November 17, 2021

Machinery Breakdown (MBD) Insurance

Machinery Breakdown (MBD) Insurance

Ever since the advent of the industrial revolution in the early 19th century, machines have become an integral part of modern businesses. Commercial enterprises today rely heavily on their plant, machinery, and other equipment for continued production and revenue generation. So much so that any damage to machinery can compromise the whole production system and lead to heavy losses for the business.

To cover the substantial risk of loss or damage to plant and machinery, factories, manufacturing concerns and machinery reliant businesses purchase a Machinery Breakdown (MBD) Insurance Policy.

Apart from the traditional Fire and Allied Perils Insurance policy, it is imperative for enterprises to include Machinery Breakdown Insurance in their commercial property insurance programme. Through this policy, they can cover mechanical or electrical breakdown and unforeseen physical damage to mechanical and electrical equipment, while also covering the cost of repair or replacement of damaged parts.

Let’s take a look at this policy’s inclusions and exclusions in detail.

An MBD Insurance policy covers loss due to unforeseen and sudden physical damage to insured machinery while the machinery is in specified premises, provided such material damage entails its immediate repair and replacement.

Machinery breakdown caused by both internal or external factors is covered by this policy. Some of these causes are listed below :

  • Short-circuits, voltage fluctuations, and electrical arcing
  • Abnormal operating conditions of the machine
  • Impact damage, falling, or collision of objects
  • Carelessness and lack of skill in operating and maintaining the machinery
  • Bursting or disruption of turbines, compressors, cylinders of steam engines, hydraulic cylinders or other apparatus subject to centrifugal force, or internal pressure
  • Loss or damage to electrical machinery due to fire originating from within such machinery

This policy extends coverage to machinery in multiple states :

  • In operation,
  • At rest or
  • When dismantled for cleaning, inspection, overhauling, removal or reassembly

However, in order to be covered, these activities have to be carried out within the premises specified in the insurance policy.

In addition to the above standard covers, this policy also offers the following extensions on payment of additional premium :

  • Express Freight (excluding Air Freight), Overtime and Holiday Wages
  • Air freight
  • Property surrounding the insured premises
  • Third party liability
  • Additional customs duty
  • Escalation

The Machinery Breakdown Insurance Policy has some general and specific exclusions which are listed below :

  • War and related perils, riots, strikes, etc.
  • Nuclear risks
  • Fire and allied perils including lightning, natural disasters, etc.
  • Theft
  • Gradual wear and tear arising out of ordinary usage
  • Faults or defects that existed before the commencement of this insurance and were known to the insured
  • Manufacturing or supply faults or defects
  • Any consequential loss following machinery breakdown
  • Loss or damage due to wilful negligence of the insured or responsible parties
  • Loss or damage due to explosions in chemical recovery boilers, other than pressure explosions
  • Damage to belts, chains, ropes, rubber tyres or any other exchangeable tools unless any loss or damage to the machinery is indemnifiable

Machinery Breakdown Insurance is an essential security for factories and industrial organizations. It helps them cover any losses arising from their mechanical or electrical equipment breaking down. However, this insurance will not cover consequential losses like loss of profits or increased cost of working that result from machinery breakdown. In such cases, a Machinery Loss of Profit (MLOP) Insurance policy should be purchased in conjunction with the MBD insurance policy.

What other kinds of Property Insurance policies can businesses take? Find out here

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.