Form EB DS 07: Equipment Breakdown Protection Declarations
The EB DS 07, Equipment Breakdown Protection Declarations, is a crucial component of an Equipment Breakdown (also known as Boiler & Machinery) insurance policy. It functions as the personalized "cover sheet" for the policy, detailing the specific agreements between the insurer and the named insured. This form works in conjunction with the main coverage form, typically the EB 00 20 Equipment Breakdown Protection Coverage Form, to define the scope of protection. The declarations page is vital because insurance only applies to coverages and limits specifically listed on it. Therefore, all data on this page must be meticulously checked for accuracy and completeness to avoid unintended coverage gaps.
Classes of Business It Applies To:
Equipment Breakdown coverage, and therefore the EB DS 07, is relevant to a vast array of businesses that rely on equipment for their operations. While traditionally associated with large industrial risks like manufacturing plants and public utilities, over 90% of equipment breakdown business now comes from various commercial, industrial, agricultural, and even residential risks. Examples include:
- Manufacturing Facilities: Coverage for production machinery, CNC machines, and robotic equipment.
- Restaurants and Hotels: Protection for HVAC systems, refrigeration units, ovens, and laundry equipment.
- Hospitals and Healthcare Facilities: Coverage for critical medical equipment, HVAC, and electrical systems.
- Retail Stores: Protection for point-of-sale (POS) systems, refrigeration, and climate control.
- Office Buildings: Coverage for HVAC, elevators, electrical distribution systems, and computer servers.
- Schools and Municipalities: Protection for boilers, HVAC systems, and other essential operational equipment.
- Farms: Coverage for irrigation pumps, generators, and specialized agricultural equipment.
- Tech Companies: Protection for servers, communication equipment, and other critical IT infrastructure.
Essentially, any business where an equipment failure could lead to significant financial loss—due to repair costs, business interruption, or spoilage—should consider this coverage.
Special Considerations:
Several important factors come into play when utilizing the EB DS 07 and the underlying Equipment Breakdown coverage:
- Complements Property Insurance: Equipment Breakdown insurance is designed to fill coverage gaps in standard commercial property policies, which often exclude losses from internal mechanical or electrical breakdown. Property policies typically cover damage from external events (like fire or windstorm), while Equipment Breakdown covers the internal failure of machinery.
- "Breakdown" Definition: The policy hinges on the definition of a "breakdown," which generally refers to the sudden and accidental physical damage to covered equipment that necessitates its repair or replacement. This typically includes failures of pressure or vacuum equipment, mechanical failure, and electrical failure. It's crucial to understand that normal wear and tear, corrosion, or deterioration are generally not covered, though a resulting breakdown might be.
- Covered Equipment: The declarations page will specify the categories of equipment covered. Modern policies can cover a wide range, including traditional boilers and pressure vessels, electrical and mechanical equipment used for energy generation/transmission/utilization, communication and computer equipment, and even systems used by utilities to supply services.
- Inspection Services: A significant aspect of Equipment Breakdown insurance is the inspection and loss prevention service often provided by insurers. While not obligatory, these inspections can help identify potential hazards and reduce the likelihood of breakdowns. For certain equipment like boilers, insurer inspections may satisfy jurisdictional requirements.
- Valuation: The valuation method for damaged equipment is typically similar to commercial property forms, often focusing on the cost to repair or replace with property of like kind, capacity, size, and quality.
- Optional Coverages: The EB DS 07 will list optional coverages selected by the insured, such as Business Income and Extra Expense, Spoilage Damage, Utility Interruption, and Ordinance or Law. It's critical to ensure these are accurately reflected if desired. For example, Utility Interruption extends coverage to losses resulting from a breakdown of utility-owned equipment supplying the insured premises.
- Deductibles: Deductibles can take various forms (dollar amounts, time deductibles, multiples of daily value, or a percentage of loss) and will be specified on the declarations page.
A real-world example of a special consideration could be a food processing plant. While their property policy might cover fire damage to a refrigeration unit, the EB DS 07 and related EB 00 20 would be critical if the unit's compressor suddenly seized due to an internal mechanical failure, leading to spoilage of perishable goods and business interruption. The declarations would specify if Spoilage Damage and Business Income coverages are active and their respective limits.
Key Information for Agents and Underwriters:
- Accurate Declarations are Paramount: Since coverage hinges on what is shown in the declarations, agents must ensure all information (named insured, premises, equipment categories, limits, deductibles, and endorsements) is precise and complete. Any errors or omissions can be detrimental to coverage.
- Risk Assessment: Underwriters will assess the types of equipment, their age, maintenance history, and the potential financial impact of a breakdown. Regular maintenance is a key condition of coverage. For certain high-risk projects like power-generating plants or cold storage warehouses, supplementary questionnaires may be required.
- Pricing: Unlike many property/casualty lines where loss payments are the largest cost, for Equipment Breakdown insurance, the underwriting, inspection, and loss prevention services often represent the largest cost factor, especially if inspections are thorough and hazards are promptly corrected.
- Coverage Gaps: Agents should highlight that standard property policies typically exclude the perils covered by Equipment Breakdown insurance. This form helps bridge that crucial gap.
- Business Income & Extra Expense: These are vital ancillary coverages. The limit stated on the declarations for Business Income or Extra Expense is not automatically the amount paid; the insurer will pay the *actual* loss sustained or expenses incurred up to the limit. Agents should counsel clients on selecting appropriate limits based on a realistic assessment of potential downtime and extra operational costs.
- Green Upgrades: Some policies, as reflected on the declarations, may offer coverage for the increased cost to upgrade to more energy-efficient or environmentally friendly equipment after a covered breakdown.
- Integration with Other Coverages: It's important to understand how Equipment Breakdown coverage interacts with other policies, such as commercial property and general liability.
- Understanding Exclusions: While providing broad protection for equipment failure, the policy will still have exclusions, such as damage from fire (covered by property policy), wear and tear, or programming errors.
For example, an agent working with a new restaurant should emphasize the importance of including Spoilage Damage coverage on the EB DS 07 if the restaurant has significant refrigerated inventory. An underwriter, when reviewing the application, would consider the age and type of refrigeration units and the restaurant's maintenance practices before approving the coverage and determining the premium.