If your business relies on the use of heavy construction equipment such as bulldozers, lift trucks, cranes, and front loaders, you are exposed to a significant amount of risks associated with the operation of these giant machines.
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To save yourself from potential machinery breakdowns that can lead to negative impacts or a halt your workflow, it’s crucial to make sure your heavy equipment is insured. Here’s a list of important factors you should know when getting insurance coverage for your construction equipment.
1. Equipment Breakdown Insurance
Disasters are unpredictable and can happen at moments when we think we are extremely well-prepared. When a critical accident takes place and causes a standstill, it adversely affects your business, leading to low productivity and unwanted costs toward repairs and replacement of the broken machinery.
That being said, it’s a good idea to get equipment breakdown insurance (also known as “boiler and machinery” insurance) since it covers exposures that are usually excluded in other property insurance policies. This coverage protects construction companies from sudden, unforeseen damages and common setbacks, including explosions, malfunctions, and breakdowns caused by fires, storms, and other natural disasters.
Equipment breakdown insurance covers a wide range of equipment types, such as electrical equipment, air conditioning systems, computers and telephones, hot water boilers, sterilizers, generators, motors and pumps, and ventilation systems. Depending on whether or not an insured item is repairable, the basis of compensation can be either partial or total. It’s best to contact your insurance agency to find out which of your heavy equipment qualifies for machinery breakdown insurance.
2. Additional Coverage
A thorough risk management process does not stop at getting basic equipment breakdown insurance. Keep in mind that this coverage only takes care of the costs associated with repairing and replacing the impaired machine. You also need to think about other indirect damages and interruptions that can (and very often) spring up because of the broken equipment.
Here are some additional coverages that you might want to consider adding to your equipment breakdown policy.
- Business Interruption: Loss of income and increased expenses might be even greater than the direct damage caused by broken equipment. As a result, if your business operation is suspended due to a breakdown, this additional coverage can protect your company against loss of income and continuing expenses.
- Spoilage: Designed specifically for food processing companies, this coverage provides protection against loss or expenses due to spoilage resulting from an accident.
- Contingent Time Element: This coverage offers indemnity for loss to your customers or suppliers as a consequence of equipment breakdown.
- Rental Reimbursement: This covers the cost of renting a replacement until the damaged machine is fixed or you’ve acquired a new one.
- Sub-limited Coverage: Depending on particular business needs, there are coverages designed for specific sub-limits, such as hazardous substances, water damage, medical supplies, data restoration, ammonia contamination, and so on.
3. Leasing Your Equipment to Other Businesses
If you are leasing your heavy equipment, it is still important to get insurance – even if you are not responsible for repairing the leased equipment. Bear in mind that while many policies cover equipment that you own or loan to others, they may not cover your equipment while being loaned to others. Contact your insurance agency to make sure your policy is reviewed thoroughly before leasing your equipment to other businesses.
Contingent and excess liability insurance is a common coverage policy that protects the lessor’s interest. This coverage typically applies when the lessee’s policy is being denied or if the lessee is underinsured. For example, if the lessee is involved in an accident and they fail to maintain adequate insurance required by the lease agreement, this coverage can protect the lessor.
In case the lessee’s insurance does not cover the leased equipment, it’s a good idea to get asset insurance. Under this coverage, the borrower is offered a convenient option to meet the insurance requirement of the lease. As a result, your business will be able to pass the cost of insurance to the lessee, which helps you prevent vicarious liability claims for accidents caused by the use of leased machinery.
4. Utilizing Rental Equipment
On the other hand, if your business relies on leased equipment to operate (you are renting heavy machinery from someone else), you can be held liable for damage to the equipment. Many machinery lenders do not have coverage under their own contractors’ equipment policy. Furthermore, even if your equipment lessor is responsible for fixing machinery that’s down, you won’t get compensated for lost revenue resulting from business interruptions and indirect damages. In this case, you need to go the extra mile to get your own rental equipment coverage as it helps your business cover the loss during unexpected shutdowns.
It’s important to review your contract thoroughly when renting heavy equipment. Depending on your state, there will be different regulations applied. Likewise, rental equipment insurance policies vary widely due to the type of machinery and risk involved. Some rental businesses may ask that you purchase a policy on the equipment to cover its use.
Consult your insurance agency to explore different heavy equipment insurance options that can ensure your legal responsibility is well covered. They can also call the leasing company and speak to their insurance people on your behalf to find out more details regarding their policy.
It might seem overwhelming to find the right insurance for your heavy equipment. Depending on your particular situation and needs, there are different rules to follow.
With that said, getting coverage for your construction machinery is vital to the risk management process of your company. Direct and indirect losses from equipment shutdowns can be detrimental to your bottom line, causing delays in your project’s timeline and making your productivity suffer. It’s highly recommended that you seek professional help to discuss the proper coverage for your heavy equipment and better manage your risks.