Glossary

Equipment Breakdown Insurance

Also known as: Boiler and Machinery Insurance, Mechanical Breakdown Insurance

Coverage for sudden and accidental mechanical or electrical breakdown of boilers, chillers, elevators, electrical systems, and similar equipment, including resulting property damage and business interruption — perils typically excluded from standard property policies.

Standard commercial property forms generally exclude mechanical breakdown and internal explosion of pressure and electrical equipment on the theory that such losses stem from wear, defect, or operational failure rather than an external peril like fire or wind, which is precisely why this coverage is written and priced separately (historically called boiler and machinery insurance). For CRE assets with significant central plant infrastructure — large multifamily and office buildings with chillers and boilers, hospitality properties with extensive HVAC and laundry equipment, data centers with critical cooling and power systems — an uninsured equipment failure can be as financially damaging as a fire, both in direct repair or replacement cost and in resulting loss of rents or business income if the failure makes space untenantable. Lenders on mechanically intensive asset classes frequently require this coverage as a distinct line item in the insurance covenant rather than assuming it is bundled into the general property policy, since many all-risk forms do not automatically include it.