does not wish to expend the limits of insurance on such property.
EB 00 20 offers the insured a bonus when it comes to repairing or replacing damaged covered property. The insurer will pay up to an additional 25 percent of the property damage loss to covered equipment if the repair or replacement enhances safety. The statement that an extra amount is available for improving the environment or increasing efficiency was removed because this is included in the section on green coverage. So, EB 00 20 offers something of a betterments coverage—not coverage for property of a better kind or quality, but coverage that will make the repaired property safer and more efficient. Presumably, the insurer will explain the difference to the insured when the valuation after loss is determined.
Sometimes the insured will have his covered property protected by a service contract. If the insured suffers a loss to that property so that the service contract is useless—that is, the property is so damaged that it cannot be serviced—EB 00 20 offers to reimburse the insured for the unused cost of that contract. For example, if the insured has purchased a twelve-month service contract at a cost of $120 for the entire year, and then has a breakdown after six months that completely destroys the property that was under the contract, the insurer will reimburse the insured for the $60 unused cost of the service contract.
The insured must repair or replace the damaged property within twenty-four months after the date of the breakdown (unless the time period is extended by the insurer in writing), or recovery of the loss is limited to the lesser of the cost it would have taken to repair the damaged property or the actual cash value of the property at the time of the breakdown. Not included in the valuation provision is the provision common to property insurance replacement cost coverage that the insured may be paid actual cash value initially and then recover the difference between actual cash value and replacement cost when replacement is completed within twenty-four months. Although this is not included in the equipment breakdown provision, most insurers would probably be agreeable to such a settlement arrangement.
The rest of the valuation condition is broken down into specific categories: property held for sale, data and media, spoilage damage, and salvage value. The property held for sale is valued at the selling price as if no damage had occurred, as long as certain listed conditions are met. Data and media are valued at replacement cost if they are mass produced and commercially available, actual cash value for all other type data and media. As for spoilage damage, raw materials and property in process are valued on a replacement cost basis; finished products are valued at selling price as if no loss or damage had occurred. The salvage value clause applies to any property that the insured obtained for temporary use following a breakdown. So, if the insured bought a generator to use on a temporary basis because the regular generator was damaged, any salvage value from that temporary generator would be taken into consideration in the adjustment of any loss; that is, the salvage value would be used to offset the loss payment to the insured.
m.The following additional conditions apply to the “Business Income” and “Extra Expense” Coverage:
(1)Annual Reports
You must complete an Annual Report of Values Form approved by us once each year. Your reports must reach us within three months of the annual report date shown in the Declarations and each anniversary of that date.
(2)Adjustment Of Premium
Upon receipt of the annual reports of values you furnish us, we will determine the amount of premium we earned for the past year. If the amount determined is more than the premium we have already charged for this coverage, you must pay the difference. If the amount determined is less than the premium we originally charged, we will refund the difference. However, the amount we return will not exceed 75% of the premium we originally charged.
(3)Coinsurance
This Coinsurance condition applies only if we did not receive your Annual Report of Values Form within three months of the due date as outlined in Paragraph (1).
(a)We will not pay the full amount of any loss if:
(i)The “Business Income Actual Annual Value” at the time of loss is greater than the “Business Income Estimated Annual Value” shown in your latest report; or
(ii)Your report was received by us more than three months after the due date, or your report is overdue.
(b)Instead we will determine the most we will pay using the following steps:
(i)Divide the “Business Income Estimated Annual Value” by the “Business Income Actual Annual Value” at the time of the “Breakdown”;
(ii)Multiply the total amount of the covered loss of “Business Income” by the figure determined in Step (i); and
(iii)Subtract any applicable deductible from the amount determined in Step (ii).
We will pay the amount determined in Step (iii) or the “Business Income” and “Extra Expense” limit of insurance, whichever is less. For the remainder, you will either have to rely on other insurance or absorb the loss yourself.
If coverage is provided for more than one premises, then this Coinsurance Condition applies separately to each premises.
