ENGINEERING INSURANCE

By Amrit Lal Meena, SBM, NIC

INSTALLED MACHINERY POLICIES

 MACHINERY INSURANCE (MI),

 BOILER & PRESSURE PLANT (BPP),

 ELECTRONIC EQUIPMENT INSC.(EEI),

 MACHINERY LOSS OF PROFIT (MLOP).

MACHERY INSURANCE POLICY (M.I.)

 Property covered: All Electrical and Non

electrical (Mechanical & Chemical) items like
Electric Motors, Transformers, Diesel
Generator Sets, Air compressors, Boilers,
Blowers, etc.
 Scope of cover : against sudden, accidental

loss due to vibration, maladjustments,

falling, Impact, collision and the like,
Obstruction or entry of foreign bodies, etc.
 M.I. POLICY: Scope Of Cover

Losses from unforeseen and sudden damage

to machinery from following causes:
 i. Faulty material, design, construction,

erection;
 ii. Vibration, malalignment, maladjustment;
 iii. Defective lubrication, loosening of parts,

stress, explosion due to centrifugal force,

or internal pressure;
 iv. Failure of insulation and electrical

breakdown.
 v. Human failures like lack of skill, lack of

knowledge & mere negligence.

MACHINERY INSURANCE(M.I.)
 The cover applies within the insured’s
premises specified in the policy while the
insured plant is covered under the following
situations:
 1. When it is at work or at rest.
 2. While being dismantled for cleaning or
overhauling.
 3. During cleaning and overhauling operation.
 4. When being shifted within the premises.
 POLICYEXCESS


 1% of S.I. or subject to the minimum of

Rs. 2500/- against each claim.

Note:
 Sum Insured of the machine should be

declared as a whole and should not be

apportioned towards parts of machine.
MACHINERY INSURANCE
 Risks covered
 Mechanical failures like Mal-alignment,
Mal-adjustment of parts, impact of foreign
elements, faulty operation, failure of safety
system/failure lubrication system,etc.
 Human failures like lack of knowledge, lack
of skill, mare negligence.
 Electrical equipments suffer Electrical
failures or breakdown losses due to "Short
circuit, Excess/surge Voltage, Voltage
fluctuations, Defective insulations, ….. " etc.
Exclusions of Machinery Insurance
i. Fire and allied perils
§ internal fire due to electrical faults in electrical
equipment is covered.
§ explosion due to centrifugal force & internal
pressure is covered.
ii. War & Warlike perils
iii Nuclear risks
iv experiments or overload or similar tests
v. Gradually developing flaws, defects, cracks
vi. Normal wear and tear
vii. Wilful negligence
 EXCLUSIONS-2

 viii. consequential loss

 ix. Defect in existence before insurance
 5. Special Exclusions
 i.   Excess         
 ii. Damage due to faults/defects for which

manufacturer is responsible
 iii. exchangeable parts, non metallic parts

(except electrical insulation), operating

media, coating of metal parts
 SUM INSURED/ AVERAGE
  Sum Insured
 The S.I. of each individual item must represent its

new replacement value (current replacement value )

including transportation cost to site, custom duty,
insurance premium, other erection & installation
cost i.e. Sum insured = New value + freight +
customs & duties + other erection & installation
costs.
 Optional Items:

Cost of Civil Foundation & Oil in Transformer & for

Swichgear
 Condition of Average is applicable for

underinsurance.
MACHINERY INSURANCE
Indemnification
 Repair basis
 - No deduction for depreciation for parts with
unlimited life.
 Necessary bills and documents for repairs be
submitted.
 The value of salvage, under-insurance and excess is
deducted from loss.
 Total Loss Basis
 Actual value of item after applying depreciation from
the replacement value of item.
IMPORTANT POINTS
 NO POLICY TO BE ISSUED ON FIRST LOSS
BASIS
 NO POLICY TO BE ISSUED WITH A BONUS

CLAUSE
 NOT ISSUED ON AGREED VALUE BASIS
 VOLUME DISCOUNTS NOT AVAILABLE
 MINIMUM PREM. RS 100/-
 50% DISCOUNTS ON STANDBY EQUIPMENTS

(alternate working clause apply)

 Lockout/standstill period: no refund allowed
DECLINED MACHINES
 STONE CRUSHERS,
 ROLLING MILL STANDS,
 ALL ELECTRONIC EQUIPMENTS, ANY AUDIO

VIDEO EQUIPMENTS,
 PIPE LINES,
 ANY IMPORTED MACHINE WHICH CAN NOT

BE REPAIRED IN TH COUNTRY.
BOILER AND PRESSURE
PLANT INSURANCE
 “INSURANCE IS AMONGST THE MOST
PRUDENT INVENTIONS OF MAN; IT MAKES
DISASTERS TOLERABLE.”

