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Recap of Chapter Fourteen

Equipment Breakdown Insurance​

The Equipment Breakdown Protection Coverage Form (also called Boiler and Machinery insurance) covers direct physical loss to covered boilers, mechanical equipment, and electrical equipment resulting from an equipment breakdown.

Covered equipment includes:

  • Equipment designed to operate under internal pressure or vacuum
  • Communication and computer equipment
  • Energy generation equipment

Not covered:

  • Electronic storage media
  • Insulating or refractory material
  • Supporting structures
  • Vehicles
  • Diagnostic equipment
  • Equipment manufactured for sale

Equipment breakdown coverage applies to a breakdown of covered equipment. A breakdown includes covered physical loss but does not include:

  • Malfunctions
  • Computer viruses
  • Leaking valves

All breakdowns occurring at the same premises, resulting from the same cause, and manifesting at the same time are treated as one breakdown.

The Equipment Breakdown Protection Coverage Form provides coverage for:

  • Property damage
  • Expediting expenses
  • Business income and extra expense
  • Spoilage damage to raw materials in storage
  • Newly acquired premises
  • Ordinance or law coverage
  • Errors and omissions
  • Brands and labels

To maintain Business Income and Extra Expense coverage, the insured must complete an Annual Report of Values each year. This requirement may be satisfied by the Business Income – Report of Values Endorsement.

The Equipment Breakdown Protection Coverage Form excludes:

  • Indirect losses caused by a power outage
  • Damage caused by earthquake
  • Certain types of water damage
  • Radioactive contamination
  • Explosions within a furnace (although explosions of the covered equipment itself are covered)
  • Damage to covered equipment during testing
  • Breakdowns caused by windstorm or hail

Under the Suspension condition, coverage may be suspended if covered equipment is exposed to a dangerous condition.

The Equipment Breakdown Protection Coverage Form includes the following sublimits:

  • $1 for equipment owned by a public or private utility that is used solely to provide utility services to the insured's premises.
  • $25,000 each for:
    • Ammonia contamination losses
    • Covered water damage losses

Losses under the Equipment Breakdown Protection Coverage Form are generally valued at the cost to repair, rebuild, or replace the damaged property. The valuation method can be changed to actual cash value (ACV) by adding the Actual Cash Value Endorsement.

Specialty Insurance​

Specialty insurance fills coverage gaps by protecting against risks not covered by standard liability policies. Key features include:

  • Most policies are written on a Claims-Made basis, requiring the claim to be first made during the policy period. The claim may generally be reported as soon as practicable after it is made.
  • The insurer's duty to defend varies by policy, and many specialty policies do not require the insurer to provide a defense, although they may cover defense costs.
  • Some policies require the insurer to obtain the insured's consent before settling a claim.

Professional Liability insurance protects professionals who are held to a higher standard of care and may be liable for damages not covered by standard liability policies. Common types include:

  • Errors and Omissions (E&O): Protects professionals such as insurance agents and accountants against liability for financial harm caused to a client by negligent acts, errors, or omissions.
  • Medical Malpractice: Protects professionals such as surgeons, nurses, social workers, and beauticians against liability for injuries resulting from negligent professional services.

Management Liability insurance protects officers, directors, and other managers from claims arising out of their fiduciary duties and management responsibilities. Common types include:

  • Directors and Officers (D&O) Liability: Protects directors and officers against allegations of wrongful acts, such as mismanagement, corporate fraud, or other conduct involving the organization's financial or intellectual assets.
  • Fiduciary Liability: Protects against claims alleging a breach of fiduciary duties in the administration of employee benefit plans under ERISA.
  • Employment Practices Liability Insurance (EPLI): Protects employers against claims alleging violations of employee rights, including wrongful termination, discrimination, harassment, and retaliation.

Businesses that sell, serve, distribute, manufacture, or furnish alcoholic beverages should carry Liquor Liability insurance to protect against liability arising under dram shop laws for injuries or damages caused by an intoxicated person.

Businesses engaged in e-commerce should obtain Cyber insurance, such as the Internet Liability and Network Protection policy. This policy includes five Insuring Agreements covering:

  • Website Publishing Liability
  • Network Security
  • Replacement or Restoration of Electronic Data
  • Cyber Extortion
  • Business Income and Extra Expense

Other Cyber policies may also provide coverage for:

  • Hacker attacks
  • Security breach expenses
  • Security breach liability
  • Public relations expenses to help restore the insured's reputation after a cyber incident

Commercial Umbrella and Excess Liability Insurance​

Commercial Umbrella Liability policies provide excess liability limits and, in many cases, broader coverage than the underlying primary liability policies. Key features include:

  • Require specified underlying insurance, typically including:
    • Commercial General Liability (CGL)
    • Employers Liability
    • Commercial Auto Liability
    • Liquor Liability (when applicable)
  • Policies are not standardized, but coverage generally applies worldwide.
  • Standard limits range from $1 million to $10 million, with higher limits available up to $50 million.
  • A self-insured retention (SIR) applies when the policy drops down to provide primary coverage because the underlying policy does not cover the loss.
  • The Employee Benefits Liability Coverage Endorsement provides excess Errors and Omissions (E&O) coverage for acts, errors, or omissions in the administration of an employer's employee benefit program, such as group insurance or pension plans.

Commercial Flood Coverage​

Commercial flood insurance through the National Flood Insurance Program (NFIP) is written on the General Property Form. Coverage includes:

  • Buildings
  • Personal property
  • Additional coverages, such as debris removal
  • Increased Cost of Compliance (ICC) with applicable local floodplain laws

The policy does not cover indirect losses, including business income and extra expense.

