When you insure your commercial building, it’s easy to assume the policy covers everything inside the four walls.

In reality, cover often depends less on what is damaged, and more on how it was damaged.

For critical systems like lifts, air conditioning and electrical infrastructure, that distinction matters.

The key difference most people miss

A standard property policy is designed to respond to external events, such as:

• Fire
• Storm
• Impact
• Water damage from an insured cause

If one of these events damages part of your building, your policy will generally respond.

However, there is a major gap that catches many owners off guard: Mechanical and Electrical Breakdown.

The Breakdown Gap, explained

Using a lift as an example:

Most multi-storey commercial buildings have one, and most owners assume (reasonably) that it sits within the building and is therefore covered by their building insurance. The reality is, it depends entirely on how it failed.

Covered under property: Damage from an insured event: ✓ Fire damages the lift shaft or cabin ✓ Storm causes structural damage to the building affecting the lift ✓ A vehicle impacts the building and damages lift components ✓ Flood or water ingress from an external event

Not covered under property: Mechanical or electrical breakdown: ✗ Motor failure due to wear or overheating ✗ Gearbox failure ✗ Control system or electrical fault ✗ Component failure with no external cause

The distinction the insurer draws is straightforward: did something happen to the equipment from outside, or did the equipment simply fail from within? 

Property insurance responds to the former. The latter requires a separate Machinery Breakdown policy.

What Machinery Breakdown cover does

A Machinery Breakdown policy covers the sudden and unforeseen physical loss or damage to machinery caused by breakdown, including motor burnout, mechanical failure, electrical fault and (in some cases) operator error. 

It can also be extended to cover the consequential losses that flow from the breakdown, such as loss of income while the equipment is out of service or the cost of spoiled stock in the case of refrigeration failure.

“Without Machinery Breakdown cover, you are essentially self-insuring the most expensive and hardworking components of your building.”

Protecting your essential services

Lifts, HVAC systems and control units are the “nervous system” of your property. A failure doesn’t just cost money to fix; it can lead to business interruption.

For example, a lift failure in a multi-tenanted building isn’t just a repair bill; it’s a potential breach of your lease agreement with tenants, leading to rent abatements or vacated premises.

If your property relies on these systems, relying solely on Property cover is a significant risk.

Is your machinery covered for internal failure? Don’t wait for the out-of-order sign to find out.

Talk to your Centrewest broker today about adding Machinery Breakdown