Georgia Property & Casualty Practice Exam

Why might Trent Manufacturing Co. need equipment breakdown insurance for its mechanical and electrical equipment?

1. Because such loss is excluded by commercial property insurance

2. To fill gaps in coverage from commercial property insurance

3. To provide coverage for the deductible amount of its commercial property insurance policy

4. To cover damage by lightning, which is often excluded in commercial property insurance

The correct answer is: Because such loss is excluded by commercial property insurance

Trent Manufacturing Co. would need equipment breakdown insurance primarily because such losses are typically excluded by standard commercial property insurance policies. Commercial property insurance generally covers damage to buildings and personal property due to a range of perils, but it often excludes specific types of losses related to mechanical and electrical equipment failure, such as mechanical breakdowns, boiler incidents, or electrical failures. Equipment breakdown insurance specifically addresses these gaps by providing coverage for the direct physical loss of or damage to covered equipment, which is not included in a standard property policy. This ensures that Trent Manufacturing Co. can protect its key equipment investments and mitigate the financial impact of breakdown events that could disrupt operations. While the other options point to various aspects of insurance coverage, they do not directly address the core reason for needing equipment breakdown insurance, which highlights the importance of protecting against exclusions found in commercial property insurance. For example, filling gaps in coverage and covering deductible amounts are valid considerations but do not explicitly explain the need for a separate policy for equipment breakdown. Likewise, while lightning damage may be a concern, it's not the primary reason equipment breakdown insurance is necessary since such incidents can often be covered under different clauses in property insurance policies.