What is Plant & Equipment Insurance?
For building contractors and sub-contractors, protecting your equipment is critical for ensuring the success of your business. Contractors’ plant & equipment (CPE) insurance protects individuals and businesses from theft, damage, or breakdown of equipment or plant, and gives them peace of mind when leaving equipment at worksites.
Policies are intended to cover loss or damage to assets that are not fixed. This policy class differs from property insurance policies in that they generally provide cover Australia-wide (or in additional territorial limits), including cover in the open air, whilst the equipment is being operated or in transit. The policies can be extended to include additional coverages such as cover for ‘damage to lifted goods’.
This class of insurance is generally used to address risks relating to the following plant or equipment:
- Cranes
- Earthmoving equipment
- Access equipment
- Trucks
- Trailers
- Drilling equipment
- Piling equipment
- Road making equipment
- Logging and forestry equipment
- Lifting equipment.
Who should consider Plant & Equipment Insurance?
Building contractors, hire companies, and subcontractors who own or lease mobile plant and equipment stand to benefit the most from plant and equipment coverage. Businesses that hire in equipment should also consider cover to address their contractually assumed liability.
What does Plant & Equipment Insurance cover?
Contractors plant and equipment insurance policies are typically broken down into 4 main coverage sections:
1. Material damage
This section indemnifies the insured for theft, or damage to an item arising from an insured occurrence during the policy period. Policies typically cover the insured item for ‘market value’ or ‘replacement value’, depending on the age of the item. The basis of settlement can be modified to cover the ‘agreed’ or ‘replacement’ value and policies differ amongst insurers to allow for ‘appreciation’, ‘extra costs to reinstate’, ‘co-insurance’ and the difference between ‘sum insured’ (the maximum value the insurer will pay out usually the new replacement value) and ‘insured value’ (the amount for which the plant or equipment is insured often based on market value).
An excess will apply at the time of loss, and depending on the insurer and the policy terms, will apply to either an event, or an item.
Additional conditions which may apply to the settlement of any claim made under the material damage insuring clause include:
Appreciation
This section covers the increase in value of the plant or equipment over time without direct enhancement by the policyholder. Depending on the policy, the insurer might pay out based on the increased value often dictated by market demand or economic trends.
Extra cost to reinstate
This includes any additional costs incurred for reinstating or replacing the plant or equipment to comply with statutory requirements that have changed since the equipment was installed or the costs of replacement parts. This could include insurers paying out a percentage of the sum insured in addition to the value of the equipment or covering the extra costs incurred.
Co-insurance
This coverage allows for the insured to share in the loss with the insurer. This could enable the insurer to pay out a percentage of the true value of the plant or equipment. If the policyholder has undervalued the item, then the insurer may only pay out the portion of the claim matching the ratio of the sum insured to the actual value of the item.
2. Financial loss
Financial loss coverage can be included to indemnify the policyholder for ‘increased cost of working’, ‘substitute hire costs’, ‘lease payment protection’ and ‘financial loss’. Some insurers automatically cover ‘lease value protection’ or ‘finance gap costs’, whereas others require the policyholder to opt in to the coverage.
Financial loss is covered up to the policy limit, and then further limited to an indemnity period. A time deductible (a waiting period during which losses are not covered) usually also applies, following loss or damage. In this case, the policyholder must absorb any losses arising during the waiting period.
Consideration must be given to the availability of a suitable replacement or substitute item, or parts, when determining the right coverage for financial loss exposures.
Financial loss
This section covers the policyholder’s financial loss that arises following loss or damage to insured equipment. This is typically calculated by understanding the forecasted loss of income during the indemnity period and subtracting the ‘savings’ that arise from an inability to perform work following loss or damage.
Increased cost of working
This item covers the policyholder’s financial loss where additional expenditure is required to prevent a reduction in turnover. Often this relates to losses where work must be contracted out, or a substitute machine hired in to prevent a reduction in income, following loss or damage. This is typically calculated by understanding the cost incurred above the normal use of operating the insured machine, to maintain output, and to prevent a reduction in revenue.
Substitute hire costs
This coverage is similar to ‘increased cost of working’ extension, however it limits the policyholder’s ability to seek indemnity to the cost required to hire in a ‘similar machine’, rather than the broader ‘additional expenditure’ to prevent a reduction in revenue.
