On a Friday night in August, the main compressor on a seafood distributor’s walk-in freezer in Tampa fails. Nobody notices until the morning crew arrives. By then the freezer is warm, the inventory is a total loss, a weekend of orders can’t be filled and a replacement compressor is a week away. The distributor’s property policy pays for none of it. There was no fire, no storm and no break-in. The equipment failed on its own, and that’s exactly what a standard property policy excludes.
Commercial property insurance protects against damage from outside causes like fire, wind, theft and vandalism. What it doesn’t cover is damage equipment does to itself: a motor that burns out, a panel that arcs, a compressor that fails internally. That’s what equipment breakdown coverage is for, and in Florida, where air conditioning, refrigeration and electrical systems run hard year-round, it’s one of the most valuable and most often missing coverages on a commercial program.
The Property Policy Excludes Breakdown on Purpose
This gap isn’t an oversight. Standard commercial property forms specifically exclude mechanical breakdown, electrical damage to electrical equipment from arcing or short-circuiting, and explosion of steam boilers and pressure vessels, and those exclusions extend to the business income lost as a result. A property policy without equipment breakdown was never designed to respond to an internal failure, however the claim is described.
That split has a practical consequence. Equipment damaged by an outside cause, such as a fire, a lightning strike or hurricane wind, is a property claim. Equipment that fails on its own is an equipment breakdown claim. The two coverages divide the loss by cause, not by which piece of equipment was damaged, which is why a business with one and not the other has a gap exactly where it’s least visible.
In Florida, Check Whether It’s Included at All
On many admitted package policies, equipment breakdown is added by endorsement with the property coverage. In the surplus lines market, where much of Florida’s commercial property is placed, the property policy often doesn’t include it, and it has to be written separately. Owners whose buildings moved to a surplus lines carrier at a hard renewal sometimes lost equipment breakdown in the move without anyone noticing. If your declarations page doesn’t list it, ask.
What Counts as a Breakdown
Equipment breakdown responds to a sudden and accidental breakdown, which is narrower than “the equipment stopped working.” The gradual conditions themselves, such as wear, corrosion and deterioration, aren’t what the coverage pays for, but on most forms a sudden breakdown that results from those conditions is covered. A twenty-year-old compressor that fails suddenly is usually a covered breakdown; the cost of replacing it because it’s old and inefficient isn’t.
Maintenance still matters. A failure traced to years of skipped maintenance invites a harder claim, and keeping service records for HVAC, refrigeration, electrical and production equipment is the simplest way to show that a failure was accidental.
What It Covers Once a Breakdown Qualifies
A covered breakdown generally addresses several layers of the loss at once: repair or replacement of the failed equipment, damage the failure causes to other property, business income and extra expense during the downtime, and spoilage of perishable goods caused by the failure. Most forms also include expediting expenses to speed up repairs, such as overtime and express shipping of parts, along with sublimited coverage for data restoration, hazardous substance cleanup after a breakdown and some code-driven repair costs.
Spoilage deserves special attention for restaurants, grocers, food distributors, pharmacies and medical offices, because a refrigeration failure overnight can produce a spoilage loss far larger than the cost of the equipment. Check the spoilage limit against the most valuable inventory you’d realistically lose.
The Scope Is Broader Than “Boiler and Machinery”
Equipment breakdown grew out of traditional boiler and machinery insurance, and the old name leads some owners to think it only matters for buildings with boilers. Modern forms apply to nearly all equipment the business owns, leases or operates, usually without a schedule: electrical panels, switchgear and transformers, HVAC systems, refrigeration, motors and pumps, elevators, production and processing machinery, computers and communications equipment, and increasingly solar panels and electric vehicle chargers.
Florida’s Particular Exposures
Several features of Florida make equipment breakdown more important here than in most states. Air conditioning runs most of the year, so compressors and air handlers work harder and fail more often, and in a commercial building, a failed system can close the business in summer heat. Power surges and brownouts follow storms and grid restoration, and surge damage that isn’t caused by lightning is generally a breakdown loss, not a property loss. Older buildings carry original electrical panels and switchgear that are more likely to fail, some of which carriers won’t accept at all, as our article on unacceptable electrical panels explains. And businesses with boilers or pressure vessels are subject to state inspection requirements, which equipment breakdown carriers often help satisfy through their own inspectors.
Some forms also extend coverage to an outage caused by a breakdown of the utility’s equipment away from your premises. That extension is narrower than full utility service interruption coverage on the property policy, and the two are worth comparing so an off-site outage isn’t left uncovered.
What Equipment Breakdown Doesn’t Cover
Equipment breakdown has its own exclusions. Damage from a covered property peril, such as fire, lightning or windstorm, belongs on the property policy instead. Flood and earth movement are typically excluded. Wear, deterioration and the cost of routine maintenance aren’t covered, even though a sudden breakdown resulting from them usually is. And most forms set sublimits on spoilage, data restoration, hazardous substances and code upgrades that may be lower than a serious loss requires.
Equipment Breakdown and Business Income Are Two Halves of the Same Loss
A serious breakdown rarely ends with the repair bill. The income lost while equipment is out, especially when a replacement part is weeks away, is often the larger number. The business income portion of equipment breakdown works on the same principles as business income on the property policy, with its own waiting period and limit, which our article on business income coverage explains. Our article on the hidden cost of equipment downtime covers the operational side.
What to Confirm
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Is equipment breakdown on your policy, or on a separate policy if your property is in the surplus lines market?
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Does it include business income and extra expense for breakdown losses, and what is the waiting period?
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What is the spoilage limit, and does it cover your most valuable perishable inventory?
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Are expediting expenses, data restoration and hazardous substance cleanup included, and at what limits?
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Does it cover power surge damage that isn’t caused by lightning?
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Does it cover an outage caused by a utility’s equipment failure, and how does that fit with utility service interruption on your property policy?
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Are solar panels, EV chargers or specialized production equipment included?
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Do you keep service records for HVAC, refrigeration and electrical equipment?
For more, see our commercial property insurance page, what commercial property insurance covers, what it doesn’t cover and buying an older commercial building in Florida, and our pages on insurance for restaurants, medical offices, warehousing and logistics and wholesalers and distributors.
Commercial Property Insurance in Florida
Prestige Insurance Group works with restaurants, distributors, medical offices, manufacturers and commercial property owners across Miami, Tampa, Fort Lauderdale and Orlando, through over 100 MGAs and specialty markets. Send us your current property policy, and we’ll tell you whether equipment breakdown is on it, what it covers for the equipment your business depends on and what it would take to add or improve it. Call the office nearest you. Se habla español.
Miami: 305-969-8776 Orlando: 407-993-2331
General information only, not legal advice. Equipment breakdown forms, definitions, exclusions and sublimits vary by carrier and policy; refer to your policy for the terms that apply to your business.
