Engineering and Machinery Insurance

In one line

Engineering insurance covers the machine itself when it destroys itself, which is exactly what the fire policy refuses to do.

In the wording a student can write in an exam: engineering insurance is the branch of miscellaneous insurance business under section 2(13B) of the Insurance Act, 1938, which covers plant, machinery and works against the risks the fire policy excludes, principally the machine's own breakdown, a boiler's own explosion and the failure of an electrical item from electrical causes; and it is written in two families, the erection and construction policies which cover a project while it is being built, and the operational policies which cover a plant once it is running.

Where the class comes from

Peril III of the Standard Fire and Special Perils policy covers explosion and implosion but excludes loss to boilers other than domestic ones, economisers or other vessels, machinery or apparatus in which steam is generated, or their contents, resulting from their own explosion or implosion, and loss caused by centrifugal forces.

General exclusion 7 excludes loss to any electrical machine, apparatus, fixture or fitting arising from over running, excessive pressure, short circuiting, arcing, self heating or leakage of electricity from whatever cause, lightning included, but only as to the item affected.

Those two holes are the engineering class. A steam vessel that bursts, a flywheel that flies apart, a motor that burns itself out, none of them are fire losses, and every one of them is an insurable fortuity. The engineering policies fill the holes.

And a third reason is that a project under construction is not a building. Until it is finished it is a heap of materials, partly erected steel and hired plant, changing every week, which no fire policy schedule can describe. The construction policies answer that.

The erection and construction family

Contractors' All Risks, the CAR policy. Written for civil works, being buildings, roads, bridges, dams and pipelines. It is an all risks cover on the contract works during construction, so the assured proves a fortuity and the insurer must find an exclusion, on the principle in British and Foreign Marine Insurance Co. Ltd. v. Gaunt, [1921] 2 AC 41.

Section I is material damage on the contract works, materials on site and, if added, the contractor's plant. Section II is third party liability for injury and property damage to others arising out of the works, which is why the policy is often a package rather than a pure property cover.

Erection All Risks, the EAR policy. The same idea for the erection and installation of plant and machinery, so it covers a refinery, a turbine hall or a paper machine while it is being put together, and it includes testing and commissioning, the most dangerous period of the whole project, for a stated number of weeks.