Equipment Breakdown Insurance for Property Managers

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1 February 2015 | In the Press

Equipment Breakdown Insurance

Protection against the unexpected

By David Pivato P.Eng., vice-president, underwriting, at the Boiler Inspection and Insurance Company of Canada (HSB BI&I).

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It was a quiet Sunday afternoon, that is, until the property manager of a condominium received a series of phone calls from board members about the building: It was experiencing power disruptions. The following morning, the property manager discovered equipment problems: some elevators were nonoperational; air conditioning in the hallways and lobby was not running; fire alarms were not working; and the automated lawn sprinkler system was not functioning properly. A power surge related to a weekend utility power outage was the cause of damage, which totalled $51,000.

Thankfully, the building had equipment breakdown insurance. If not, the condo corporation would've had to ask unit owners to cover the cost of repairs.



It's recommended that building owners supplement property insurance with equipment breakdown coverage. Property policies typically exclude losses resulting from electrical arcing, mechanical breakdown, and explosion of boilers and pressure vessels. Equipment breakdown insurance fills these gaps, covering accidental physical damage to equipment that's then required to be repaired or replaced. It applies to equipment in the following categories: boilers and pressure vessels; air conditioning and refrigeration; electrical systems; computers and communications; mechanical equipment; and renewable energy technology.



Boiler and pressure vessel equipment is commonly used for heat, hot water and steam production. Pressure can build up within these vessels, causing them to explode. The results of over-pressure can be catastrophic. If a 30-gallon water heater explodes, for example, it will release energy equivalent to 3.6 million pounds. This force is sufficient to blow a 110-pound object 10 kilometres. Low-water conditions are a frequent cause of boiler problems. Low-water can result in cracking, collapse, bulging and, in the worst case, explosion of the vessel. Pump or control failure, scale build-up or safety mechanism malfunction are also common causes for breakdown.



Air conditioning and refrigeration systems are the number one source of claims, which are often quite costly. These systems contain various components (pressure vessels and mechanical, electrical and electronic equipment) that rely on one another. So, if one part of the system fails, it can affect other parts. As well, since most air conditioners are located on the building roof, a crane or helicopter may be required to remove or replace a unit, adding to the cost.



Electrical systems represent up to 15 per cent of a building’s total value. Components include transformers, panels and cables, which are all interconnected. As a result, excessive voltage in one area may lead to significant damage in others. For example, arcing can cause damage to a panel and completely shut down a building’s operations.



Computers and communications equipment are complex machines that rely on sensitive technology. Types of equipment include security, fire, network and telephone systems. Common causes of breakdown are power surges, loose connections, vermin, foreign objects, excessive moisture and improper use. Electrical fluctuations can damage fragile circuitry in seconds.



Mechanical equipment generates, transmits or utilizes mechanical power. This equipment is critical for any building and includes elevator and escalator motors, ventilation fans, water pumps and combustion engines such as those found in back-up generators. Mechanical equipment can fail due to excessive vibration, metal fatigue, seizing, misalignment, or human error. Human error accounts for approximately 35 per cent of claims. Today, mechanical equipment is increasingly driven by sophisticated but fragile computer technology, making it even more prone to breakdown.



Renewable energy technology is hurriedly being adopted to combat rising energy costs. Incentives from the Ontario Power Authority have played a role in this quick uptake. An increasing number of solar photovoltaic systems are being erected on rooftops as building owners seek to generate income from feed-in tariff programs. However, because such systems employ a wide range of electrical and mechanical equipment, breakdowns can occur and they may result in business interruption or loss of revenues.


David Pivato, P.Eng., is vice-president, underwriting, at the Boiler Inspection and Insurance Company of Canada (HSB BI&I). He can be reached at


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