Analysis
This condition applies to the business income and extra expense coverage purchased by the insured, and relies on the dec page and an annual report of actual values for the ending twelve months and estimated values for the next twelve months by the insured for operational purposes. The annual report of values was previously reported to the insurer within three months of the report date listed on the declarations page using BM 15 31 07 01). With the introduction of the Equipment Breakdown form, the mandatory reporting form has been withdrawn. Any form that provides comparable information and is acceptable to both the insured and the insurer may now be used.
The premium paid by the insured for the business income and extra expense coverage is a deposit premium, and the insurer will adjust the actual premium based on the annual reports furnished by the insured. Based on these reports, the insured may owe additional premium or be entitled to a refund, the refund being subject to a maximum 25 percent earned premium charge to cover the expenses of the insurer.
EB 00 20 offers a step-by-step plan for the application of the coinsurance condition, but the insured should know that the coinsurance condition applies only if the insurer does not receive the annual report of values from the insured within three months of the due date listed on the dec page.
a.Additional Insured
If a person or organization is designated in this Coverage Part as an additional insured, we will consider them to be an insured under this Coverage Part to the extent of their interest.
b.Bankruptcy
The bankruptcy or insolvency of you or your estate will not relieve us of an obligation under this Coverage Part.
c.Concealment, Misrepresentation Or Fraud
This Coverage Part is void in any case of fraud, intentional concealment or misrepresentation of a material fact by you or any other insured, at any time, concerning:
(1)This Coverage Part;
(2)The “Covered Property”;
(3)Your interest in the “Covered Property”; or
(4)A claim under this Coverage Part.
d.Liberalization
If we adopt any standard form revision for general use that would broaden coverage in this Coverage Part without additional premium, the broadened coverage will immediately apply to this Coverage Part if the revision is effective within 45 days prior to or during the policy period.
e.Mortgageholder
(1)The term—mortgageholder—includes trustee.
(2)We will pay for direct damage to “Covered Property” due to a “Breakdown” to “Covered Equipment” to each mortgageholder shown in the Declarations in their order of precedence, as interests may appear.
(3)The mortgageholder has the right to receive loss payment even if the mortgageholder has started foreclosure or similar action on the “Covered Property”.
(4)If we deny your claim because of your acts or because you have failed to comply with the terms of this Coverage Part, the mortgageholder will still have the right to receive loss payment if the mortgageholder:
(a)Pays any premium due under this Coverage Part at our request if you have failed to do so;
(b)Submits a signed, sworn proof of loss within 60 days after receiving notice from us of your failure to do so; and
(c)Has notified us of any change in ownership or material change in risk known to the mortgageholder.
All of the terms of this Coverage Part will then apply directly to the mortgageholder.
(5)If we pay the mortgageholder for any loss and deny payment to you because of your acts or because you have failed to comply with the terms of this Coverage Part:
(a)The mortgageholder's rights under the mortgage will be transferred to us to the extent of the amount we pay; and
(b)The mortgageholder's right to recover the full amount of the mortgageholder's claim will not be impaired.
At our option, we may pay to the mortgageholder the whole principal on the mortgage plus any accrued interest. In this event, your mortgage and note will be transferred to us and you will pay your remaining mortgage debt to us.
(6)If we cancel this policy, we will give written notice to the mortgageholder at least:
(a)10 days before the effective date of cancellation if we cancel for nonpayment of premium; or
(b)30 days before the effective date of cancellation if we cancel for any other reason.
(7)If we do not renew this policy, we will give written notice to the mortgageholder at least 10 days before the expiration date of this policy.
(8)If we suspend coverage, it will also be suspended as respects the mortgageholder. We will give written notice of the suspension to the mortgageholder.
f.No Benefit To Bailee
No person or organization, other than you, having custody of “Covered Property”, will benefit from this insurance.
g.Policy Period, Coverage Territory
Under this Coverage Part:
(1)We cover loss or damage commencing:
(a)During the policy period shown in the Declarations; and
(b)Within the coverage territory.
(2)The coverage territory is:
(a)The United States of America (including its territories and possessions);
(b)Puerto Rico; and
(c)Canada.
h.Premiums And Adjustments
You shall report to us 100% of the total insurable values at each premises every year as of the anniversary date. The values shall be reported separately for each of the coverages provided. Premium for each anniversary will be promulgated for the ensuing period on the basis of rates in effect at the anniversary date and for all values at risk.
