January 31, 2022

Electronic Equipment Insurance (EEI)

Electronic Equipment Insurance (EEI)

Electronic Equipment Insurance broadly covers any loss or damage to a business's electronic equipment, such as computer systems, electronic control panels, industrial electronic machines, data storage equipment and servers, and much more!

Technology has dramatically transformed business over the past few decades. Almost every business organization has adopted tech driven equipment in their day to day operations. These electronic equipment include computers, servers, communication devices, control panels, processors, and much more. Businesses rely heavily on the uninterrupted and efficient workings of these tools.

Any damage or destruction to electronic equipment can impede an organization's smooth functioning. For example, hospitals extensively use medical equipment like X-ray machines, CAT scan machines,  defibrillators, drug-releasing pumps, and many more. If these machines were to break down or malfunction, it could lead to serious complications.

So, to mitigate the risk of financial loss due to their breakdown or malfunctioning, businesses opt for Electronic Equipment Insurance policy.

Electronic Equipment Insurance offers comprehensive protection for electronic devices like computers, electronic cash registers, medical devices, and industrial equipment from loss or damage. Some of the electronic equipment covered under this policy are :

  • Computer and allied peripherals (the entire computer system consisting of CPU, Keyboards, Monitors, Printers, System Software etc. )
  • Auxiliary equipment like UPS, Voltage Stabilizer etc.
  • Medical or biomedical equipments such as Cath Lab, X‐ray Machines, Ultrasound Machines, MRI and CAT Scan Machines
  • Audio/Visual equipment
  • Electronic control panels
  • Telecommunication and navigational equipment
  • Electronic equipment for research and material testing
  • Parts and fittings

This insurance is divided into three sections dedicated to different types of covers :

Section 1 - Equipment cover

Also known as Material Damage cover, this section pays for physical loss or damage caused to the insured electronic equipment due to any cause, other than those specifically excluded under the policy. However, only those damages are covered that necessitate repair or replacement.

Here, accidental damage caused by ‘All risks’ are covered; these risks include :

  1. Fire and Allied Perils (fire, lightning, riots, strikes, malicious and terrorism damage, etc.)
  2. Electrical & Mechanical Breakdowns
  3. Burglary & Theft

Coverage can be provided either on a replacement or a repair basis. Additional expenses like customs duty, freight, erection cost, etc. are also provided for.

  • Normal wear and tear that occurs over time
  • Faults or aesthetic defects existing at the commencement of the present insurance policy and within the knowledge of the Insured
  • Damage caused due to overhauling and modification of data or equipment
  • Maintenance costs
  • Loss or damage where the manufacturer or supplier is responsible or, in case of rented equipment, where the owner is responsible

Section 2 - External Data Media cover  

Here, external data media such as tapes, discs, magnetic drives, or any media which can be directly processed in EDP (Electronic Data Processing) Systems along with the information stored in them are covered against all of the perils mentioned in section 1 above. Under Electronic Equipment Insurance, the policyholder will be indemnified against any damage or loss in this regard.

In particular, the external media are covered only if they are stored in the insured premises at the time of damage, and the cost of restoration of the data is covered only if a backup system is available.

  • Costs arising from false programming, punching, labeling or inserting, inadvertent canceling of information or discarding of External Data Media, and from loss of information caused by magnetic fields
  • Costs for data restoration where no backup system is available

Section 3 - Increased Cost of Working cover

Under this section, the policyholder is indemnified for all additional costs that are incurred when alternative equipment or additional workers have to be employed. The additional expenditure will only be covered if it is directly caused by material damage to the insured equipment by a covered risk.

When significant damage to a data processing unit due to indemnifiable events (like fire, theft, etc.) renders it deficient, an EEI insurance policy can help provide financial assistance in setting up a substitute unit and/or hiring extra workforce. Here, the personal and transportation costs borne by the company are also covered.

  • Liability costs in the event of bodily injury or death
    Loss or damage occasioned by :
    i) orders imposed by any public authority
    ii) expansion and improvements of the equipment
    iii) lack of funds causing delay in repairs or replacement
  • Costs incurred for use of substitute equipment during the Time Excess

Electronic Equipment Insurance comes with a set of general exclusions. The specific sets of exclusions pertaining to each of the three sections have been listed above. These general exclusions apply to all the sections of this policy. Some of them are :

  • War and nuclear perils
  • Wilful act or negligence of the Insured or their representative
  • Cessation of work whether total or partial
  • Derangement of the Insured property not accompanied by damage otherwise covered by this policy
  • Loss or damage due to pressure wave caused by aircraft and aerial devices
  • Deductibles stated in the schedule (for each section)
  • Consequential loss of any kind

Electronic Equipment Insurance (EEI) is an invaluable financial security for businesses today. Electronic devices are not only fragile and expensive, but are also difficult to replace. Their extensive presence in almost every business organization has made EEI a necessity.

This type of insurance is most commonly purchased in conjunction with a Fire and Allied Perils Insurance policy.

Learn more: Supplementary policies to Fire Insurance

Opinions, conclusions and statements of intent expressed in this article are that of the author and Verak does not accept liability for the views expressed unless confirmed by an authorized representative of the Company independently of this communication.