A contractor may use an assortment of tools, equipment, and machinery when working at a job site. Examples are hand tools, backhoes, scaffolding, and portable generators. In the insurance industry, these items are called contractors equipment.
Needs Specialized Coverage
Contractors equipment differs from most business-owned property in that it is mobile. It may be stored on your premises when not in use but is frequently moved from job site to job site. Most commercial property policies cover buildings and personal property situated at your premises or within a short distance thereof (such as 100 feet). They are intended to cover property at your business location. Most afford little, if any, coverage for items located elsewhere. For this reason, you should not rely on your commercial property policy to cover contractors equipment. Instead, you should buy specialized insurance called contractors equipment coverage.
Contractors Equipment Coverage
Contractors equipment coverage can be written alone or added to a property policy. Some insurers that provide this coverage utilize standard policy forms published by ISO or AAIS (an insurance advisory organization similar to ISO). Others use their own proprietary forms. No matter what type of form your insurer uses, be sure to read it carefully. If you find the language confusing, ask your agent or broker to explain it.
Blanket or Scheduled
Contractors equipment forms may provide scheduled coverage, blanket coverage, or a combination of the two. As its name suggests, a scheduled form covers items listed in a schedule. Unscheduled items aren't covered. The schedule may be attached to your policy or maintained "on file" with your insurer.
When insurance applies on a blanket basis, the policy covers all items that meet the definition of "covered property". These items are covered whether or not they are not listed on a schedule. Many policies provide a combination of scheduled and blanket coverage. For instance, a policy may provide scheduled coverage for items listed in the policy and a small amount of blanket coverage for unscheduled items.
Value and Coinsurance
When you apply for a contractors equipment policy, you provide the insurer a list of the tools and equipment you want to insure. For each item on the list, you include the make, model, serial number, and limit of insurance. The limit is the value of the piece of property. It is the most your insurer will pay if that item is destroyed by a covered peril. The policy limit is the sum of the values of all covered equipment.
A contractors equipment policy may pay losses according to the actual cash value (ACV) or replacement cost of the damaged property. ACV coverage is the cheaper alternative because loss payments are based on the depreciated value of the property. Replacement cost coverage is costlier but affords better coverage. Some insurers will not provide replacement cost coverage on equipment that is beyond a certain age (such as five years old).
Contractors equipment is often used outdoors so it is subject to damage by natural perils like fire, wind, lightning, landslides, flood, and hail. Most contractors equipment policies cover "all risks," meaning they cover damage caused by any peril that isn't specifically excluded. Many exclude damage caused by any of the following:
- Nuclear hazard
- Acts by a civil authority
- Criminal acts committed by you or an employee
- Corrosion, fungus, rust, mechanical breakdown, electrical injury, and wear and tear. However, ensuing loss by an insured peril may be covered.
Virtually all contractors equipment policies include a deductible that applies to each loss. The deductible may be a flat dollar amount or a percentage of the value of the damaged item.
Contractors equipment is subject to theft. This is especially true of heavy machinery, which is often left at a job site for the duration of a project. Some insurers will waive all or a portion of the deductible following a theft loss if the stolen item is equipped with a GPS device or is registered with the National Equipment Register.
Like many contractors, you may rent or lease equipment for specific jobs. A typical lease states that you, the lessee, are liable for any damage the equipment sustains during the term of the lease. Fortunately, many contractors equipment policies include coverage for equipment you lease from others. If you lease property you own to someone else, make sure your policy covers damage that occurs while your equipment is leased to another party.
Many contractors equipment policies include coverages or extensions not addressed above. Some of these are listed below. Each may be subject to special limits or restrictions.
- Newly purchased property
- Employees' tools
- Rental expenses that continue when damaged equipment is no longer usable
- Pollution cleanup
- Fire department service charges and the cost to refill equipment
- Income loss. This coverage may be available via an endorsement.