Machinery Breakdown

Presented by: Donn Bordonaro, AVP Sr. Underwriting Specialist

Premier Healthcare 8-19-2009

Agenda 1. 2. 3. 4. 5. 6. Introduction and objectives of todays webcast session Machinery Breakdown Perils Underwriting considerations Service & Inspections Claims Services Loss Lessons

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Introduction
The objective of todays session is to discuss and describe Machinery Breakdown and build a better understanding for Risk Managers and Facility Managers. We will:
Discuss the Machinery Breakdown perils. Look at the Underwriting Considerations used to develop the coverage and pricing as we look to better understand the Machinery & Equipment exposures. Discuss Machinery Breakdown Risk Engineers Review lessons from losses, a look at actual losses.

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Machinery Breakdown Perils

Property Insurance Policies generally exclude the Machinery Breakdown Perils, or add them back by endorsement. They are usually:
Underwritten and reviewed by separate Boiler Underwriting Companies (Reinsurance), or Underwritten and reviewed by Boiler Specialists at the Company writing the Property & Boiler together. Priced and underwritten with very different considerations that involve the size, type and make up of equipment found at Hospitals and Healthcare facilities
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Machinery Breakdown Perils

Abrupt & Accidental Breakdown*
Abrupt and accidental breakdown of mechanical or electrical system or apparatus which causes direct physical loss or damage to all of or part of that mechanical or electrical system or apparatus provided the direct physical loss or damage becomes manifest at the time of the breakdown that caused it.

Electrical Injury Explosion of a steam boiler, steam piping or steam engine

*AKAS Mechanical Breakdown
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Machinery Breakdown Perils

Mechanical or electrical system or apparatus means any:
boiler, fired pressure vessel, unfired pressure vessel normally subject to vacuum or internal pressure other than weight of its content, refrigerating and air conditioning vessels, including metal piping and its accessory equipment connected thereto; and mechanical or electrical machine or apparatus used for the generation, transmission or utilization of mechanical or electrical power.

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Underwriting Considerations
Insurance Companies are interested in knowing the make up of exposures at each facility in an effort to properly understand and insure the risk.
Some Hospitals purchase their steam and thus do not have boilers of their own; however, most have anywhere from 3 to 6 high pressure boilers. Some Hospitals purchase Air Conditioning and Refrigeration; however most have very large HVAC systems to cool and keep food and blood products maintained. Each Hospital with its affiliated facilities presents a different exposure to the Underwriters.
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Underwriting Considerations
The important points we mentioned earlier about the Machinery Breakdown Perils come into play with the Underwriting Considerations for Both Property Damage and Business Interruption. Underwriters will prepare insurance programs that include coverage and services to meet a customers needs. Site surveys assist Machinery Breakdown Underwriters to understand and align their coverage and services capacity appropriately
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Underwriting Considerations
What are the Property Damage Considerations?
A review of the size, age and condition of machinery and equipment Are Maintenance procedures and testing performed per manufacturers recommendations? Are personnel competent and experienced? Is there a clean and explainable history of equipment failures?

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Underwriting Considerations
What are the Property Damage Considerations?
Is any equipment obsolete ,prototype or one of a kind? Is the equipment all easily accessible for repairs? Does management have a preventative and predictive approach toward maintenance, including expenditures? Does financial stability allow for the proper funding of equipment repairs, testing and replacement as needed or required?

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Underwriting Considerations
What are the Business Interruption Considerations?
Is there is a contingency plan in place for catastrophic equipment failures? Is there adequate standby power generation available to run OR, ER and all critical lighting? Is there a useable hook up for spare boilers and power generation equipment? Are there arrangements with nearby hospitals for caring for patients or for moving patients to other facilities if needed?

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Machinery Breakdown Risk Engineers

Machinery Breakdown Insurance Carriers are required by most States to perform Jurisdictional Inspections of Boilers and Pressure Vessels. .

