An insurer denied an equipment breakdown claim after attributing the damage to deterioration or wear and tear. But the policy’s exclusion contained an exception that required a closer look at what happened when the equipment failed.

Our firm recently challenged a denial on that basis. The claim illustrates why the words following an exclusion can be just as important as the exclusion itself.

The Equipment Breakdown Protection Coverage Form described a covered cause of loss as:

Covered Cause of Loss is a “Breakdown” to “Covered Equipment.”

The policy also excluded loss or damage caused by:

Depletion, deterioration, corrosion, erosion or wear and tear.

But the exclusion did not stop there. It continued:

However, if a “Breakdown” occurs, we will pay the resulting loss or damage.

That exception does not mean every worn component or maintenance expense is covered. It does mean that identifying deterioration may not end the analysis. The next question is whether a “Breakdown,” as the policy defines it, occurred and caused the claimed damage.

The insurer disputed whether a covered “breakdown” had occurred at all. Technical evidence traced a failure in one component through its effects on other parts of the equipment. That sequence gave us a basis to address both the policy’s definition of “Breakdown” and the damage resulting from the failure. The insurer reconsidered its denial.

A machine’s failure alone does not establish a covered “Breakdown.” The policy’s definition must be applied to what happened, including any events the definition excludes. A service report stating only that the equipment stopped working may leave that question unanswered. Repair findings, operating records, photographs, and a technical explanation can help show what failed first, what happened next, and which damage resulted.

Policyholders reviewing an equipment breakdown denial should ask:

  • Did the insurer apply the policy’s definition of “Breakdown” to the cause of the loss?
  • Did the insurer address the exception to the wear and tear exclusion?
  • Did the insurer’s investigation distinguish deterioration from damage caused by a breakdown?

Other policy terms may affect the answer. But when a denial relies on deterioration or wear and tear, the sentence following the exclusion deserves careful attention.