Independent contractors use specialized tools and equipment to execute their duties. Equipment like bulldozers, earthmovers, forklifts, and compressors are quite expensive. Yet, the contractor has to hire or buy the machinery and use them on dangerous sites. Contractors sign up for contractors’ equipment insurance coverage to safeguard such massive investments. What is the scope of this policy? Are you or your contractors eligible for this insurance? Let us explore all this and more below.
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Engineering Risks and Their Insurance Coverage
The contractor equipment insurance is one of the several property engineering insurance covers available to an independent contractor. The other insurance policies include:
- Contractors all risks – provides property damage and third-party damage claims.
- Erection all risks – includes property damage and third party damage claims due to erection activities.
- Machinery breakdown insurance – compensates for internal loss, damage, or malfunction to insured machinery.
- Computer all risks/electronic all risks – pay for consequential loss or material damage to electronic equipment or scheduled property.
- Boiler and pressure vessel explosion (BOIL) – pays for damage, other than fire, to boiler and pressure vessels.
Understanding Contractors Equipment Insurance
Independent contractors rely on tools, plant, and equipment to execute their projects. Hence, they invest heavily in such equipment of varying sizes and functionality. Typical contractor equipment may include heavy trucks, scaffolding, portable generators, and specialized clothes for handling the machinery. This equipment is owned by the contractor or employees, on hire, or borrowed from a third party. In turn, any loss or damage can have severe repercussions on the contractor’s business.
Contractors equipment insurance is a distinct policy for independent contractors, cushioning their tools or equipment from damage or loss. It allows the professional to quickly deal with the loss and get back to their projects without draining their cash flow for unexpected repairs or purchases.
Note contractors shouldn’t insure their plant and equipment using the machinery breakdown insurance. Whereas machinery breakdown insurance pays for internal damage to machinery, contractor equipment insurance pays for the ‘external’ damage. Besides, machinery breakdown:
- Claims are more frequent due to harsh working conditions.
- Premium rates are insufficient to cater for maintenance costs for the contractor’s plant and equipment.
- Excludes compensation for damages due to wear and tear.
Factors Determining the Premium Rates
The insurance company sets the premium rates after determining the level of risks in each client’s situation. The ultimate risk rating will depend on the regional risk factors, the type and state of the equipment, and the conditions in which the contractor uses it.
Regional Risk Factors
- Using the equipment on more than one site location
- The extent of equipment utilization (how long it remains idle)
- Availability of local repair facilities
- The contractor’s claims history
- The topography of the site, especially for mines and quarries
- Natural risks associated with the region
- Need for short term or long term insurance
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Type and Condition of Tools, Plant, and Equipment Insurable Under the Policy
The following are insurable objects under the contractor equipment insurance.
- Mobile Site Machinery
These are any self-propelled construction machinery or plant. Examples include bulldozers, rollers, mobile cranes, loading vehicles, dump trucks, road surfaces, scrapers, mobile drilling machinery, floating, and conventional excavators.
- Temporary Buildings
Such structures include storage and office buildings, static caravans, accommodation huts, and any other temporary form facilitating the contractor’s work.
- Stationary Equipment
These include tower cranes and hoists, conveyor systems, on-site electrical transformers and generators, asphalt mixers, gravel processing, and concrete batching plants.
- Portable Tools and Tackle
Portable tools are an easy target for petty theft. They include portable saws, shovels, axes, grinders, and grills. Exchangeable parts of machinery like chains, conveyor belts, tires, and saw blades are also in this category.
The condition of the above equipment relates to their roadworthiness, length of use per day, and misuse signs. It also refers to:
- The level of specialized training given to the operators or drivers handling the equipment
- Adherence to standard maintenance procedures like inspections, restocking of parts, service intervals
An independent contractor has to protect their equipment and tools from the following risks:
- Accidental damage due to collisions, falling, overturning,
- Malicious damage
Typical damage or losses from these perils include:
- The collapse of a tower crane
- A faulty erection
- A joyrider operating a bulldozer
- Collision due to a broken axle
- A crush from a track dozer
- A derailed gravel cleaning equipment
In the event of an accident leading to damage, loss, or misplacement of the insured equipment, the policy will:
- Compensate the contractor for the covered loss.
- Pay for the cost of clearing and cleaning the accident site.
The Claims Handling Procedure
In the event of a loss or damage to the insured equipment, the contractor can rely on an elaborate claims handling procedure to get quick compensation or repairs.
- Step 1: The contractor reports the incident to the insurance company.
- Step 2: Insurer acknowledges receipt and registers the claim.
- Step 3: The insurer checks for the policy’s validity, up-to-date premium payments, whether the damaged item is covered, whether they included the loss event, and whether the submitted claim was within the set time limit.
- Step 4: If satisfied in step 3, the insurer will advise and register the reinsurance company’s claim. The reinsurance company advises the insurer on any loss adjustments needed.
- Step 5: The insurer surveys the cause, extent, and mitigation measures taken against the loss.
- Step 6: The insurer settles the claim. Claim settlement can be in the form of asset replacements, repairs, or cash payments.
In instances where the loss is not covered, the insurer may refuse to settle the claim.
Recent expansion in the building industry increases the need for contractor equipment insurance among contractors. Manufacturers now make equipment using the latest technology to withstand adverse site conditions and technical requirements. Still, the buck stops with the contractor’s due diligence. If you are an independent contractor relying on your equipment to execute your core duties, consider getting a contractor’s equipment insurance. Talk to your broker, who will advise you on how to get started with the process.