Albert Einstein
 BOILER: Fired Closed Vessel or combined
container piping system in which steam is
generated under pressure.

 PRESSURE PLANT: Unfired Closed Container

under steam gas or fluid pressure.
BOILER AND PRESSURE PLANT INSURANCE(BPP)

 Items covered: Boilers and Other Pressure

vessels (which generate pressure during
their normal operations)

 Scope of cover:
1) Explosion and Collapse Damage , other
than by fire ,to the Boiler &/or other
pressure Plant and to surrounding
property of the insured.
2) Legal liability for death, bodily injuries or
property of third party.
BPP POLICY
 Sum Insured - Current replacement value of
these items( to avoid under insurance).
 Escalation maximum to the tune of 25% of
S.I. can be opted by the insured.

EXTENSIONS OF BPP POLICY:-

 By payment of additional premium
,following risks be covered:
 i) Surrounding Property damage
 ii) Damage to third party
property,death/bodily injuries.
BPP POLICY
 Warranties: Boiler and Pressure plant comes
in statutory regulations. Following
conditions specifically apply to BPP:
 1. The insured boiler should be certified by Boiler
Inspector for use. Otherwise the premium rates to
be loaded by 50%for the current session only.
 2. Boilers being operated by Persons holding valid
certificates.
 3. Permission to use the boiler from the
authority(by the Boiler Inspector).
BPP POLICY

 Rating:-Basic rate is as per Guide

rate.Additional Premium be charged for
extensions like surrounding property damages,
third party liability/property damage, etc.
 Exclusions:- Loss or damage due to -
 1. Fire and allied risks of standard fire policy,
 2. Damage by chemical explosion except in
recovery boilers and waste heat boiler.
 3. Wear and tear, Wasting of boiler materials.
 4.Failure of individual tubes.
Important point:
 Flue Gas explosion is covered
 Explosion due to smelt water reaction for

waste heat / recovery Boilers is covered.

 Excess: 5% of Claim amount Subject To

Minimum of Rs 10000/- per claim.
ELECTRONIC EQUIPMENT INSURANCE

EEI
ELECTRONIC EQUIPMENT INSURANCE

 Objects covered:
 Computers,Bio-medical equipments,X-ray equipments, Audio / Video equipments,
EPBAX,various Medical / equipments like Scanners,E.C.G. etc.

This is an all risks policy and covers namely the following risks:-
1. Damage due to carelessness, Negligence of employees
2. Fire, Lightning, Explosion, flood , Storm ,Earthquake etc
3. Damage due to moisture and humidity.
4. Riot, strike, Malicious damage
5. Burglary, Housebreaking or theft.
6. Electrical, Mechanical breakdown.

 COVER NOT GRANTED TO: Photo Copy machines, Dish Antenna, Any portable
electronic equipment like laptop computer, portable sonograph.

 ELECTRONIC EQUIPMENT INSURANCE

◦ This Policy comprise of three sections:-

◦ Sec I cover Material Damage to equipments only i.e. Physical/tangible part of machines with
auxiliaries like CPU,VDU(monitors),Printers, Key-board, Speakers, external Modems – even the
items which provide the computer environment like room air-conditioners, UPSS, voltage
stabilizers –all such items are insured against above risks.
ELECTRONIC EQUIPMENT INSURANCE

 Sec II cover Material Damage to External Data

Media. The sum insured shall be the amount
required for replacing lost or damaged data
media by new material and for reproducing lost
information only for back-up data but not for
master data.
 Sec III covers Increased Cost of Working following
breakdown of equipments as covered under
Section I. The additional cost may be for using
substitute EDP equipment, for personal expenses
and cost of transportation of materials.
Excess deductible under EEI Policy for m/c S.I.<Rs.1 lac:

 For sum insured of individual machine value

upto Rs. 1 Lac:-5% of the claim amount
subject to minimum of Rs.2,500/- for normal
claims.
 10% of the claim amount subject to minimum

of Rs.2,500/- for Winchester drive & Hard

disk claims.
Excess deductible under EEI Policy for m/c > Rs. 1 lac:

1. For sum insured of individual machine

value above Rs. 1 Lac:- 5% of the claim
amount subject to minimum of Rs 2,500/-
for normal claims.
2. - 25% of the claim amount subject to
minimum of Rs 10,000/- for Winchester
Drive & Hard disk claims.
ELECTRONIC EQUIPMENT INSURANCE

 Technical Survey : Is conducted of all

electronic equipments and computer
installations. This insurance cover is given
only for those equipments which have
completed at least 3 months trouble free
operations.
 Escalation maximum to the tune of 25% can
be opted by the insured.
Exclusions of E.E.I. Policy
 Loss /Damage due to
 1. Wear and Tear,
 2. Defects for which manufacturer is
responsible.
 3. Due to willful act of insured.
 4. War, Invasion and allied risks

