MACHINERY BREAKDOWN

INSURANCE

1
 Types of Engineering Policies

I. Operational Policies
Annual policy for machinery / equipment

II. Project Policies

Project based policy for erection/construction, and is

terminated once the project is over or the policy ends
whichever is earlier

2
 Operational Policies

Machinery Breakdown
Electronic Equipment
Boiler Explosion
Machinery Loss of Profit

3
 MACHINERY BREAKDOWN

An ideal cover for plant and machinery, to

cover cost of repairs or replacement of
damaged parts as a result of accidental
Electrical and Mechanical Breakdown.

4
 Subject Matter of insurance

All Mechanical & Electrical Equipments

Egs: Generators, transformers, motor, lifts, elevators,

engines etc

5
 Machinery Breakdown Insurance is to
supplement Fire Insurance

( The perils covered under fire policy are

excluded under MBD )

6
 Scope of cover

It covers all accidental , electrical and

mechanical breakdown
Unforeseen and sudden physical damage to the
insured machinery

7
 Cover remains in force at all stages

- When the machine is at rest or operation

- During the process of dismantling and
overhauling
- During subsequent re erection at the same
premise

8
 Covers Both External & Internal parts of the
machinery
It is intended for all types of Machinery, Plant
and Equipments.
Causes can be either External or Internal

9
 Internal Causes

Faulty Material
Defects in casting
Faulty construction of parts
Short circuit
Faulty erection
Failure of operations of safety devices

10
 External Causes

Lack of Skill
Carelessness
Falling bodies
Electrical overpressure
Failure of other connected machinery
Foreign objects

11
CHECK YOUR UNDERSTANDING ON
COVERAGES

1. The rubber belt was placed wrongly in a

machine so it snaps and breaks because of
which it the machine stops functioning.

Will this be covered ?

12
 Yes It will be covered because it comes
under faulty workmanship cover

13
2. The rollers in the machine roll out and fall due
to the vibration of the machine because of
which the machine stops functioning.

Will this be covered ?

14
 Yes It will be covered as it comes under
falling bodies

15
3. There is some carpentry work happening next
to a machinery. A small piece of wood
accidentally enters the machine and the
machine stops functioning.

Will this be covered ?

16
 Yes it will be covered as it comes under Entry
of foreign Objects.

17
 Exclusions

Fire and Allied Perils

Willful act or gross negligence

Defects at the time of commencement of

insurance which the insured is aware

18
 Consequential Loss

War and like perils

19
 BASIS OF ARRIVING AT
THE SUM TO BE INSURED

The sum to be insured should be the current

new replacement value of the machinery to be
insured.
If the value insured is subject to change, e.g.
due to price increase, the Insured must notify
Insurer of such change, so that the S.I. may be
adjusted accordingly and underinsurance is
avoided.

20
 The sum insured should include;

NEW REPLACEMENT COST OF INSURED PROPERTY

FREIGHT

CUSTOM DUTIES

ERECTION COSTS

21
 Methods to arrive at the correct SI
a) Brand new machinery

The value of these items can be ascertained from the

suppliers of the equipment and the sum insured can
be arrived at by adding the various expenses
The cost of equipment obtained from the suppliers
should be of the same model, capacity and type, as
installed in the premises

22
 b) Old equipment

If the suppliers of the equipment are still in the

market & if the machinery installed in the premises
is still being produced and sold ; then a quotation
be obtained form the suppliers for arriving at the
sum insured.

23
 c) Obsolete equipment

If it is not possible to ascertain replacement cost

at all, then the last available price of such an
equipment, or of an equivalent model &
capacity, should be taken.

This together with custom duty and other

charges, as applicable at the time of effecting
the insurance, should be taken as Sum Insured.

24
 Extensions
On specific requests, the following extensions
can be covered in MBD Policies

a) Additional Custom Duty cover

Takes care of additional duty payable for replacement

of equipment and/or spares in the event of loss.

25
 b) Extra charges for Express freight (excluding air freight),
over time, Sunday and holiday rates of wages

On account of occurrence of insured peril, some times it

becomes necessary to undertake the repair work on holidays.
The spare parts may have to be obtained by express freight.
To take care of these expenditures, an estimated amount that
may likely be incurred following major accident should be
taken as Sum Insured under this head.
Only actual expenses are reimbursable.

26
 c) Air freight

Specific coverage should be taken for air

freighting of items.

Only actual expenses are reimbursable.

27
 d) Third Party Liability
Liability for damage to property to Third Parties
and/or injury to person not in the employ of the
insured arising out of damage to the insured
machinery.

28
 e) Owners Surrounding Property

Damage to the other surrounding property

owned by the insured arising out of damage to
the insured machinery.

29
 Undesirable risk:

Power plant, brick works, quarries, mines

Used by builders bulldozers, excavators

Industries where conditions are

extraordinary loads
Used underground, installed in aircraft

Experimental machinery

30
 Underwriting consideration

Repair facilities
Nature of the risk
Loss experience
Statutory and other inspection reports
Higher excesses
Makers

31
 Types of Claim Settlement
2 Types of losses are considered before
settling a claim:

Partial Loss

Total Loss

32
Partial Loss

Cost of replacement of parts without deduction

for Depreciation.

33
Total Loss

The actual value of the item immediately

before the occurrence of the loss

34
 MBD - SUMMARY
Definition

Machinery breakdown policy is an ideal

cover for plant and machinery, to cover cost
of repairs or replacement of damaged parts
as a result of accidental Electrical and
Mechanical Breakdown

35
 MBD - SUMMARY
Coverage

It covers all accidental , electrical and

mechanical breakdown
Cover remains in force at all stages of the
machine
External or Internal

36
 MBD-SUMMARY
Exclusions

Willful act or gross negligence

Awareness of defect at the time of the
commencement of cover
Consequential Loss
War and like perils

37
 MBD - SUMMARY
Losses:

Partial loss the part damaged is repaired with

no depreciation charged
Total loss - Part is replaced

38