You agree to keep the applicable records for each policy year available for inspection by our representatives at all times during business hours, during the respective policy year, and for a period of twelve months after the end of the respective policy year or after cancellation of this Coverage Part.
i.Suspension
Whenever “Covered Equipment” is found to be in, or exposed to, a dangerous condition, any of our representatives may immediately suspend the insurance against loss from a “Breakdown” to that “Covered Equipment”. This can be done by delivering or mailing a written notice of suspension to:
(1)Your last known address; or
(2)The address where the “Covered Equipment” is located.
Once suspended in this way, your insurance can be reinstated only by an endorsement for that “Covered Equipment”.
If we suspend your insurance, you will get a pro rata refund of premium for that “Covered Equipment”. But the suspension will be effective even if we have not yet made or offered a refund.
Analysis
The additional insured clause is an attempt to define the extent of the coverage granted to an additional insured under an endorsement. With the use of additional insured endorsements, confusion can arise as to just how much coverage an additional insured can get under another's policy. This clause on EB 00 20 states that the coverage is only to the extent of the additional insured's interest.
The bankruptcy, liberalization, and no benefit to bailee conditions are nothing unusual for a property policy.
For coverage to apply to loss or damage, the loss or damage must occur during the policy period shown in the declarations and within the coverage territory, which is the United States of America, Puerto Rico, and Canada.
In the 1989 revision of the boiler and machinery policy, the representations clause of previous forms was replaced by a concealment, misrepresentation, or fraud clause that clearly makes the coverage void in any case of fraud relating to the coverage or if the insured intentionally conceals or misrepresents a material fact concerning the equipment breakdown coverage, the covered property, or the insured's interest in the covered property. The current version of EB 00 20 retains this clause.
Because many times the property that is the subject of EB 00 20 has a mortgageholder's interest, EB 00 20 addresses the issue with a lengthy discussion of the rights of the mortgageholder. Each mortgageholder must be listed on the dec page and each one is then paid for direct damage to covered property as interests may appear. The mortgageholder is entitled to notice from the insurer if the policy is cancelled, nonrenewed, or suspended.
Unlike most other forms of insurance, the equipment breakdown insurance may be cancelled as to any specific piece of covered equipment that is found to be in or exposed to a dangerous condition. This suspension applies only to that piece of covered equipment and is done by delivering or mailing a written notice of suspension to the named insured's last known address or the address where the equipment is located; any mortgageholder is also entitled to notice of the suspension. Once suspended, the coverage can be reinstated only by an endorsement again adding the equipment to the policy, presumably after the insurer has reinspected the equipment and approved of its condition. The insured is entitled to a pro rata refund of the premium for the suspended piece of equipment.
a.This condition is intended to facilitate payment of insurance proceeds when:
(1)Both a commercial property policy and this equipment breakdown protection policy are in effect;
(2)Damage occurs to “Covered Property” that is insured by the commercial property policy and this equipment breakdown protection policy; and
(3)There is disagreement between the insurers as to whether there is coverage or as to the amount of the loss to be paid, if any, by each insurer under its own policies.
b.This condition does not apply if:
(1)Both the commercial property insurer(s) and we do not admit to any liability; and
(2)Neither the commercial property insurer(s) nor we contend that coverage applies under the other insurer's policy.
c.The provisions of this condition apply only if all of the following requirements are met:
(1)The commercial property policy carried by the named insured, insuring the “Covered Property”, contains a similar provision at the time of the loss or damage, with substantially the same requirements, procedures and conditions as contained in this condition;
(2)The damage to the Covered Property was caused by a loss for which:
(a)Both the commercial property insurer(s) and we admit to some liability for payment under the respective policies; or
(b)Either:
(i)The commercial property insurer(s) does not admit to any liability for payment, while we contend that:
i.All liability exists under the commercial property policy; or
ii.Some liability exists under both the commercial property policy and this equipment breakdown protection policy;
(ii)We do not admit to any liability for payment, while the commercial property insurer(s) contends that:
i.All liability exists under this equipment breakdown protection coverage policy; or
ii.Some liability exists under both the commercial property policy and this equipment breakdown protection policy; or
(iii)Both the commercial property insurer(s) and we:
i.Do not admit to any liability for payment; and
ii.Contend that some or all liability exists under the other insurer's policy; and
(c)The total amount of the loss is agreed to by you, the commercial property insurer(s) and us.
d.If the requirements listed in Paragraph c. above are satisfied, we and the commercial property insurer(s) will make payments to the extent, and in the manner, described as follows:
(1)We will pay, after your written request, the entire amount of loss that we have agreed as being covered, if any, by this equipment breakdown protection policy and one-half (1/2) the amount of the loss that is in disagreement.
