Insuring Your Machinery and Equipment
A few things you should know and some helpful hints.
By Rick Weden
When visiting prospective and existing customers alike, one of the things I enjoy most is seeing all the equipment that they have in their yards and garages. I’m not exactly a gear head but ever since I was a kid I’ve always liked machines and been interested in how they work and what they do. Tree care companies feed my interest well as many use equipment not seen in other trades. Beyond the obvious chippers, grinders, steers and so forth we’ve got specialized aerial lifts, mulching machines, air spades and other kinds of special equipment needed to perform the unique services that this industry provides. The other thing I see in all of this is money, and lots of it. To put it bluntly, this stuff ain’t cheap and if something happens to it, someone has to pay. Should such an event happen let’s hope that “someone” is the insurance company!
With most tree care companies having some form of insurance covering their equipment what I often find surprising is a false sense of security many have over insured equipment. “It’s insured so don’t worry about it” seems to be the spoken words of many. So what do you say we get a little worrying done here and perhaps if we do, you really won’t have to, well……worry.
Policies insuring a company’s machinery and equipment are often referred to as a Contractors Equipment Form, or an Equipment Floater policy. These policies are readily available in the insurance marketplace and whenever a given insurance product is readily available, it usually turns out that policies of various insurers will differ greatly in terms, coverage, and conditions. Here are some things to think about.
Who owns the equipment? Do you borrow equipment from others? Do you loan your equipment to others? Be careful, as many (but not all) equipment policies will only cover equipment that you own, borrow, or lease from others, and may not cover your equipment while being loaned or leased to others. The best practice is to consult your agent or review your policy before loaning, leasing, or borrowing any equipment. If your policy excludes coverage in any of these situations you may be able to change your coverage to properly address these situations.
How is your equipment valued on your policy? It’s important to understand how your equipment is insured on your policy. Some policies only insure your equipment for what is referred to as actual cash value or ACV. Damage or loss to equipment insured on an ACV basis results in a depreciated value settlement from the insurance company. This could spell trouble particularly if you have any equipment on a long term lease that contains conditions requiring you to pay the leasing company the full balance value of the lease if the equipment was completely destroyed or stolen. Some policies will offer Replacement Cost Coverage which obviously is a good thing so long as you have a sufficient limit of coverage on the policy to replace the equipment in question. Many polices will only grant replacement coverage on equipment that is five years old or less so it’s wise to review your coverage annually to determine if any equipment has “aged off” from the replacement cost provision and may then become insured for ACV. Also, many equipment policies contain a coinsurance provision. Simply put, a coinsurance provision allows an insurer to offer a reduced settlement in cases where a piece of equipment was not insured to a specific percentage of its value at the time of loss.
Schedule vs. Blanket. Most equipment policies allow an insured the choice to insure their equipment either on a schedule basis, or on a blanket basis. One should consider separately scheduling larger and more valuable pieces with individual values of $5,000 or more. A Blanket value method can be used to insure many smaller pieces of equipment such as saws, climbing gear, etc. under one limit of coverage. If managed properly this can work well as a company can establish a limit of coverage and thereby avoid the need to periodically add smaller pieces of equipment as they are purchased. Make sure, however, that you establish an adequate maximum value per item, and sufficient overall policy value to avoid any potential shortfalls. The blanket value should periodically be reviewed to ensure that the blanket limit is adequate.
What can you insure on your equipment policy? Some equipment polices are specific as to what forms of equipment they will agree to insure. Many policies do not insure what may be considered a vehicle in the policy definitions so be careful to make sure before adding any larger road-worthy equipment that the policy coverage allows for this.
Use your Equipment Policy to improve coverage on certain equipment that may be subject to limited coverage on other policy forms. I have encountered situations in the past where a piece of equipment was insured on a Business Auto Policy, where it was covered for ACV, and by moving the physical damage coverage on the equipment from the auto policy to the Equipment Policy, the insured was able to change their coverage from ACV to Replacement Cost. This can usually only be done with equipment that is newer, less than five years old. The Liability Coverage remains with the Business Auto Policy and the identity of the equipment and value are added to the Equipment Policy. As always, it is extremely important that you verify that the insurer of your Equipment Policy will agree to this before you make any changes, and always remember that once the equipment in question becomes older than five years, coverage may revert back to ACV. This is another example of why a periodic review of your coverage is important.