PRODUCTS & SERVICES
Machinery Breakdown, is your business covered?
If your business relies on high value or specialist machinery in its daily operations and service/product delivery, the breakdown of such machinery can incur significant losses - not only from a repair or replacement perspective but also in terms of business interruption losses and reputational damage incurred during downtime. Machinery breakdown insurance cover is designed to provide indemnity for sudden and unforeseen physical loss or damage to insured machinery. Whilst a standard assets policy provides cover for damage to property arising from perils such as fire, storm, flood, theft or malicious damage, machinery breakdown insurance is intended to cover the risk of damage to machinery arising from its mechanical breakdown. It is critical, therefore, for any business that relies on specialist machinery to have adequate machinery breakdown insurance in place. An assets policy may be structured as a composite policy with separate sections that provide for specific machinery breakdown and electronic equipment breakdown sections in addition 36
Lifting Africa - May/Jun 2021
to the standard property damage section. The business interruption section of such a policy would usually be triggered in the event of damage to property whether arising in terms of the general property damage section, the machinery breakdown section or the electronic equipment breakdown section of the policy. The adequacy of the sums insured in respect of each section of the policy is important, as the severity of business interruption losses following a machinery breakdown event can be just as devastating as the losses following an event such as a fire. What is meant by sudden and unforeseen physical loss or damage? The “sudden and unforeseen” requirement in a typical machinery
breakdown policy often poses challenges in circumstances where a post-loss investigation reveals that even though the breakdown event itself may have occurred suddenly and was unforeseen from the insured’s point of view, the breakdown was due to a gradually developing process or deterioration that the insured may not even have been aware of until the actual breakdown occurred. Case Study The question of what constitutes a “sudden” event was the subject of much debate until the Supreme Court of Appeal judgment in the case of African Products (Pty) Limited v AIG South Africa Limited 2009 (3) SA 473 (SCA) finally established the precedent that informs this aspect of insurance and legal practice.