(2)The commercial property insurer(s) will pay, after your written request, the entire amount of loss that they have agreed as being covered, if any, by the commercial property policy and one-half (1/2) the amount of loss that is in disagreement.
(3)Payments by the insurers of the amounts that are in disagreement, as described in Paragraphs (1) and (2), do not alter, waive or surrender any rights of any insurer against any other with regard to the portion of the loss for which each insurer is liable.
(4)The amount in disagreement to be paid by us under this condition shall not exceed the amount payable under the equivalent Loss Agreement(s) of the commercial property policy.
(5)The amount to be paid under this condition shall not exceed the amount we would have paid had no commercial property policy been in effect at the time of loss. In no event will we pay more than the applicable Limit for Insurance shown in the Declarations.
(6)Acceptance by you of sums paid under this condition does not alter, waive or surrender any other rights against us.
e.Arbitration
(1)If the circumstances described in Paragraph c.(2)(a) exist and the commercial property insurer(s) and we agree to submit our differences to arbitration, the commercial property insurer(s) and we will determine the amount each will pay and will pay the insured within 90 days. Arbitration will then take place within 90 days after payment of the loss under the terms of this condition.
(2)If any of the circumstances described in Paragraph c.(2)(b) exist, then the commercial property insurer(s) and we agree to submit our differences to arbitration within 90 days after payment of the loss under the terms of this condition.
(3)You agree to cooperate with any arbitration procedures. There will be three arbitrators: one will be appointed by us, and another will be appointed by the commercial property insurer(s). The two arbitrators will select a third arbitrator. If they cannot agree, either may request that selection be made by a judge of a court having jurisdiction. A decision agreed to by two of the three arbitrators will be binding on both parties. Judgment on any award can be entered in any court that has jurisdiction.
f.Final Settlement Between Insurers
The insurer(s) found responsible for the greater percentage of the ultimate loss must return the excess contribution to the other insurer(s). In addition, the insurer(s) found responsible for the greater portion of the loss must pay Liquidated Damages to the other insurer(s) on the amount of the excess contribution of the other insurer(s). Liquidated Damages are defined as interest from the date the insured invokes this Agreement to the date the insurer(s) that contributed the excess amount is reimbursed. The interest is calculated at 1.5 times the highest prime rate from the Money Rates column of the Wall Street Journal during the period of the Liquidated Damages. Arbitration expenses are not a part of the excess contribution for which Liquidated Damages are calculated. Arbitration expenses will be apportioned between insurers on the same basis that the ultimate loss is apportioned.
Analysis
This condition is transferred from an endorsement, BM 99 43 09 96, that has been withdrawn from use. All the procedures described in this condition are meant to handle a loss that may be covered by two or more property policies, a commercial property policy and EB 00 20. The condition is intended to facilitate payment of insurance proceeds to the insured when there is a disputed or joint loss to covered property. In other words, if the insured has suffered a property loss and there are several policies that may apply to the loss (including EB 00 20), the procedures outlined in this condition are to be followed so that the insured can be paid for his loss and not be stuck in the middle of a dispute between insurers. This way, the insured can be paid for the loss and the insurers can battle it out among themselves as to who pays how much.
The key thing for the insured to remember about this condition is that the commercial property policy must contain a similar provision at the time of loss, with substantially the same requirements, procedures, and conditions that are contained in EB 00 20. The insured must make sure the property policy and EB 00 20 are in agreement as to the joint or disputed loss settlement procedures, or the dispute between insurers will cost the insured a quick and easy settlement of his claim. One way for the insured to be sure the property policy and EB 00 20 are similar is to write the coverages with the same insurer. Or, if the coverages are written with different carriers, the insured must make certain that this joint or disputed loss agreement condition is written as is into all the property policies.
