The Simple Seven: Common Equipment Risks

The Simple Seven makes it easy to understand common equipment risks and what equipment breakdown insurance covers. Equipment is vital in today's world. And, protecting it from costly breakdowns is paramount.

Click on each equipment category for descriptions of equipment risks, common causes, and real-life losses. It's that Simple.


Electrical systems pose breakdown risks to building owners and tenants alike. Electrical systems present a huge loss potential since these systems constitute a sizeable percentage of a property's total value. Electrical panels and cables are all interconnected, so a short circuit in one part can spread and destroy a large part of the system.

Equipment breakdown covers damage to electrical systems and other costs of a breakdown, such as the expense of renting a generator, or relocating tenants. It also covers business interruption. Service interruption also applies to tenants' income loss if the building owner's electrical system breaks down.

Loss examples

A transformer shorted out at a high school, cutting power to administrative offices, the cafeteria and arts department. The accident occurred at the end of the school day and a temporary transformer was installed by the next morning.Total Paid Loss: $56,765

Air Conditioning & Refrigeration

Air conditioning and refrigeration contain components that are prone to breakdown. Compressors, which are particularly prone to breakdown can cost $10,000 to $20,000 or more. And, replacement refrigerant can cost thousands.

However, the property damage is just the beginning. A refrigeration breakdown can result in business interruption and spoilage that may far exceed the property loss. Lack of air conditioning can result in lost sales, forcing business owners to rent temporary equipment or relocate during repairs. Restaurants, hotels, schools, hospitals and nursing homes have high refrigeration and spoilage exposures. Equipment breakdown insurance helps pay for these expenses.

Loss examples

About 10,000 pounds of frozen fish partially thawed when a cracked tube in a cold storage warehouse freezer system allowed refrigerant to leak. After repairs, the fish re-froze as a solid block, significantly reducing its value.Total Paid Loss: $47,415

Boilers & Pressure Vessels

Boilers and pressure vessels are used for heat, hot water, cooking, sterilization and production. A boiler or pressure vessel breakdown can impact a business' ability to operate. And, extra expense beyond the physical damage is incurred when rental units to restore operations are needed. Equipment breakdown insurance covers these expenses.

Equipment repair costs also can be costly. Low water conditions are a frequent cause for breakdown, which 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.

Loss examples

The boiler for a luxury car dealer overheated and cracked when scale accumulation blocked the water flow. With the winter highs around 18 degrees F, three portable heaters were rented to reopen the sales show room during repairs.Total Paid Loss: $45,873

Computers & Communication

Connectivity – computers, servers, systems, telecommunications and other electronics are at the heart of today's businesses. This technology depends on surge sensitive circuitry. Businesses and business income come to a halt when computers and communication equipment goes down. Diagnostic equipment such as CT scans and MRI machines are also susceptible to power problems.

Large repair or replacement bills are common when critical systems break down. Power surges, interruption and electrical fluctuations are often the culprit – damaging sensitive circuitry. And surge protection is often inadequate. Equipment breakdown insurance protects against these losses.

Loss examples

An electrical power surge damaged the electrical circuits in hard drives within a computer server and the data was not recoverable. The insured was able to restore some data from backups, but two years of tax returns for clients had to be manually restored on the new hard drives.Total Paid Loss: $107,351


Buildings are loaded with mechanical equipment, such as elevators, escalators, compressors and back-up generators. Mechanical equipment also includes pumps, motors, conveyers, and more. This equipment suffers breakdowns from oil contamination, misalignment, metal fatigue, and operator error. This equipment often has sensitive technology that is fragile and prone to breakdown.

Virtually every type of business has mechanical equipment exposures. A breakdown can cost thousands to repair. And, since much of this equipment is mission critical to business operations, mechanical breakdown can result in lost income and business interruption; losses that HSB's equipment breakdown insurance covers.

Loss examples

Operators heard a loud noise inside a diesel generator and shut down the unit. An inspection revealed the crankshaft had broken.Total Paid Loss: $138,777

Renewable/Alternative Energy

Businesses, institutions and agri-businesses are increasingly adopting renewable or alternative energy as a means to combat rising energy costs. This technology can take many forms, including solar, wind, geothermal, bio-fuels and other new technologies. Renewable and alternative energy typically employ a wide range of electrical and mechanical equipment.

Beyond the growth of new “green buildings” many more building owners are retrofitting existing facilities to add renewable energy and modernize other operations with more efficient next-generation equipment. As demand for more efficient equipment grows, so does the lead time to repair and replace it.

Loss examples

Our insured installed a solar power generating system capable of producing revenue of approximately $40,000 average per month. The transformer which was connected between the inverter and utility grid was damaged by an electrical breakdown; while the transformer itself was under $20,000, it was custom manufactured for the specific use and a replacement unit required approximately 3 months to obtain. During the downtime period, revenue loss from the system was 100%.

Production Systems

Today's production systems – CNC manufacturing equipment, robotics, machining tools, food process equipment and many other types are the heart of any manufacturer. When this machinery breaks down, it can bring a company and its income to a halt. Modern systems employ electronics and software to maximize production and energy efficiency. A power surge that damages the electronics or interrupts the information flow between machines can render the system as inoperable as a physical breakdown.

Modern systems with sensitive electronics require skilled specialists to repair. Replacements may need to be custom-made or obtained from abroad. Equipment breakdown insurance offers protection from these losses.

Loss examples

A circuit board maker′s testing machine suddenly began to smoke. Diagnostics showed internal components “were not communicating”. Investigators found 52 switch cards and the motherboard were melted and charred due to an electrical event.Total loss: $185,800