Why Upscale Homes Need Equipment Breakdown Coverage

One thing that every homeowner fears after a property loss is hearing the words "Sorry, you're not covered.” Wealthy Families and individuals often have homes equipped with expensive electrical systems such as complex multi-zone heating and air conditioning systems, home security systems, and home theater systems. These often elaborate systems are subject to mechanical failure or mechanical breakdown, often beyond the scope and scale and intent of their warranties. And it’s important to note, equipment breakdown losses are generally excluded from traditional homeowners policies.

Your ‘Home’ policy only covers damage to your equipment from "external" causes, such as a fire, theft, hail or a tree falling on your roof. The policy does not cover damage from "internal" causes such as mechanical failure, electrical short circuit or "arcing" (faulty wiring or motor burnout). Traditionally, ‘equipment breakdown’ and/or ‘boiler & machinery coverage’ was mostly limited to large manufacturers and commercial buildings.

To address this growing exposure, upscale insurance companies such as Chubb, Ace Private Risk Services and A.I.G. Private Client Group have developed a property policy enhancement providing coverage options for mechanical breakdown, electrical breakdown, and pressure system breakdown (usually on one policy endorsement). This enhancement extends to provide equipment breakdown coverage to all listed properties in the states that may qualify for the coverage.

Examples of Covered Equipment Breakdown Losses:

  • A power surge caused by a utility company resulted in arcing damage to the electronic components of a home theater system. Replacement of the system was required, including a custom installation.
  • A gas-fired boiler was leaking water because the boiler’s low water fuel cut-off failed, causing the boiler to overheat. The boiler could not be repaired due to its age, so replacement was necessary.
  • The motor winding insulation of the home’s air condition compressor motor deteriorated, causing the compressor to electrically short and malfunction; the compressor needs to be replaced.
  • The refrigerant line cracked on the insured’s climate control system for an expansive wine room, causing a loss of refrigerant and lubrication to the compressor. As a result the compressor seized, temperature in the room surpassed recommended levels for wine storage, and the wine collection may be ruined as a result.

The equipment breakdown coverage is "hardware" insurance, not "software" insurance. There has to be some sort of physical damage, such as a power surge that destroys your computer hard drive. Computer failures due to software problems, such as "bugs" or viruses, are not covered, but typically, equipment breakdown coverage will cover the cost of repairing and replacing the damaged equipment.

If these additional coverages are not included in your policy, you may have to ask for them.

Swingle, Collins & Associates specializes in homeowners insurance coverage The descriptions of coverages listed on this website are brief and subject to the provisions, limitations, and exclusions that can only be expressed in your policy and related endorsements. For additional information of how Swingle, Collins & Associates can assist in meeting your coverage needs for equipment breakdown, or boiler and machinery insurance please contact your dedicated risk manager to discuss the benefits and services of personal homeowners insurance coverage.

The information contained on this page is provided for informational and educational purposes only. It contains general information on insurance issues and may not reflect the most current developments in insurance coverage and is unlikely to apply in all factual scenarios. The information does not include all the terms, coverages, exclusions, limitations or conditions that may be contained in the actual insurance contract language. The policies themselves must be read for those details. Sample policy forms will be made available upon reasonable request.