Understanding Exclusions in Plant and Machinery Insurance Policies

Businesses in various industries, such as manufacturing, construction, mining, agriculture, logistics, and transportation, require more complex workmanship and procedures. Hence, these enterprises usually rely on heavy machines and plants, such as excavators, bulldozers, concrete mixers, cranes, mining trucks, crushing machines, and more, for their core operations and project completion.

Damage or breakdown of this specialized machinery and equipment due to unexpected events, accidents, thefts, and natural disasters can cause significant financial losses and disruptions to business workflows. Therefore, the key decision-makers and stakeholders from these sectors in the United Arab Emirates(UAE) have insured their plant and machinery to mitigate such risks.

In this blog, you’ll understand the exclusions of contractors plant and machinery insurance policies prior to initiating the claim processing. This allows policyholders to avoid disputes over vague and overlapping liabilities and enables them to make more informed decisions.

Exclusions in Contractors Plant and Machinery Insurance Policies

• Gradual Deterioration: Plant and machinery insurance policies typically exclude the coverage of machines and equipment damage caused by natural deterioration. Gradual deterioration of plants and machinery refers to failure caused by regular usage and environmental exposure. The most common forms of decline in machinery and equipment include wear and tear due to repeated operations, rust and corrosion on metal structures, cracks and fractures in gears and shafts, and reduced performance and efficiency in engines. Plant and machinery policies generally avoid covering such decline, citing a wear-and-tear exclusion in the policy.
• Mechanical and Electrical Breakdown: The insurers are not liable for machinery and plant damage caused by electrical and mechanical breakdown, failure due to freezing of coolant or other fluids in the machines, defective lubrication, oil, or coolant in bulldozers, exactors, cranes, and more. Because these are predictable outcomes of manufacturing defects and improper maintenance and are not caused by unexpected events or accidents, providing coverage for such losses is unfeasible for most insurance service providers.
• War and Terrorism: The contractors plant and machinery insurance policies typically avoid covering the damage or risks caused by war and terrorism activity. Due to the unpredictable and disastrous nature of wars and terrorism, evaluating the potential losses of such events is highly challenging for insurers. Moreover, it is impracticable for insurers to provide coverage to policyholders without reaping the prohibitive costs.
• Nuclear Hazards: Nuclear hazards cause significant damage and losses, leading to serious health and environmental impacts. The potential risks associated with such catastrophic events are large and unpredictable. Assessing the damages to machines, plants, and equipment and setting the right premiums for losses that occur during a nuclear explosion, is extremely challenging. Therefore, plant and machinery insurance policies exclude coverage for losses during nuclear accidents.
• Pre-existing Condition: Insurers generally avoid covering defects and damages to plants, machinery, and equipment that occurred before the policy’s commencement. Contractors Plant and machinery insurance policies are designed to cover the potential risks caused by unexpected events, not the prior loss or damage. This is because claims arising from pre-existing conditions generally don’t fall under the radar of coverage focused on sudden accidents and events.
• Negligence: Contractors Plant and machinery insurance policies typically exclude coverage for damages and risks caused by the policyholder’s negligence. Negligence refers to the inability to properly maintain and care for operating machinery, plants, and equipment. Since policyholders are responsible for regular maintenance and proper usage of machines and tools, claiming against the damage caused by negligence often leads to unwanted disputes between the insurer and the insured, resulting in legal repercussions.
•  Consequential Losses: Insurers are not responsible for consequential losses, as these risks are not directly related to unforeseen events. Consequential losses are secondary damages that occur after the initial events, such as revenue loss and future project delays caused by machine breakdown or failure. Contractors Plant and machinery equipment insurance policies often exclude such indirect losses, prioritising coverage for direct losses. Businesses can look for additional coverage to mitigate risks from indirect events.

CoverB-Your Trusted Advisory Platform

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Conclusion:

Understanding exclusions in contractors plant and machinery insurance policies is crucial for policyholders before initiating claim processing. Exploring these exclusions can help them manage potential risks effortlessly and make value-added decisions.