Understanding Equipment Breakdown Coverage

What does equipment breakdown coverage primarily protect against?

• Losses from fire damage

• Accidental mechanical or electrical breakdown of equipment

• Employee theft

• Flood damage

Answer explanation

Equipment breakdown coverage primarily protects against the accidental mechanical or electrical breakdown of equipment, ensuring that businesses can recover from unexpected failures.

A manufacturer experiences a utility interruption that causes equipment to fail and spoilage of goods. Their policy includes a utility interruption endorsement. What steps should they take to maximize their claim?

• Notify the insurer promptly, document all losses, and cooperate with the investigation

• Wait until operations resume before notifying the insurer

• Only report the equipment damage

• Repair the equipment before contacting the insurer

Answer explanation

To maximize their claim, the manufacturer should notify the insurer promptly, document all losses, and cooperate with the investigation. This ensures all damages are accounted for and supports the claim process.

Which of the following is an example of a covered loss under equipment breakdown coverage?

• A bakery’s oven motor burns out unexpectedly

• A bakery’s oven is damaged in a flood

• A bakery’s oven is stolen

• A bakery’s oven is damaged by termites

Answer explanation

A bakery’s oven motor burns out unexpectedly is a covered loss under equipment breakdown coverage, as it involves mechanical failure. The other options involve damage from external factors or theft, which are not covered.

• $40,000

• $25,000

• $15,000

• $0

Answer explanation

The insurer will pay $25,000, which is the spoilage sublimit per occurrence. Since the spoilage amount of $40,000 exceeds this limit, the insurer only covers up to the sublimit.

• $80,000

• $70,000

• $45,000

• $75,000

Answer explanation

The insurer pays $25,000 for spoilage (limited by the sublimit) and $20,000 for lost income (limited by the business income limit). Total payment is $25,000 + $20,000 = $45,000.

Which of the following is an example of a limitation in equipment breakdown coverage?

• Coverage for accidental breakdown

• Sublimits for certain equipment types

• Payment for all losses regardless of cause

• Unlimited spoilage coverage

Answer explanation

Sublimits for certain equipment types represent a limitation in coverage, as they restrict the amount payable for specific equipment, unlike broader coverage options that may not have such restrictions.

Which of the following is NOT typically covered by equipment breakdown insurance?

• Business income loss due to equipment failure

• Spoilage of goods caused by equipment breakdown

• Damage from normal wear and tear

• Expediting expenses to speed up repairs

Answer explanation

Damage from normal wear and tear is not covered by equipment breakdown insurance, as this type of insurance typically addresses sudden and accidental failures, not gradual deterioration.

A business owner wants to ensure their equipment breakdown policy provides the broadest possible coverage. What combination of actions and endorsements should they consider?

• Maintain equipment, add utility interruption and green upgrades endorsements, and review sublimits

• Ignore maintenance, remove all endorsements, and lower sublimits

• Only purchase basic coverage

• Only focus on spoilage coverage

Answer explanation

To ensure broad coverage, the business owner should maintain equipment, add utility interruption and green upgrades endorsements, and review sublimits. This approach maximizes protection against various risks.

A printing company’s press is damaged by a power surge. The company files a claim but delays notifying the insurer for several weeks. What potential issue could arise from this delay?

• The claim may be denied for late notice

• The insurer will pay extra for the delay

• The deductible will be waived

• The company will receive a bonus

Answer explanation

Delaying notification to the insurer can lead to the claim being denied for late notice, as most insurance policies require prompt reporting of incidents to process claims effectively.

What is the purpose of the EB 99 59 endorsement in equipment breakdown insurance?

• To increase spoilage coverage

• To change valuation from replacement cost to actual cash value

• To add flood coverage

• To remove all exclusions

Answer explanation

The EB 99 59 endorsement specifically changes the valuation method from replacement cost to actual cash value, which affects how claims are settled in equipment breakdown insurance.