Key takeaways
- Fire insurance covers fire, lightning and gas explosion, and PIAM says fire damage is covered whatever started it, including a short circuit; a machine that breaks down without a fire needs machinery breakdown cover.
- A Malaysian machinery breakdown wording covers unforeseen and sudden damage from causes such as short circuit, carelessness, lack of skill, faulty design or material, shortage of water in boilers and centrifugal force.
- Its Exclusion 9 removes damage that is a direct consequence of the continual influence of operation, such as wear and tear, cavitation, erosion, corrosion, rust and boiler scale.
- The sum insured must equal the cost of replacing the machine with a new one of the same kind and capacity; repairs are paid without depreciation on parts, and a repair bill at or above the machine's actual value is treated as a total loss.
- Great Eastern General's machinery breakdown checklist asks for the claim form, an incident report, photos, the last maintenance record and service report, a technical report on the cause, and the repair quote or invoice.
- Profit lost while a machine is down is not part of machinery breakdown cover itself; it needs a separate machinery breakdown loss of profit cover.
Does fire insurance cover machinery breakdown? What the extra cover adds
Many factory owners assume their fire policy protects their machines. A fire policy covers outside events: a basic fire policy covers fire, lightning and domestic gas explosion, and extensions can add flood, storm, explosion, impact and more (list of fire extensions in The Edge). According to PIAM, the General Insurance Association of Malaysia, fire damage is covered whatever the ignition source, a short circuit included, subject to the policy terms.
The trouble is that most machine damage in a factory involves no fire at all: a motor burns out, a control board shorts, a gearbox seizes, a spindle snaps, or an operator crashes the machine. That kind of loss, where the machine breaks down by itself, is what machinery breakdown insurance (MB) is for.
A 2018 paper in the Malaysian Insurance Institute (MII) journal quotes a local machinery breakdown wording. It covers the machines if they suffer unforeseen and sudden physical loss or damage from causes such as defects in casting and material, faulty design, faults at workshop or in erection, bad workmanship, lack of skill, carelessness, shortage of water in boilers, physical explosion, tearing apart on account of centrifugal force, short circuit, storm, or any other cause not specifically excluded (read the paper).
| What happened | Which policy normally responds |
|---|---|
| A fire damages the machines, including a fire started by a short circuit | Fire policy |
| Flood or storm damages the machines | Fire policy, only with the flood or storm extension |
| A motor burns out from a short circuit, no fire | Machinery breakdown (short circuit is a named cause) |
| An operator error crashes the machine | Machinery breakdown (lack of skill, carelessness) |
| A shaft snaps because of a casting defect or faulty design | Machinery breakdown, but go to the supplier first if it is still under guarantee |
| A boiler is damaged by shortage of water | Machinery breakdown, or boiler and pressure vessel cover |
| Bearings or belts wear out; rust or corrosion | Normally not covered (wear and tear exclusion) |
| A machine is stolen in a break-in | Theft cover (Easi-Biz requires actual, visible, forcible and violent entry) |
| Profit lost while the machine is down | Machinery breakdown loss of profit, not machinery breakdown itself |
Great Eastern General's Easi-Biz Standard and Premier keep the two apart as well. Section I is the property cover (fire and lightning in Standard, property all risks in Premier) and Section VII is machinery breakdown: it pays by cash, replacement or repair, up to the sum insured in any one year of insurance, if machinery, plant and equipment in your business premises suffer unforeseen and sudden physical loss or damage.
Some fire policies can add an "Electrical installation Clause B (for business plants and machinery)" extension, which The Edge lists among the fire extensions. If your schedule shows it, ask exactly which electrical damage it covers; a gearbox, spindle or hydraulic pump failing mechanically is still a job for machinery breakdown cover. How to set the fire sums insured is in my guide to fire insurance for shops and factories, so I will not repeat it here.
Machinery breakdown vs electronic equipment insurance (EEI): which machine goes where?
PIAM groups engineering covers into several types. Machinery breakdown insurance protects against sudden mechanical or electrical failures of machinery and equipment. Boiler and pressure vessel insurance deals with explosions, cracks or failures of boilers and pressure vessels. Machinery and equipment insurance protects against theft, accidental damage and outside perils such as fire and flood. Industrial all risks (IAR) combines property damage, machinery breakdown, fire and business interruption for larger plants.
Electronic equipment insurance (EEI) is a separate policy for computers, servers, network equipment, PLC panels, CNC controllers, and test and laboratory instruments. Great Eastern General's engineering and machinery claim checklist lists electronic equipment, machinery breakdown and machinery breakdown loss of profit as three different claim types, each with its own documents.
| Cover | What it deals with | Typical factory examples |
|---|---|---|
| Machinery breakdown | Sudden mechanical or electrical failure of the machine itself | Motors, compressors, presses, injection moulding machines, generators, transformers, air-conditioning plant, lifts |
| Boiler and pressure vessel | Explosion, cracks or failure of boilers and pressure vessels | Steam boilers, hot water boilers, air receivers |
| Electronic equipment (EEI) | Sudden damage to electronic and computer equipment | Computers, servers, PLC panels, CNC controllers, test instruments |
| Machinery breakdown loss of profit | Income and profit lost while a machine is down | A stopped production line, missed deliveries, cancelled orders |
Lifts, air-conditioners, generators and transformers are exactly the machines that Great Eastern General's condo insurance plan names in its machinery breakdown section. Note how a package works, though: it gives the whole section one fixed limit, which in that condo plan is a sum insured of RM100,000. A factory's main machines can add up to far more than a package limit, and then you need a stand-alone policy or a higher limit.