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Machinery Breakdown Risk Engineers

The role of the MBRE:
Evaluating equipment exposures through site surveys
Safety checks on Boilers and all critical equipment Check for double clamp on MRI machines Reviews maintenance and test records per manufacturing specs Consults and collaborates with key facility personnel and agent

Conducts loss Investigations when equipment failures are reported to Chubb Report and follow up on any Boiler & Pressure Vessel code violations through written recommendations Provide web cast or on site training sessions for clients

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Machinery Breakdown Claims

Chubb has a dedicated Machinery Breakdown Claims Unit The claims unit is staffed with seasoned professionals that are equipped to deal with Boiler & Equipment claims Almost every claim is investigated by Chubbs Machinery Breakdown Risk Engineers who then report details to the MB Claims adjuster Chubb utilizes Specialists in many fields to assist in determining cause of loss and to assist them in handling claims in a fair and accurate manner. Chubb MB Adjusters have experience and resources to handle many different and sophisticated loss scenarios as you will see in the claims discussions

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MACHINERY BREAKDOWN CLAIM UNIT

Don Zaprazny Unit Manager dzaprazny@chubb.com 800-296-3246 (#1) Voice

George Kiger Outside Claim Specialist gkiger@chubb.com 800-296-3246 (#7) Voice 678-407-2073 Voice-local 678-407-2106 Fax

CLAIM SERVICE CENTER FOR ALL FIRST REPORTS Phone: 800-CLAIMS 0 (800-252-4670) Fax: 800-300-2538

Christopher Douglas Outside Claim Specialist cdouglas@chubb.com 800-296-3246 (#5) Voice 636-744-1190 Voice-local 636-744-1162 Fax Paul Dieckman Outside Claim Specialist pdieckman@chubb.com 800-296-3246 (#6) Voice 570-268-1162 Voice-local 570-268-1164 Fax
Rev. May 2009

Loss Lessons from Chubb

Disclaimer:
The following loss scenarios are not intended to be used to settle or evaluate any other claims that may be similar in nature. Each and every claim is evaluated on its own circumstances.

Machinery Breakdown Claims

Why do Machinery Breakdown losses occur?
Lack of or Improper Maintenance Age of Equipment - Exhausted Useful Life of Machinery Improper Use of Equipment Lack of Control or Safety Devices Failure of Safety Devices to Function Properly Poor Workmanship/Inferior Materials Operator Error Poor Operating Environment External Forces
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Steam Explosion Peril

Examples of Steam Explosion:
Boiler Explosion Due to Safety Device Failure. Low water cut off devices do not detect low water or they stick causing water to flash to steam and cause severe pressure explosion. Burst Steam Pipe that might be caused by weld failure

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Electrical Injury / Arcing Peril

There is high potential for severity due to:
Large and Expensive Equipment & Materials Extensive downtime for repairs Specialized labor and overtime costs

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Electrical Injury / Arcing Peril

Examples that require repair or replacement:
Arcing in an Electrical Distribution Panel Caused by a Loose Connection Winding Failure in an Electric Motor Due to Overheating Caused by Insulation Breakdown A Single Phase Condition in a Transformer Resulting From a Power Surge Distribution panel heats, melts or explodes due to surge or insufficient insulation

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Other than Mechanical Breakdown (Abrupt and Accidental Breakdown)

Some examples of Abrupt and Accidental Breakdown of machines or apparatus:
Cracked piston in an Air Conditioning Compressor Boiler tubes burst due to a low water condition Crank shaft breaks or cracks on an Internal Combustion Engine used to drive an Electric Stand by Generator due to vibration or wear.

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Loss Lesson- Contractor on the Fritz

Loss Scenario and Details: An Air Conditioning System was damaged as a result of an outside contractor that overfilled the glycol system (which prevents freezing of the cooling system) The System did not dissipate the heat off of the compressor (500 ton). Dirt in the chill water system (tube bundle) caused additional heat recovery problems. The Compressor failed. It experienced a rub of the impeller, causing significant damage on centrifugal compressor. It was repaired on site for a cost of $80,000. The main concern and problem with this loss was the competency of contractor as well as legitimate repair time/labor, parts and dispute over who was responsible. Loss Prevention: Doing business with reputable and responsible contractors.

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Loss Lesson No Longer a Patient!

