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Insurance Programs for Machine and Metal Shops

Insuring Machine, Tool and Die Shops

Metal works manufacturers have unique insurance exposures due to the nature of the products sold and the manufacturing process. The heavy equipment and machinery involved in the production, storage and handing lend itself to high hazard claims including serious injury to its employees. Other exposures include damage to heavy equipment and the machinery used in the manufacturing process.

The machinery and equipment can be covered as business personal property on a package or a BOP form, however there is often an equipment breakdown exclusion. In addition, it is often less expensive to insure heavy equipment on a separate machinery & equipment policy or by endorsement. This allows an amount to be specified and which perils to insure against. In addition, due to the fluctuations in equipment valuation, the insured has the ability to control the insurable amount by specifying the valuation either by the agreed or specified basis.

Another point to consider is the time value element and some other related exclusions on the standard property forms including damage caused by electrical disturbances, utility power failure, and the loss of income due to either a direct physical loss and/or mechanical breakdown. These days, machinery is becoming more sophisticated and to obtain replacement parts can be difficult. This delay can pose serious loss of income exposures if key equipment is shut down for extended periods and production is halted.

Commercial general liability typically covers claims resulting from the operations of the business, after a job is completed or completed operations, premises liability, and personal & advertising injury. Many times, machine shops, tool & die manufacturers, and structural steel suppliers install and sell finished products that carry enormous product & completed operations exposures.

Strict and absolute liability should be concerns for shops engages in providing a product used by others in their machines. High rotation and gyration of the machines and the parts manufactured for cutting and polishing create potential workers compensation and employer liability claims for the buyer of the finished tool and die parts. This opens subrogation issues to the manufacturer of the tool and die part. Structural steel installation also carrier high products and completed operation exposure and careful consideration needs to be addressed for shops that sell and install structural steel components.

Workers Compensation - Most states require a method to fund for employee injuries. Workers’ compensation insurance is normally the most cost effective way to provide this coverage. Due to the heavy lifting of the iron, metal, or steel, back injuries are very prevalent with this class of business. Lacerations and eye injuries are also common. It is highly recommended to cover all employees on a workers comp policy including those paid by piece or 1099’s.

Commercial auto and truck insurance provide coverage for liability, uninsured motorist, no-fault protection, and coverage for the physical damage to the fleet. Also worth considering are hired and non-owned liability, rental reimbursement, and glass.

Finally, heavy equipment used to transport material in the yard or on the open road should be addresses as many commercial auto policies exclude this exposure.

William F. Schaake, CIC, CRM © 11/2011

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