What Are the Types of Engineering Insurance?

Which Policies Make Up the Engineering Class?

Engineering insurance is the collective name for policies that indemnify sudden and unforeseen physical damage to plant and works. Among the property insurance general conditions published by the regulator, four texts belong directly to this class: Construction Insurance (Contractors' All Risks), Erection Insurance (Erection All Risks), Machinery Breakdown Insurance and Electronic Equipment Insurance.

What separates them is not the breadth of cover but the life stage of the insured property. Construction and erection policies run while the plant is being built; machinery breakdown and electronic equipment policies run while it is working. Miss that order and the wrong wording is read after a loss, with the gap appearing on the day of the claim.

Construction or Erection Cover?

The opening articles of the two wordings read almost identically; the difference is a single word, the name of the site. The Construction Insurance General Conditions tie cover to loss occurring while the values are on the construction site, and the Erection Insurance General Conditions tie it to loss occurring while they are on the erection site. A reinforced concrete structure calls for construction cover; a finished machine or production line being installed and commissioned calls for erection cover.

The real difference shows at commissioning. Unless the policy states otherwise, the erection term includes a four week testing period, and the insured must give the insurer at least eight days written notice of the dates on which the plant or any part of it starts test running.

There is an exception with direct consequences for second-hand investment: where the erection of used machinery and plant is insured, no testing period cover is granted for that machinery. When a dismantled line is reassembled, commissioning is precisely the riskiest moment, and knowing the policy does not look at it changes the decision at the outset.

On the construction side the trigger is handover rather than commissioning. The maintenance period starting after completion or provisional acceptance is listed among the matters that may be added by supplementary agreement; our Contractors' All Risks page sets out the detail.

When Does Machinery Breakdown Cover Respond?

The Machinery Breakdown Insurance General Conditions have been in force since 25 February 1967, and the first article fixes the time window: the machinery and plant listed in the inventory schedule are covered for sudden and unforeseen damage while working normally after trial running, or while being cleaned, overhauled or relocated at the same premises, or while at rest.

Because the maintenance window is inside the wording, damage arising during an overhaul with production stopped is not treated as outside the policy. The listed causes include operating accidents, defects in design, manufacture, erection, material, moulds, casting and workmanship, faulty lubrication, short circuit and overvoltage with insulation failure, blockage and entry of foreign bodies, disruption from centrifugal force, water hammer, sudden overheating or cooling, and the negligence or sabotage of staff or third parties.

The limit most often missed concerns consumable parts. The conditions state that replaceable items such as drills, shears, blades, saws, cutting tools, dies and moulds, grinders and crushers, sieves and screens, ropes, chains, conveyor belts and driving belts, together with parts customarily renewed at set intervals such as carbon brushes and lamps, cannot be insured.

A second limit is the division of labour between policies. Direct damage by fire and lightning, theft, earthquake, flood and inundation, and any loss of profit or legal liability, all fall outside machinery breakdown cover. Those items belong to fire and liability policies, so a plant's machinery is assessed alongside its business package cover.

What Sets Electronic Equipment Cover Apart?

The Electronic Equipment Insurance General Conditions use the same time window as machinery breakdown: equipment is covered while working normally after trial running, while being cleaned, maintained, overhauled or relocated at the same premises, or while at rest. The difference lies in the causes listed.

This policy covers negligence or sabotage by staff or third parties, theft or attempted theft at the insured premises, faulty design and material, short circuit and overvoltage, fire, lightning and explosion of any kind together with the firefighting and rescue that follow, scorching, discolouration, smoke and soot, and the effects of water and damp including the corrosion they cause. Storm, flood, inundation, landslide and subsidence are covered as well, earthquake excepted.

That exception is the point: unless otherwise agreed, earthquake is excluded. Also excluded unless otherwise agreed are loss to portable equipment while in use or in transit away from the premises stated in the policy, and loss of recorded information following physical damage to external media such as magnetic disks, tapes and cards. When a server, a tomography unit or a control cabinet is insured, the data it holds is visibly a separate heading.

Which Policy Fits Which Situation?

The pairings below take the situations that come up most often in quotation meetings and sort them by the time measure used in the general conditions.

• A new building, infrastructure or concrete works is being built: Construction Insurance
• A finished machine, boiler, turbine, lift or production line is being installed: Erection Insurance
• A used line is being dismantled and reassembled: Erection, but with no testing period cover
• A commissioned production machine fails while running or during overhaul: Machinery Breakdown
• A server, imaging unit, control cabinet or measurement system is to be protected: Electronic Equipment
• Third parties could be harmed at the site: a supplementary agreement on the construction or erection policy

Where Do Newer Assets Such as Solar Plants Fit?

Relatively new assets such as solar power plants have no set of general conditions published in their own name. They are covered by combining the existing texts: Construction or Erection Insurance during building and installation, then fire cover together with Machinery Breakdown and Electronic Equipment cover once the plant is in operation.

The practical consequence is that two quotations both headed solar plant insurance may not describe the same thing. Which wording covers the panels, inverters, transformers and connection equipment, and under which supplementary agreement, is read item by item.

The blind spots shared by all four wordings are worth keeping in mind. Loss of profit and consequential loss are excluded in every one of them; war and nuclear risks are absolute exclusions; strike, lockout, riot and civil commotion, and acts of terrorism, enter cover in all four only by supplementary agreement.

Where We Come In as an Agency

RYL Sigorta Aracılık Hizmetleri Limited Şirketi is an insurance agency. Our work is to establish which life stage the plant is in, point to the right general conditions, list plainly what depends on a supplementary agreement, and prepare quotations from the insurance companies we act for. The policy is issued by the insurance company, and any claim payment is made by it.

To work out together which engineering policy your investment needs, reach us through the quotation form.

Frequently Asked Questions

Sources

• Index of Insurance General Conditions — SEDDK
• Erection Insurance General Conditions — SEDDK
• Machinery Breakdown Insurance General Conditions — SEDDK
• Electronic Equipment Insurance General Conditions — SEDDK

This article is for information only; the scope of cover is set by the policy’s specific and general terms.