November 17, 2021

Machinery Breakdown (MBD) Insurance

Machinery Breakdown (MBD) Insurance

Machinery Breakdown Insurance is a Business Insurance policy that provides financial reimbursement for any physical damage caused to plant, machinery, and equipment due to their mechanical or electrical breakdown.

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. Through this policy, they can easily cover the cost of repair or replacement of essential equipment.

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

Machinery Breakdown Insurance covers losses caused by unforeseen and sudden physical damage to insured machinery while the machinery is located in the business premises, provided such material damage entails its immediate repair and replacement.

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

  • Short-circuits, voltage fluctuations, and electrical arcing
  • Abnormal operating conditions
  • 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 whether it is :

  • In operation,
  • At rest, or
  • Dismantled for cleaning, inspection, overhauling, removal or reassembly purposes

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, Machinery Breakdown Insurance also offers the following add-on covers 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 of Sum Insured

A Machinery Breakdown Insurance policy comes with some general and specific exclusions. It will not provide coverage for damage to machinery when caused by the following risks:

  • 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 defects or supply faults
  • 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

Machinery Breakdown Insurance is an essential security for factories and industrial organisations. 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.

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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.