On a July afternoon, the main electrical switchgear at a distribution center in Medley fails. Nothing burns and no storm is involved. The conveyors stop, the refrigerated room starts warming, and trucks begin to back up at the docks. The repair takes nine days. When the owner calls in the claim, he learns that his property policy does not cover it.
Standard commercial property insurance excludes mechanical breakdown and electrical failure. Equipment breakdown coverage, usually added by endorsement, fills that gap, and for a distribution center it is one of the most important additions to the policy.
What Equipment Breakdown Covers
Equipment breakdown pays for sudden and accidental breakdown of covered equipment: electrical panels and switchgear, transformers, motors, compressors, conveyor drives, sortation systems, air conditioning, refrigeration and boilers. Covered causes include mechanical failure, electrical arcing and short circuits, and power surges. The coverage pays to repair or replace the equipment and, depending on the form, the damage it causes to other property.
Spoilage
For food, beverage and pharmaceutical distributors, the largest part of an equipment breakdown loss is often the product. Spoilage coverage pays for perishable stock lost when refrigeration fails, and it should be written with a limit that matches what is in the cold room at peak. See our page on food distributor insurance.
Business Interruption and Extra Expense
When equipment fails, the building is fine but the operation stops. Equipment breakdown can include business income and extra expense, such as renting temporary refrigeration, overtime and expedited parts. Check that the business income in your equipment breakdown coverage matches the business income on your property policy, and note any waiting period. See our article on business interruption for distributors.
Forklifts Are Usually Insured Elsewhere
Forklifts, pallet jacks and other mobile equipment are generally not covered under equipment breakdown. Damage to them is insured under an inland marine equipment floater, and liability for forklift accidents falls under general liability and workers’ comp.
Florida Conditions
Heat, humidity and summer lightning make electrical and refrigeration failures more common in Florida. Utility outages after storms can also damage equipment when power is restored. Some forms include coverage for losses caused by an interruption of utility service, usually after a waiting period.
Maintenance and Inspections
Insurers that write equipment breakdown often provide inspections of boilers, pressure vessels and electrical systems, and some use infrared scans to find failing components early. Keeping maintenance records helps both the claim and the renewal.
Where It Fits
Equipment breakdown sits alongside property, commercial flood insurance, business interruption and liability. For a complete overview, see our page on warehousing and logistics insurance in Florida and our page on wholesaler and distributor insurance in Florida.
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This article is general information and is not legal advice. Coverage depends on the terms of each policy.
