"ValuSure"

Fire Insurance vs. Machinery Insurance: Gap in Coverage

Introduction

In the world of industrial and commercial operations, insurance plays a vital role in safeguarding expensive assets and ensuring business continuity. Two commonly held policies—Fire Insurance and Machinery Insurance—are often considered complementary. However, many policyholders are left surprised, even aggrieved, when their fire damage claims are rejected because the origin of the fire lies within the machinery.

This article explores the distinction between fire and machinery insurance, clarifies the types of perils each covers, and explains why claims often fall into a grey area—leaving businesses vulnerable despite having insurance.

Distinction between fire insurance and machinery insurance

In fire insurance, fire is generally understood as hostile fire.

Furnace heat damage is not regarded as fire damage. Damage due to glowing embers or heated objects not in flame which scorch or burn holes without igniting a fire is not regarded as fire damage.

A friendly impellent fire is one which remains within a specific confinement area, eg the combustion chamber of a furnace or a gas turbine. Essentially, fire is required to generate heat by means of combustible media (oil, gas or other fuel). Damage does not occur as long as the combustion process remains under control. However, process irregularities may lead to damage such as local overheating in the combustion chamber. Such damage would be excluded from fire policies and falls within the scope of the machinery insurance.

A short circuit can often result in fire and, conversely, a fire can cause a short circuit. The fire policy excludes loss or damage to machines, equipment, electrical conductors resulting from the direct effect of electrical power itself, eg overvoltage, surge voltages, increasing temperatures due to overloading as well as loss or damage to protective devices (safety gear, fuses, etc) occurring during the normal operation of such devices.

Loss or damage due to lightning, however, is covered within the scope of the fire policy.

Fire policy excludes the machine or equipment if it is considered as the source of fire.

Any resulting fire, loss or damage to other machines or equipment, however, falls within the scope of the fire policy. Fire policy excludes the source of fire.

Loss or damage caused by explosion is covered by the fire policy. Explosion is understood as an instantaneous manifestation of fire, triggered by expanding gases or vapours.

With respect to pressure vessels (eg steam boilers, cylinders, or vessels for vapour, gas or liquid, or boiling units, steam pipes), explosion damage is deemed to have occurred only if the walls of the receptacle are damaged to such extent that the pressures inside and outside the receptacle are instantaneously equalized. In fire insurance, however, explosion peril does not include distortion, whether or not accompanied by the rupture of any part of the pressure plant caused by crushing stress through forces related to steam or other fluid pressure (apart from the pressure associated with ignited flue gases).

Furthermore, it does not encompass the destruction of rotating machines caused by centrifugal forces nor loss or damage caused by implosion (instantaneous deformation of a vacuum receptacle caused by external overpressure). Consequently, this loss or damage is not considered to be an explosion in the sense of fire insurance and thus falls within the scope of the machinery insurance. Machinery insurance also provides cover for loss or damage in the case of sudden and violent bursting of pressure plants by internal steam force or other fluid pressure (except pressure of chemical action or of flue gas ignition) causing structural physical displacement of any part of the pressure plant together with forcible ejection of its contents.

Damage caused by fire preceding or following such events, however, is excluded from machinery cover.

Understanding the Distinction Between Fire and Machinery Insurance

While both types of insurance protect valuable equipment, they do so under different premises and conditions:

In Machinery Breakdown (MBD) Insurance, fire or explosion originating internally within the insured machinery is generally covered, while standard fire insurance policies typically exclude such incidents.
However, the standard fire policy would cover the resulting spread of fire from the machinery to surrounding property.
In simpler terms:
- MBD policies cover damage to the machine itself from internal fire or explosions.
- Standard Fire & Special Perils Policies cover damage to surrounding property if the fire started inside a machine and spread outwards.

Real-World Example: A Common Source of Grievance

A production machine overheats due to an electrical fault, leading to an internal fire that destroys part of the equipment. The claim is denied under:

Fire Insurance, because the fire was a result of internal malfunction, not a hostile external fire.

Result: The policyholder is left with an uncovered loss, despite having fire insurance.

Conclusion

Fire and machinery insurance serve different but complementary purposes. Unfortunately, gaps in understanding—and in coverage—can leave even the most diligent policyholders exposed to costly claims denials.

The above interpretation is absolutely personal in nature and is not binding on any individual or organization in particular.