Lease payment protection
This financial loss extension indemnifies the policyholder for their lease or hire purchase payments payable during the indemnity period, following loss or damage.
Finance gap cover
If a machine is deemed a total loss or stolen, this coverage extends to indemnify the policyholder for the gap between the settlement amount and finance costs the policyholder is liable for, that exceed the settlement sum.
3. Road risk liability
Road risk liability addresses the policyholder’s legal liability for property damage arising from road registered equipment being operated during the period of insurance. This coverage is intended to address defence and compensation costs.
4. Broadform liability or public and products liability
This section covers the policyholder for their legal liability for personal injury, property damage or advertising injury occurring during the period of insurance in connection with the business. This coverage is intended to address defence and compensation costs.
Items and expenses commonly covered under a CPE policy may include:
- Cranes
- Excavators
- Concreting equipment
- Forklifts, lifting equipment
- Farming machinery
- Tippers, trailers
- Trucks
- Portable tools and spare parts
- Dry hire for equipment you own
- Transit cover to and from worksites
- Unspecified attachments
- Non-aggregation of excess
- Agreed value when requested
- Hired-in plant and equipment.
Coverage extensions available
CPE insurance can also be extended to address the following additional exposures:
- Recovery costs
- Removal of debris
- Hired in equipment and liability for the loss of hire charges
- Tools and accessories
- Damage to lifted goods
- Abandonment of undamaged machines
- Breakdown of equipment.
What Plant & Equipment Insurance doesn’t cover
Personal injury to employees is not covered by plant and equipment insurance. This exposure falls under workers’ compensation insurance, which protects employees and individuals against workplace injuries and illnesses.
Losses arising from incorrect or lack of maintenance, use by untrained operators, and operating plant or equipment whilst under the influence of drugs and alcohol are generally excluded.
Policies also include limitations on cover in certain locations. For example, using machines underground or in tidal areas.
Example 1
A policyholder hired a machine to finish a contract. On the date the machine was due to be returned to the owner it was damaged. The machine needed to be repaired before it could be returned to the owner (as per the hire contract), however the policyholder was charged for the ongoing hire costs until the machine was returned.
Through prompt action via our Claims Advisor, insurer and loss adjuster, the machine was repaired in a reasonable time frame and to the satisfaction of the owner under the ‘Hired In’ section of the policy. This satisfied the terms and conditions of the hire agreement ensuring the policy holder was not in breach of the agreement. Costs of over $25,000 in ongoing hire charges were covered pursuant to the ‘Ongoing Hire Costs’ section of the policy (after deduction of the first 7-day excess applicable to that particular policy), which meant that the policyholder was not required to cover these costs out of pocket.
Example 2
A large water truck was damaged following an incident where it slid off the road and into a culvert. It caused damage to the undercarriage of the truck and left it non-functional.
The policyholder expressed extreme concern over this loss as this truck was pivotal to the current contract held by the policyholder and several future contracts. If they were unable to complete the works, they would be in breach of contract and had the potential to lose a substantial amount of revenue from their future contractual obligations.
Following prompt claim lodgement and assistance in arranging for the transport of the unit from Northern Queensland to the policyholder’s chosen repairer in Brisbane, two days after arrival the unit was assessed, repairs were authorised, and repairs were completed within 5 business days.
The relationship between our Claims Advisor, the insurer and the loss adjuster played a monumental role in facilitating a swift response, reaction and repair turnaround time for this policyholder who was able to complete the contract it was working on with minimal loss of time or impact to its services.
Information required to obtain a quote
Key metrics that insurers consider when underwriting contractors’ plant and equipment insurance include:
- The type of equipment
- The value of any one item and total value of the insured schedule
- Whether an item is ‘road registered’
- Risk mitigation initiatives such as GPS tracking
- The environment that the equipment works in and around
- Whether the equipment is ‘owner operated’ or ‘hired out’
- Terms of ‘hire agreements’
- Loss history
Bellrock’s Team of risk advisors can assist in arranging appropriate contractors’ plant and equipment insurance tailored to your needs. Learn more about our expertise and advisory services specific to contractors’ plant and equipment.