Farm Insurance​

Farm insurance combines personal and commercial property coverages to protect farm operations. Coverages A–D provide residential property protection:

  • Coverage A: Covers residential dwellings and attached structures against direct physical loss.
  • Coverage B: Covers detached structures, most of which cannot be rented or used primarily for farming.
  • Coverage C: Covers household personal property.
  • Coverage D: Provides loss of use coverage, including Additional Living Expense and Fair Rental Value.

Coverages E and F insure farm personal property used in farming and ranching operations.

  • Coverage E provides coverage for scheduled farm personal property, including:
    • Grain, hay, and other scheduled farm products
    • Trays
    • Computers used for farm management
    • Livestock (cattle, sheep, swine, goats, horses, mules, and donkeys)
    • Poultry (any fowl kept by the insured for use or sale)
  • Coverage F provides coverage for unscheduled farm personal property, including:
    • Grain, feed, and fertilizer
    • Livestock
    • Farm machinery, equipment, implements, tools, and supplies

The following are not covered under Coverages E and F:

  • Automobiles
  • Aircraft
  • Watercraft
  • Fences
  • Windmills
  • Irrigation equipment

Coverage G insures barns, outbuildings, and other farm structures. Covered property includes:

  • Described silos
  • Corrals
  • Pens
  • Chutes
  • Outdoor radio and television equipment and antennas
  • Fences, except field and pasture fences

The insured may choose among Basic, Broad, or Special Covered Causes of Loss options. Under the Basic option, covered perils include many standard property risks, as well as:

  • Collision damage to farm personal property and livestock
  • Sinkhole collapse
  • Earthquake and flood losses to livestock

Important limitations include:

  • Vandalism does not apply to buildings that have been vacant for more than 30 consecutive days before the loss.
  • Under Coverages E and F, theft does not include losses discovered by inventory, losses resulting from wrongful conversion or embezzlement, or mysterious disappearance.

The Broad Covered Causes of Loss option includes all Basic perils, plus coverage for:

  • Electrocution, accidental shooting, and drowning of livestock
  • Loading and unloading accidents
  • Glass breakage
  • Falling objects
  • Weight of ice, snow, or sleet
  • Sudden tearing apart, accidental discharge of water, or freezing of plumbing, heating, air conditioning, fire protective sprinkler systems, or household appliances
  • Sudden damage from electrical currents

The Special Covered Causes of Loss option provides open perils coverage, insuring against all direct physical losses unless they are specifically excluded.

Farm Property policies include several standard exclusions, including:

  • Ordinance or law
  • Earth movement, such as earthquake or landslide, unless otherwise covered
  • Water damage from flood, mudslide, or backup or overflow of sewers or sump pumps, unless otherwise covered
  • Governmental action
  • Intentional loss
  • Off-premises power failure
  • Neglect

Farm Property policies include several Additional Coverages, including:

  • Debris removal
  • Reasonable repairs
  • Damaged property removed for safekeeping
  • Pollutant clean-up and removal
  • Water damage
  • Restoration of farm operations records
  • Extra expense

Farm Property policies include standard conditions such as:

  • Abandonment (the insured may not abandon damaged property to the insurer)
  • Pairs and Sets
  • Subrogation
  • Liberalization
  • No Benefit to Bailee

Under the Unoccupancy and Vacancy condition, the applicable limit of insurance is reduced by 50% if a building or structure has been unoccupied or vacant for more than 120 consecutive days immediately before the loss.

Coverage applies only when a limit of insurance is shown in the Declarations for the applicable class of property. The standard property deductible is $250.

The Livestock Coverage Form provides separate coverage for livestock. Coverage does not apply to livestock:

  • In the custody of a common or contract carrier
  • In sales yards
  • In packing plants

Covered perils are the same as the Basic Covered Causes of Loss. Key coverage provisions include:

  • Maximum payment of $2,000 per animal, unless a higher limit is shown in the Declarations.
  • Newly acquired livestock are automatically covered for 30 days if they belong to an already insured class of livestock.

The Mobile Agricultural Machinery and Equipment Coverage Form provides separate coverage for mobile machinery and equipment used in farm operations. The following equipment is covered only if specifically listed in the Declarations:

  • Cotton pickers
  • Harvester-thresher combines
  • Four-wheel ATVs

The following are not covered:

  • Aircraft
  • Watercraft
  • Vehicles designed and licensed for public road use
  • Barn cleaners
  • Pasteurizers
  • Irrigation equipment

The Farm Liability Coverage Form provides liability coverage for both residential and commercial farm operations. Coverage H pays sums the insured becomes legally obligated to pay for bodily injury or property damage, including:

  • Fire Damage Legal Liability
  • Products Liability for the sale of farm products

Common Coverage H exclusions include liability arising from:

  • The release of pollutants
  • The use of livestock or animals to provide rides for a fee
  • Transmission of communicable diseases
  • Injuries covered by Workers' Compensation
  • Product recall

Custom farming—performing planting, cultivating, harvesting, or similar farming operations for someone else at a property that is not an insured location—is excluded if the insured's gross receipts from custom farming exceed $5,000 during the 12 months immediately preceding the occurrence.

Coverage I provides liability coverage for personal injury and advertising injury arising out of the insured's personal activities or farming operations. Coverage does not apply to claims arising from:

  • Incorrect price quotations in advertisements
  • Failure of goods or products to conform to advertised quality or descriptions

Coverage J – Medical Payments to Others pays reasonable medical expenses for non-insureds, regardless of fault. Covered medical expenses must be incurred within 3 years of the bodily injury. Coverage applies to:

  • Residence employees injured in the course of employment
  • Persons on the insured location with the insured's permission
  • Non-insureds who sustain bodily injury due to:
    • The activities of an insured
    • An animal owned by or in the care of an insured
    • The activities of the insured's farm employees