Equipment breakdown endorsement coverage

Fort Lauderdale, Florida
Insurance
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Equipment breakdown endorsement coverage

Sam Leon
Investor · Fort Lauderdale, FL · Member since 2012 · 1k+ posts · 465 votes

Can someone help explain to me what an equipment breakdown coverage is?  I mean I Googled it and read it and still am unsure what it really is.

We own a condo unit in a small building of 8 units. There is an HOA. The HOA carries a commercial insurance policy for the building. The individual homeowner then buys their own insurance to cover stuff inside their own units. My understanding is if there is a fire, and the fire damages the building, the structure would be covered by the commercial policy issued to the HOA, but if the fire also damaged furniture in unit #6, then it will be up to whatever insurance the owner of unit #6 John Smith covered.

So one of the units is being sold right now and the mortgage company of the buyer is requiring equipment breakdown endorsement coverage to be included in the current HOA commercial policy. I don't know if this is typical but that's what is required for the loan to be approved and so we (HOA) has reached out to the insurance agent to ask what would be the cost to add this coverage and not even sure how this is typically addressed when an additional coverage is required by the lender of a potential buyer of one of the units.

So I googled equipment breakdown endorsement and it seems to suggest this is to protect the equipment such as appliances or computer of the business (in this case the HOA) in case something happens like a fire or power surge. Since it specifically stated "business" and we have a commerical policy for the building, then I assume, this means only "business owned equipment" right? That would be equipment that the HOA owns, such as the shared washers & dryers, the security lights, may be the electrical panel of the building correct? Does it extends to the equipment of the individual units such as say a power surge and it damages the HOA washer and dryer, but it also damaged unit #4's air conditioning unit and their refrigerator, I assume the individual unit equipment won't be covered or would it? There are nine electric meters and disconnects in the electrical room, one for "common" (HOA) and the other eight for each unit, so in this context, the equipment breakdown endorsement will cover the common disconnect but not the other 8? Or am I totally confused?

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  • Bo Bond
    Insurance Agent · Plano, TX · Member since 2021 · 127 posts · 94 votes
    3y

    Sam,

    Equipment breakdown coverage really started as boiler and machinery coverage.  This coverage originated specifically for boilers and machinery that aided in the everyday operation of a business and/or a large commercial building (boilers, generators, HVAC systems, trash systems, refrigeration systems, computer systems, etc.).  As you can imagine, if these items were to go down due to some mechanical malfunction or electrical surge, then the whole business/building is in a mess.   

    Over time, and with all the advances in technology, boiler and machinery coverage transitioned into a broader coverage, and took on a new name "equipment breakdown".  During this transition, it also went from being mainly a commercial/business coverage, to also applying to personal coverage as well.  Since equipment breakdown has become so much broader, it now can include protection for your personal HVAC systems, electrical systems, appliances, sprinkler systems, computer systems, etc.  While I don't see this as a reason not to process a loan, some of your more difficult lenders may require this.  I haven't personally witnessed a lender asking this, but it's certainly possible.  

    If the unit owners in your HOA are only responsible for insuring the contents they bring into their unit, then this lender's request makes even less since to me because you're not responsible for insuring these larger systems per your description above. You likely have a loan officer who doesn't realize what they're actually asking of you, and they're just going down the list of typical loan requirements. I'd suggest the buyer visit with the lender about this request specifically. I think it would make since if you were responsible for insuring major mechanical or electrical items (boiler, HVAC, solar panels, generators, sprinkler systems, etc.), but you're not.

    A good personal lines insurance agent should be able to help the buyer to maneuver through this lender request and figure things out either way. Also, if your HOA board is on top of things, they should know the type of insurance that's provided by the HOA, and what you need for your own unit. They may also have some experience with this type of lender request. If not, they'll just have to visit with their loan officer (or supervisor) about this directly to get things worked out.

    Hope this helps!  Good luck.

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  • Sam Leon
    OP
    Investor · Fort Lauderdale, FL · Member since 2012 · 1k+ posts · 465 votes
    3y
    Bo, thanks for the explanations.  It helps.

    In this case, the buyer's lender is asking the HOA to add equipment breakdown endorsement to their master policy for the building.

    The master policy for the building covers a number of perils - fire vandalism windstorm etc... and it covers the building structure and common elements.  We do not have a club house.  The only "equipment" that would be HOA responsibility would be the washers the dryers that are shared, two security lights, and the common electrical panel.  There is no other equipment.  I can imagine a large building with many units having a club house as you said solar panels, HVAC, pool equipment, spa etc...but we have none of that.  Now each unit has it's own electrical panel, HVAC, range, refrigerator, dishwasher etc...but those are unit owner responsibility if they are inside, and if they are outside (like an AC compressor) they are limited common elements and are excluded from HOA coverage.  So I don't think there is any real equipment for the HOA to cover except the washers/dryers.
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