Contractor’s Equipment Insurance 101
August 2, 2016
For contractors, equipment such as bulldozers, cranes and power tools are extremely valuable. Not only is this equipment expensive, but their businesses simply cannot run without them. In order for these key assets to be protected in the event of damage or loss, Contractor’s Equipment Insurance is an essential part of any construction company’s insurance program.
What is Contractor’s Equipment Insurance?
A Contractor’s Equipment Insurance policy covers exactly what it says: equipment and tools typically used by contractors to complete a project. This type of coverage is important not only for contractors, but any business that owns valuable machinery and equipment that moves around. Contractor’s Equipment coverage is meant to fill the gaps in Commercial Property and Business Auto policies. Whereas a business’s personal property can be covered under a Commercial Property policy, these typically exclude coverage for property that moves from location to location. Similarly, a Business Auto policy typically excludes coverage for “mobile equipment.” The equipment that is commonly covered under a Contractor’s Equipment policy includes, but is not limited to, bulldozers, forklifts, backhoes, excavators, cranes, diggers, pavers, etc.
What is covered?
A Contractor’s Equipment Insurance policy provides coverage for the direct physical damage/loss to mobile machinery and equipment that is most often used in the construction industry. This coverage follows the equipment when it in transit from jobsite to jobsite. Among other things, the policy provides the necessary protection against perils such as fire, vandalism, theft and flood. In many cases, it covers equipment that is owned, rented, leased or borrowed.
It is important for every insured to carefully read through his or her policy form to make sure it is written to coincide with their specific operations. There may be exceptions and exclusions buried within the policy that could negate coverage for a major component of the insured’s operations. Each of those exclusions could potentially expose a business to unnecessary risk. For example, a contractor that has equipment on a barge will need to make sure the equipment, while waterborne, is covered under his or her policy. It is crucial to work with an insurance broker that understands your business and operations so you are provided the necessary coverage in the event of a loss.
Purchasing Contractor’s Equipment Insurance
Ask yourself the following questions when purchasing a Contractor’s Equipment Insurance policy:
Do you have the proper limits scheduled for each piece of equipment?
Your policy will state a specific amount of insurance applicable to each piece of equipment scheduled in the declarations section of your policy. For example, if you have a $200,000 piece of equipment, you need to make sure you have the appropriate value scheduled for that piece of equipment. In some cases, you may be able to obtain a blanket limit of coverage, which means you would have one limit that would apply to all of your equipment, rather than a separate limit for each individual piece. If this coverage can be obtained, it could reduce the possibility of an uninsured loss due to the scheduling of equipment at inadequate values.
How will your equipment be valued if a loss occurs? Actual Cash Value or Replacement Cost?
If your policy is written on a Replacement Cost basis, you will be reimbursed for the cost to “repair or replace” damaged property with “like kind and quality.” In this scenario, the damaged equipment would be repaired or replaced with equipment of similar age, condition and quality. If your policy is written on an Actual Cash Value basis, you will be reimbursed for the replacement costs of the property insured at the time of loss minus depreciation. A contractor’s equipment can depreciate rather quickly, and every insured needs to be mindful of how his or her policy is written.
Do you loan, lease or rent equipment TO others?
If a situation should arise where you are leasing or loaning a piece of equipment to another contractor at a jobsite, you will want to make sure this coverage is in your Contractor’s Equipment policy.
Do you lease or rent equipment FROM others?
If so, this coverage is available and should be included in your policy. Also, take a close look at the limits in your policy. If you lease or rent valuable equipment, it is important to have the necessary limits in order to provide coverage for the most valuable pieces needed to complete a job. You may also need to report leased equipment over a certain value to your insurance company.
Do you have rental expense coverage?
This could be important coverage to obtain if a piece of owned, leased or rented equipment is damaged and you incur additional expense to replace that piece in order to keep working without interruption. Also, if you lease a piece of equipment and it becomes damaged, you may be able to obtain coverage in the event your lease requires a continuation of payment until the piece is repaired.
Contractor’s Equipment Insurance can be written in a variety of ways. To be sure your equipment is properly covered, it is important to meet with an insurance broker to take an in-depth look at your existing property insurance coverage and specific needs.
Philadelphia, PA, 19102