1.”Breakdown”:
a.Means the following direct physical loss, that causes damage to “Covered Equipment” and necessitates its repair or replacement:
(1)Failure of pressure or vacuum equipment;
(2)Mechanical failure including rupture or bursting caused by centrifugal force; or
(3)Electrical failure including arcing;
unless such loss or damage is otherwise excluded within this Coverage Form.
b.Does not mean or include:
(1)Malfunction including but not limited to adjustment, alignment, calibration, cleaning or modification;
(2)Defects, erasures, errors, limitations or viruses in computer equipment and programs including the inability to recognize and process any date or time or provide instructions to “Covered Equipment”;
(3)Leakage at any valve, fitting, shaft seal, gland packing, joint or connection;
(4)Damage to any vacuum tube, gas tube, or brush;
(5)Damage to any structure or foundation supporting the “Covered Equipment” or any of its parts;
(6)The functioning of any safety or protective device; or
(7)The cracking of any part on an internal combustion gas turbine exposed to the products of combustion.
2.”Business Income” means the:
a.Net Income (net Profit or Loss before income taxes) that would have been earned or incurred; and
b.Continuing normal operating expenses incurred, including payroll.
3.”Business Income Actual Annual Value” means the sum of the Net Income and continuing normal operating expenses incurred, including payroll that would have been earned had the “Breakdown” not occurred.
4.”Business Income Estimated Annual Value” means the sum of the net income and continuing normal operating expenses incurred, including payroll as estimated by you in the most recent Annual Report Of Values Form on file with us.
5.”Computer Equipment” means:
a.Your programmable electronic equipment that is used to store, retrieve and process data; and
b.Associated peripheral equipment that provides communication including input and output functions such as printing or auxiliary functions such as data transmission.
It does not include “Data” or “Media”.
6.”Covered Equipment”:
a.Means and includes any:
(1)Equipment built to operate under internal pressure or vacuum other than weight of contents;
(2)Electrical or mechanical equipment that is used in the generation, transmission or utilization of energy;
(3)Communication equipment and “Computer Equipment”; and
(4)Equipment in Paragraphs (1), (2), and (3) that is owned by a public or private utility and used solely to supply utility services to your premises.
However, if Coverage A.2.e. Utility Interruption is provided, then Paragraph 6.a.(4) does not apply.
Except for Paragraph 6.a.(4), Utility Interruption and Contingent “Business Income” and “Extra Expense” or “Extra Expense” only coverages, the “Covered Equipment” must be located at a premises described in the Declarations and be owned, leased, or operated under your control.
b.Does not mean or include any:
(1)”Media”;
(2)Part of pressure or vacuum equipment that is not under internal pressure of its contents or internal vacuum;
(3)Insulating or refractory material, but not excluding the glass lining of any “Covered Equipment”;
(4)Non-metallic pressure or vacuum equipment, unless its is constructed and used in accordance with the American Society of Mechanical Engineers (A.S.M.E.) code or another appropriate and approved code;
(5)Catalyst;
(6)Vessels, piping and other equipment that is buried below ground and requires the excavation of materials to inspect, remove, repair or replace;
(7)Structure, foundation, cabinet or compartment supporting or containing the “Covered Equipment” or part of the “Covered Equipment” including penstock, draft tube or well casing;
(8)Vehicle, aircraft, self-propelled equipment or floating vessel including any “Covered Equipment” that is mounted upon or used solely with any one or more vehicle(s), aircraft, self-propelled equipment or floating vessel;
(9)Dragline, excavation, or construction equipment including any “Covered Equipment” that is mounted upon or used solely with any one or more dragline(s), excavation, or construction equipment;
(10)Felt, wire, screen, die, extrusion plate, swing hammer, grinding disc, cutting blade, non-electrical cable, chain, belt, rope, clutch plate, brake pad, non-metal part or any part or tool subject to periodic replacement;
(11)Machine or apparatus used solely for research, diagnosis, medication, surgical, therapeutic, dental or pathological purposes including any “Covered Equipment” that is mounted upon or used solely with any one or more machine(s) or apparatus unless Diagnostic Equipment is shown as INCLUDED in the Declarations; or
(12)Equipment or any part of such equipment manufactured by you for sale.
