In the insurance sector you often hear it said that if a piece of machinery has a Maintenance Contract, then it no longer needs any Machinery Breakdown Policy because the two cover the same thing.
The above is totally incorrect, since maintenance contracts do not cover any accidents due to employee negligence, nor do they cover any Consequential Losses arising out of a breakdown, both being things that can be insured under the covers for Machinery Breakdown and Consequential Losses arising out of a machinery failure.
It is statistically proven that the majority of industrial claims occur on account of a “human factor”; in other words, caused by employee negligence and in that case, the Maintenance Contract will not be liable for the losses.
Machinery Breakdown cover not only complements the Material Damage All Risks cover, which as we know excludes Machinery Breakdown due to any causes intrinsic to the functioning thereof, but also is complementary to the Maintenance Contracts.
These latter, particularly in the case of sophisticated and high value machinery, are very useful for guaranteeing rapid repairs using original parts in the event of its breakdown. They also might allow us to reduce the Consequential Losses if we have agreed in the Maintenance Contract that the manufacturer must, within the next 30 -45 days, install a similar second hand machine whilst the repairs are carried out on the damaged one. This clause should allow us to achieve a cheaper premium for the Consequential Losses cover by limiting the financial consequences of the loss event.
The same as with the MD All Risks Policy, the General Conditions of the Machinery Breakdown cover includes a series of exclusions which in some cases can be revoked by means of additional covers to the basic ones, such as covering the Extra Costs on account of urgent work, air freight, covering the machine foundations, etc.
It is up to the Insured and their Insurance Broker when contracting the additional covers to “adjust” the Policy to the risk that they want to cover, in such a way that the Machinery Breakdown cover is also “made to measure” so that the Policy functions properly in the event of a loss event, which is the moment of truth in the insurance sector.
As regards the loss events, it is vital to ascertain their cause. In order for this very often it is essential to contract a metallurgical laboratory that can determine whether it was the case of a slow and gradual failure, which is not covered by the Policy, or whether it was a sudden, accidental and unforeseeable event, which is covered by the insurance.
At VANTEVO CLAIMS ADVISORS, we have persons who specialise in the adjustment of Machinery Breakdown losses and the Consequential Losses arising from the same.