2. Loss or damage to bulbs, valves, tubes etc.

3. Consequential loss of any kind in Section II
of policy. Any cost arising from false
programming, punching or inadvertent
canceling of information etc.
For Claims under E.E.I. Policy:-

 1. Material Damage
 Repairs:-Indemnity is cost of repairs plus the

cost of dismantling and re-erection.No

deduction for depreciation for parts with
Unlimited life in case of repairs (i.e. for partial
loss ). The cost of any alterations,
improvements or overhauls shall not be
recoverable under the policy.
For Claims under E.E.I. Policy:-

 2. External Data Media for floppies, discs etc.

 Indemnity is for all expenses within a period of 12
months from the date of loss.Expenses incurred
will be for restoring the insured external data
media to a pre loss condition.As from the date of
loss , the sum insured shall be reduced for
balance policy period unless the sum insured is
reinstated.
 3. Increased Cost of working
 Indemnify the additional expenditure following
admissible loss in policy. This may be in terms of
hiring additional machines or for using new
premises to carry out the work at higher cost.
E.E.I. RATING
 Discount for Fire Insurance:
 A) For equipments covered under E.E.I.

Policy as also under Fire Policy with all

extensions : A discount of 10% of the
applicable E.E.I. Rate (FOR SEC.-I ONLY);
 B) with some extensions only under Fire

Policy: 5% discount on Fire Rate (FOR SEC.-I

ONLY) .
 C) Without any extension (STFI OR RSDM):

7.5%
WARRENTY OF E.E.I. POLICY
 WARRANTY –
 It is warranted that the Maintenance Agreement in force at
the inception of this policy is maintained during the
currency of this policy and no variation in the terms of the
Agreement shall be made without the written consent of
the Company being obtained.
 For the purpose of this warranty the word ‘Maintenance’
shall mean the following -

 Safety checks,
 Preventive maintenance
 Rectification of loss or damage or faults arising from
normal operation as well as from ageing.

MLOP
Machinery Loss of Profits Policy( MLOP)
 This Policy covers Loss of Gross profits
( Consequential losses) following breakdown of
machine/s due to accidental.
This may so happen that after breakdown of a
critical machine the entire manufacturing process
comes to a halt .The actual cost for replacing the
damaged part may not be very huge but following
losses may follow:
 1. No profits as no production.

 2. Standing expenses like salary, interest, rent,

etc. are to be paid (EVEN AFTER THE LOSS & STOPAGE OF

PRODUCTION).
 3. Extra money may be required to start production from an
alternate place or with some alternative machines on hire
[which is known as INCREASED COST OF WORKING (ICOW) ].
 All above losses are covered under Machinery Loss
of Profit insurance Policy.
MLOP POLICY
 For claim to be paid in this policy, firstly the claim
should be admitted in the concurrent Machinery
Insurance Policy for Breakdown (as per the
MATERIAL DAMAGE PROVISO of MLOP Policy) .
 Sum Insured:-Sum Insured is being fixed keeping
in view the expected Gross Profit for year which is
equal to Net Profit plus all insured standing
charges calculated on last year’s annual A/C
figures’ basis (i.e. this can be determined from
Gross Profit of the previous year and including
the trend for increase or decrease expected in
current year of underwriting).
MLOP POLICY
Premium Rate
 This depends on-(A)Relative importance

(normally expressed in %) of the insured

machines in relation to the final product &
in comparison to other machines. Stand-
by machinery will reduce the relative
importance,the interruption period and the
loss amount.
 (B) Indemnity Period &
 (C) Time Excess.
MLOP POLICY
 (B)Indemnity Period(defined as the
Maximum Period of interruption following
breakdown of insured machines for which
insurer is liable. This can be equal or less
than the policy period) i.e. the liability for
payment of loss due to reduction in
turnover/output during this period only,
is accepted by the insurer. Higher
indemnity period means higher liability
for the insurers, hence higher premium.
Repair facility( in-house/local) will reduce
quantum of loss in policy.
 (C) Time Excess in this policy is minimum
14 days.
Exclusions of MLOP Policy
 1. Time Excess( for all loss of profit policies
the stipulated deductible franchise are
always expressed in terms of number of days
(i.e. THE INITIAL STIPULATED NUMBER OF DAYS’
PERIOD, DURING WHICH PERIOD THE LOSS DUE TO
REDUCTION IN TURNOVER/OUTPUT HAS ALWAYS TO
BE BORNE BY THE INSUREDS).
 2. Intangible losses such as loss of
market/goodwill which are not insurable
risks .
 3. Alterations, improvements or overhauling
made while repairing the insured machines.
 4. Willful or gross negligence of insured(s).
THANK YOU