Mechanical breakdown insurance (MB) is an important coverage for commercial policyholders whose businesses depend on machines. While standard commercial property insurance policies cover machines for breakdown caused by external events (resulting from events such as fires, floods, destruction, etc.), MB insurance protects the policyholder from internal events (such as malfunction, breakdown, electrical overload, etc.).
MB insurance is not the same as a warranty, which is often short-lived and restricted to narrow terms. A warranty will not protect the business owner when the internal damage is the result of “operator” error, like MB insurance will. For example, if an employee overheats a computer or causes a printer to malfunction, the warranty will not provide coverage, but MB insurance will. Also unlike warranties, MB insurance covers business losses that occur when equipment breaks down. For example, we recently evaluated a farm insurance case where cooling machines broke down, causing some produce to spoil and requiring the insured to incur additional costs to relocate the unspoiled produce. The MB insurance covered the machinery breakdown and the ensuing business losses.