The Basics of Contractor’s Equipment Insurance
February 4, 2020
In the world of construction, it should come as no surprise that contractors rely heavily on their equipment in order to complete projects efficiently and effectively. This includes heavy equipment like bulldozers, forklifts, backhoes, excavators, cranes, pavers, and even power tools. While these items are essential for the job, they are often expensive and can be prone to damage or loss. Thus, it’s critical that contractors have these valuable assets properly covered within their insurance program.
That’s where Contractor’s Equipment Insurance comes in to play. This policy provides coverage for the direct physical damage or loss to mobile machinery and equipment, in most cases whether it is owned, rented, leased or borrowed. The emphasis here is on the term mobile, as construction equipment and tools may be stored in one place, but then move from jobsite to jobsite for various projects. That is what causes this equipment to warrant its own insurance policy, as Commercial Property and Business Auto policies do not provide adequate coverage for this type of “mobile equipment”.
Contractor’s Equipment Insurance also provides protection against perils such as fire, wind, lightning and flooding, as well as risks such as theft and vandalism. This is an important element, given the machinery is most frequently used and stored outside, making it vulnerable to weather and other hazards.
The particulars of the policy can vary, however. In some cases, there will be a specific limit of insurance applicable to each piece of equipment listed in the declarations section of the policy. Therefore, prior to binding the policy, it is important that the limit of insurance for each item is properly documented and understood. For example, if you have a $200,000 piece of equipment, you need to make sure you have the appropriate value documented on your policy. Another option is to secure a blanket limit of coverage, which means there would be one blanket limit for all equipment covered under the policy. This option can reduce the possibility of experiencing an uncovered loss resulting from scheduling the equipment at inadequate values.
In the instance that a loss does occur, it is important to understand the valuation provisions contained in your policy: Replacement Cost or Actual Cash Value. If the policy is written on a Replacement Cost basis, this will cover the cost to “repair or replace” damaged property with “like kind and quality,” meaning equipment of similar age and condition. However, 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. Since equipment can depreciate rather quickly, every insured needs to be mindful of how their policy will respond in the event of a loss.
Because of the varying needs on construction sites, Contractor’s Equipment Insurance is highly customizable and can be written in many different ways. That’s why it is important for contractors to ensure the appropriate coverage in place for their unique operations.
Every insured should carefully review their policy with an insurance broker, as there may be conditions and exclusions buried within the policy that could negate coverage for a major component of their operations, potentially exposing their business to unnecessary risk. With the help of an insurance broker who understands your specific business and operations, necessary protections will be in place in the event of a loss.
Learn more about Contractor’s Equipment Insurance by reading my Q&A on the topic. In that post, I cover a few coverage extensions and options that all contractors should understand before purchasing a Contractor’s Equipment policy.
Philadelphia, PA, 19102