Introduction

Summary: Boiler and machinery insurance was viewed by many in the insurance industry as complicated and mysterious. Over the years, this coverage has undergone a transformation from a highly specialized and arcane coverage, underwritten and usually marketed by experts in the coverage, to a commonplace coverage sold along with other lines by many insurers and most general lines producers. This article offers an introduction to boiler and machinery insurance, briefly tracing its historical development and describing the coverage forms that provide the insurance up to the renaming of the program to equipment breakdown.

Topics covered: History of B&M/Equipment Breakdown ISO program Form designations Rules and rating information

History of B&M/Equipment Breakdown

Boiler and machinery, historically regarded as a “casualty” coverage although in many ways more closely resembling property insurance, had its beginnings in 1866—as an adjunct to boiler inspection service. It was the first intensive application in the insurance field of loss control to avoid accidents rather than the simple use of insurance to pay for the consequences of accidents when they occur. To this day—unique among insurance coverages—boiler and machinery underwriting and inspection expenses comprise a larger portion of the premium with most insurers than do loss payments and claim expenses.

For many years, boiler and machinery insurance was one of the most stable and unchanging lines of insurance. Because of the intensive loss control activities, claims experience remained stable even in periods of general underwriting unprofitability, and because of the esoteric nature of the coverage, there was little pressure for change.

But in recent years, this has changed and the coverage has undergone a series of revisions and is now known as equipment breakdown. The changes have moved this coverage even closer to property insurance in terms of coverage concepts, provisions, and terminology and we now find common policy language being shared with property insurance.

ISO Program

The coverage forms for boiler and machinery published by the Insurance Services Office (ISO) were revised in 1977, 1979, 1981, and 1983, followed in 1986 by ISO's introduction of the simplified commercial insurance program. Since then, further change occurred in the forms in 1989, 1991, 1995, 2001, and 2007. The 1989 revision made minor changes in the forms and rules, and completely changed the rating method, going from a rating plan based on charges for individual objects to a plan that uses an occupancy classification to establish the basic rate, which then can be modified by various coverage and risk modifiers to arrive at a final premium. Recent changes involved scrapping the existing boiler and machinery forms and endorsements entirely. In September, 2007, the program was renamed Equipment Breakdown to more clearly emphasize the broad coverage provided by the current program. This revision introduced limited coverage for fungus, wet rot, dry rot, dry rot and bacteria. Additionally, the term, “covered equipment” was changed to “covered property”. This renaming of the program also prompted a number of forms revisions to correspond to the new terminology. The basic coverage forms—BM 00 25, BM 00 40, and BM 00 45—were replaced by a single form, EB 00 20, with an effective date of September, 2007. This form was updated in September 2011 and expands the water exclusion to include water under the surface of the ground pressing on or flowing through walls, foundations, floors, or paved surfaces, and waterborne material carried or moved by any of the excluded water. Also included is coverage for green upgrades, for example replacement of a damaged roof with a vegetative roof. Certification fees are covered and green is included in the definitions.

However, as with other coverages under the ISO simplified commercial insurance program, the equipment breakdown forms are still added to a common policy declarations page and common policy conditions form IL 00 17 to form a monoline equipment breakdown policy; or, these forms may be combined with other coverage parts to form a package.

Form Designations

The new coverage form is EB 00 20, equipment breakdown protection coverage form. The equipment breakdown protection coverage form declarations, BM DS 07 01, is used with EB 00 20 to outline the coverages, limits, and deductibles that are to apply. Endorsements dealing with such items as business income, turbine units explosion coverage, and pressure or vacuum equipment are also available for use with EB 00 20.

Rules and Rating Information

The boiler and machinery, now equipment breakdown, rules and rating information are found in division two of ISO's Commercial Lines Manual (CLM).