Most all Municipal Utilities in Iowa carry insurance to protect against the possibility of damage to their property and equipment, particularly to high valued items such as generating equipment, larger transformers, switch gear and other related equipment. But is this coverage sufficient for your needs?
Like all insurance policies, this coverage contains certain exclusions and some of the more important examples of those exclusions include the following:
- Mechanical Breakdown
- Electrical Injury, including power surges
Many of these areas can be easily insured since flood is readily available under the National Flood Insurance Program and earthquake can easily be added by most companies, including EMC, to the property insurance. For damage caused by mechanical breakdown or electrical injury there is a special form of insurance known as boiler and machinery coverage, or in some cases referred to as, equipment breakdown insurance. It is purchased by over half of the electrical generating utilities to help protect their equipment at their generation and distribution locations.
This special insurance is written to cover all sorts of property including air conditioning equipment, HVAC items including boilers as well as generating equipment, transformers and switchgear. Without this coverage the Utility is exposed to potentially serious losses for which there is no other insurance coverage. A recent fire in a large step down transformer here in Iowa was determined to have been caused by arcing and not any kind of a lightning event or any other covered cause of loss. Because of that, there is no insurance protection under the standard property insurance policy, but this kind of loss could easily be covered by a boiler and machinery policy.
The boiler and machinery policy is typically written with a separate limit of insurance that would equal the total value of covered equipment in the generating plant, as well as any sub-station that might be adjacent to the plant like we find throughout the state. We have machinery and equipment policies with values of $2,000,000 to over $15,000,000 in protected values. The cost can be just a few thousand dollars to over $20,000 per year. The policy will usually include a 10% deductible with a minimum of $25,000.
Most policies include a replacement or repair cost valuation, but some with older equipment have an actual cash value settlement clause. The important point to note is that this kind of coverage isn’t automatically a part of the standard property insurance, but must be written as a separate item either by the company providing the property insurance, or in many cases, written by companies specializing in boiler and machinery insurance. There are several excellent companies that specialize in this kind of protection and can offer competitive prices to most Municipal Utilities. Larger installations such as a base load coal fired generating plant, or large gas turbines might take special underwriting and inspection and would no doubt see higher deductibles, again, depending on the size of the turbine and/or engines involved.
Take a look at your policy and see if you are covered for these types of losses, and if you need to add the coverage, contact your local insurance agent.