Loss Scenario During the day shift, hospital personnel noted that one wing was getting warmer. Maintenance staff was called to investigate. They found that the condenser tube bundle for the system had ruptured. Loss Details This 80-ton centrifugal compressor system sustained failure of several tubes that ruptured at the end where they bend. It is likely that the water had not been fully evacuated from the system during preparation for the winter, resulting in the remaining liquid freezing and rupturing the tube ends. Total replacement of the tube bundle, including labor, tear-down of system and installation of new tubes cost $60,000 for parts and labor and $22,000 of extra expense costs for cleaning the system and overtime. Total loss $88,000. Loss Prevention Properly winterizing all systems by draining all pipes and tubes helps to prevent failures resulting from ruptured tubes.
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Loss Lesson- Cooling System calls out Sick

This medical clinic provides walk-in medical services to a wide population base in a large downtown city. During the course of a three day holiday, several staff members attempted to log on to their computer system and were not successful. Upon returning to work, staff entered the data processing room and found the temperature at 130 degrees 'F'. The room is cooled by a single, four ton Freon, direct expansion unit that was built in 1996.

Loss Scenario The computer servers, which were equipped with high temperature limit breakers, were found shut down. Portable fans were brought in which reduced the room temperature to 75 degrees 'F'. Several attempts were made to reboot the system without success and the outside computer systems vendor was called in. The vendor found six of eight data bases corrupted with the data lost. A plan to rent servers was considered, using the firms back-up tapes. However, when these tapes were reviewed, they were also found to have a problem. continued..
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Loss Lesson- Cooling System calls out Sick

Loss details The circuit board, which was part of the air conditioning units controller, failed. The cost to repair the air conditioning unit was less than $5,000. However, to recreate the data and bring in new servers cost $40,000. Loss Prevention While electrical testing of the air conditioning unit may have identified this problem, having temperature alarms in the room that were connected to a central station would have allowed for identifying the problem and correcting it. Viable, usable back up tapes would have prevented the need to recreate all of the damaged data.

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Loss Lesson- Code Blue Boiler!

Loss Scenario The unit involved along with another identical boiler is of the firetube, firebox design and provides steam for heating and sterilization in this 350-bed hospital. It was built in 1952 and provides steam at 12,000 pounds per hour at 125 psi and is oil fired. During normal operation, maintenance personnel noticed water leaking from the back of the boiler onto the floor. The unit was secured, cooled and opened for examination. Loss details An examination of the water legs of the boiler revealed several stay bolts (which support the walls) cracked which would explain why they were leaking. It is suspected that the cause of the cracking was due to thermal stress from "cold" feed water. The entry point into the boiler was at where the damaged stay bolts were located. Cost of repairs was estimated at $55,000. continued..

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Loss Lesson- Code Blue Boiler!

Loss Prevention Preheating the feed water prior to entry into the boiler or rearranging its entry into another location may have prevented this failure. Stay bolts are used in boiler construction to provide strength to a particular area of high stress and are welded in place. Additionally, the stays have a "weep hole" drilled through the center so that in the event that a crack or hole from corrosion develops, the water would leak out of the hole, become noticed and replaced

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Loss Lesson- Its Electric!

Loss Scenario & Details: 600 feet of 13.2 KV underground feeder cable failed due to a ground fault. This Installation was 40 years old and a driveway and parking lot was constructed over the cable. When the cable failed, it fused to the foundation. Total replacement and cost was $175,000. Loss Prevention: Electrical tests, preferably non-destructive types can determine early stages of electrical ground faults

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MPL Example- Wasnt Transformed!

Loss Scenario & Details: A 2000 KVA rated transformer was experiencing improper load for a long period of time (only 50% loaded). Due to improper changes in electrical system, the transformer failed. $113,000 for total replacement $50,000 in Extra Expense costs for a rental generator and fuel. Loss Prevention: Annual oil & gas analysis testing and Doble Electric diagnostics provide details of the overall health of the transformers. Proper load and usage is always recommended

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Furnace Explosion Damage at Hospital

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MRI Explosion

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Compressor Motor Stator Damage

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Steam Explosion at a Hospital in 2006

This Boiler explosion in 2006 at a hospital was due to the failure of a safety device. The boiler built up high pressure steam which resulted in a severe explosion.

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Steam Explosion at a Hospital in 2006

The low water cut off devices designed to shut the boiler down failed. This allowed the boiler to Continue to heat without water in the tubes. As a Result, explosion destroyed the boiler and portions of the building resulting in more than $2.5 million In damages.

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QUESTIONS??

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