7.”Covered Property” means any property that:
a.You own; or
b.Is in your care, custody or control and for which you are legally liable.
8.”Data” means:
a.Programmed and recorded material stored on “Media”; and
b.Programming records used for electronic data processing, or electronically controlled equipment.
9.”Extra Expense” means the additional cost you incur to operate your business during the “Period of Restoration” over and above the cost that you normally would have incurred to operate the business during the same period had no “Breakdown” occurred.
10.”Fungus” means any type or form of fungus, including mold or mildew and any mycotoxins, spores, scents or by-products produced or released by fungi.
11.”Green” means enhanced energy efficiency or use of environmentally-preferable, sustainable materials, products or methods in design, construction, manufacture or operation, as recognized by a “Green standards-setter”.
12.”Green standards-setter” means an organization or governmental agency which produces and maintains guidelines related to “Green” products and practices. “Green standards-setters” include but are not limited to:
a.The Leadership in Energy and Environmental Design (LEED®) program of the U.S. Green Building Council;
b.ENERGY STAR, a joint program of the U.S. Environmental Protection Agency and the U.S. Department of Energy; and
c.Green Globes™, a program of the Green Building Initiative.
13.”Hazardous Substance” means any substance other than ammonia that has been declared to be hazardous to health by a government agency.
14.”Media” means electronic data processing or storage media such as films, tapes, discs, drums or cells.
15.”One Breakdown” means if an initial “Breakdown” causes other “Breakdowns”, all will be considered “One Breakdown”. All “Breakdowns” at any one premises that manifest themselves at the same time and are the direct result of the same cause will be considered “One Breakdown”.
16.”Period of Restoration” means the period of time that:
a.Begins at the time of the “Breakdown” or 24 hours before we receive notice of “Breakdown”, whichever is later; and
b.Ends five consecutive days after the date when the damaged property at the premises described in the Declarations is repaired or replaced with reasonable speed and similar quality.
17.”Stock” means merchandise held in storage or for sale, raw materials, property in process or finished products including supplies used in their packing or shipping.
Analysis
The definition of “breakdown” is crucial to the scope of coverage under EB 00 20 since the covered cause of loss is a breakdown to covered equipment. There must be physical damage to the covered equipment, and this damage must require repair or replacement in order for the equipment to work again. The damaged equipment must be repaired or replaced. If the objects are damaged but can operate without repair or replacement, there is no insurance payment under EB 00 20.
This definition is clear as to what it does not include. A simple malfunction is not considered a breakdown. For example, Y2K damage would not have been included in the definition. And, any damage to structure or foundation supporting the covered equipment is not considered a breakdown because those items should be insured under a commercial property coverage form and not an equipment breakdown form.
Although the “business income” definition is the same as that found on the Business Income (And Extra Expense) Coverage Form, CP 00 30, the handling of the period of restoration is very different. For more information on this, see Business Income (and Extra Expense) Coverage Form.
The meaning of “covered equipment” is rather extensive, not for what it includes, but for what it does not include. The insured should look over this list with his agent to be sure his equipment is meant to be covered by EB 00 20. And, the insured should note that, for the most part, covered equipment must be located at a premises described in the declarations.
Covered property includes owned and nonowned property for the insured.
A hazardous substance is a substance declared to be hazardous to health by a governmental agency—a simple, direct definition. Note, though, that any governmental agency can declare the substance to be hazardous—federal, state, or local—so the insured must be aware of all the possible levels of governmental regulations.
For an initial breakdown that causes other breakdowns, all are considered one breakdown. All breakdowns at any one location that manifest themselves “at the same time and are the result of the same cause” will be considered one breakdown. “At the same time” is not intended to mean literally “at the same precise moment in time,” but circumstances could arise where this interpretation would be more advantageous to either the insured or the insurer.
“Data” and “media” are defined in keeping with a data processing policy. For more information on such a policy, see Electronic Data Processing (EDP) Coverage.
Two newer definitions in the policy, are “green” and “green standards-setter.” With the growing interest in environmentally friendly and sustainable construction, the policy contains provisions to replace damaged property with green construction, as discussed earlier. The definitions are self-explanatory.