HSB BI&I - Why do I need Course of Construction equipment breakdown coverage?

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Why do I need Course of Construction Equipment Breakdown coverage?

Think about the vital equipment installed during the course of a building’s construction: from air conditioning, to heating and hot water, electrical, underground cables and building automation systems.

Think about the impact on your project if any of these critical systems fail. Immediately, your operations are interrupted, and the equipment will need to be repaired or replaced. If you don’t have backup equipment, you may need to rent it, which will increase your costs. What if you can’t complete on time? You may suffer loss of revenue, and, possible damage to your reputation.

Do Builder’s Risk Property policies cover equipment breakdown?

Builder’s Risk Property policies typically exclude loss or damage caused by:

  • Electrical arcing and
  • Mechanical breakdown


Course of Construction Equipment Breakdown Coverage pays for the sudden and accidental, physical damage to equipment that requires its repair or replacement, during the course of a building’s construction.

Who needs this coverage?

The Canadian Construction Documents Committee, standard form CCDC2, requires equipment breakdown insurance to be taken in the joint names of the Contractor, Owner and Consultant. The policy shall name all Subcontractors as insureds, and coverage is to be maintained continuously from commencement of use or operation of the equipment insured, until 10 calendar days after the date of Substantial Performance of the Work*.

Course of Construction equipment breakdown insurance provides coverage during the high risk phases of testing and commissioning, and during the operation of equipment, until the project is handed over to its owner.

Once installed, equipment may undergo two forms of testing:

  • Cold testing checks equipment under ‘dry run’ conditions. Examples include, using instruments to detect a circuit, or filling a pressure vessel with water to test for leaks.
  • Hot testing operates equipment under actual working conditions, and includes the application of heat, fuel, feedstock, or connection of equipment to a grid or load circuit. The hot testing phase poses a high potential for breakdown.
Commissioning

Towards the end of a project’s timeline comes the Commissioning phase, which utilizes equipment under normal operating conditions to: 

  • train personnel, and 
  • ensure equipment performs as expected whilst complying with the specifications that it was designed for.

High risk factors come into play, such as manufacturer defects, human error, and interaction with other building systems.

Will manufacturer warranties cover equipment breakdown during Course of Construction?

While warranties cover manufacturer defects, they typically exclude losses caused by external factors, such as temperature extremes, dusty conditions or improper installation.
They typically do not cover:

  • Costs to remove and install replacement equipment, and
  • Business interruption expenses
Air conditioning loss

During the hot test of an air conditioning system’s chiller, an operator switched the glycol pump from automatic to manual operation. When the compressor shut down, the pump was still in operation, causing damage to two condenser tubes, the evaporators and compressors. The override, which should have prevented the pump from operating, failed to do so. As a result, the entire system was replaced. The manufacturer’s warranty denied coverage because the pump was in manual mode. Total insured losses amounted to $198,000.

Electrical loss

Electrical arcing occurred in a transformer vault of an office building under construction, causing damage and shut-down of electric power. Insured losses, including $40,000 in expediting expenses, totalled $180,000.

Protect vital equipment

Course of Construction Equipment Breakdown Coverage closes gaps found in Builder’s Risk property policies. As technology and risk become more sophisticated, you can rely on The Boiler Inspection and Insurance Company of Canada to provide industry-leading products and services for equipment exposures.

*Canadian Construction Document Committee Form CCDC2, 2008, Insurance Section, General Conditions 11.1.1.5.

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