CNC machines, part mechanical and part electronic, are the ones most likely to fall between two policies: the spindle, slides and tool changer are mechanical, the controller and drives are electronic. List each machine with its make, model, year and serial number, and ask which policy schedule it sits on. For EEI, ask two more questions: does it pay to restore data and software, or only the hardware? And does it pay the extra cost of hiring replacement equipment while yours is repaired?
Why is wear and tear not covered? What machinery breakdown insurance excludes
Wear and tear causes more machinery breakdown disputes than anything else. Exclusion 9 of the wording quoted in the MII paper excludes "loss or damage as a direct consequence of the continual influence of operation (e.g. wear and tear, cavitation, erosion, corrosion, rust, boiler scale)". A part that wears out slowly with use is a maintenance cost you are expected to budget for, not an accident for insurance to pay.
The paper also quotes an engineering insurance guide that lists occurrences not normally treated as accidents:
- depletion, deterioration, corrosion or erosion of material;
- wear and tear;
- leakage at any valve, fitting, shaft seal, gland packing, joint or connection;
- vibration or misalignment;
- breakdown of a structure or foundation supporting the machine;
- a protective or safety device operating, which is merely doing what it was supposed to do.
Wear and tear does not mean the whole loss is refused, though. The author, a Malaysian chartered insurance practitioner, argues that the worn part itself is not payable, but if a worn part fails suddenly and damages the parts around it, that surrounding damage is accidental and may be admissible. His case study is a palm oil mill turbine with repairs of about RM500,000, refused by the insurer as "wear and tear as a result of erosion"; he argues that because the operator shut the turbine down as soon as heavy steam consumption and abnormal vibration appeared, the damage was not the product of continued operation. How your own claim is decided depends on your wording and the technical reports.
Other common exclusions: the general exclusions on Great Eastern's Easi-Biz page include radioactive contamination, war, terrorism, acts of authorities, sonic bangs and existing damage, and the policy contract has the full list.
Maintenance and statutory certificates matter at claim time
Condition 3 of the same wording requires the insured, at their own expense, to take all reasonable precautions and to comply with statutory requirements and the manufacturer's recommendations. Pressure vessels, both fired (such as hot water boilers) and unfired (such as air receivers), come under DOSH's Occupational Safety and Health (Plant Requiring Certificate of Fitness) Regulations 2024, in operation since 1 June 2024. An expired certificate or an empty maintenance log puts you on the back foot when you claim.
How to set the sum insured: the price of a new machine, not what you paid
The wording in the MII paper makes the sum insured a requirement of the policy: it must equal "the cost of replacement of the insured machinery by new machinery of the same kind and capacity". Many owners insure at the original price or book value, and a few years later the sum insured is far too low. Also ask whether your wording counts freight, import duty and installation in that cost.
The same wording settles claims in two ways:
- If the machine can be repaired: it pays the costs necessarily incurred to restore it to its former working condition, and no depreciation is deducted for the parts replaced.
- If it is destroyed, or the repair costs equal or exceed its actual value just before the damage: it is treated as a total loss and pays that actual value, meaning the replacement value less proper depreciation. Where a Reinstatement Value Clause is added, the amount is based on replacing or reinstating with property of the same kind, not better than new; such clauses usually come with conditions, for example that the replacement is actually carried out and the expenditure incurred.
Here is a worked example. Every figure is an assumption, only to show the method:
| Item (example assumptions) | Amount |
|---|---|
| CNC machining centre bought in 2019, original price | RM300,000 |
| Price today of a new machine of the same kind and capacity | RM400,000 |
| Sum insured it should carry | RM400,000 |
| Case 1: spindle motor burns out from a short circuit, repair (parts and labour) | RM48,000, paid as a repair with no depreciation on parts |
| Case 2: operator error crash, repair quote | RM260,000 |
| Assumed actual value just before the crash (new price less depreciation) | RM220,000 |
| Result of case 2 | Repair exceeds actual value, so it is a total loss, calculated at RM220,000 without a Reinstatement Value Clause |
| Case 3: worn bearings replaced at a scheduled service | RM6,000, wear and tear, not covered |
Each amount is still subject to the excess on your schedule. If the machine were insured at its original RM300,000, a quarter below the new replacement cost the wording requires, the insurer may reduce the claim in proportion, depending on how your wording deals with under-insurance. The average calculation is explained in my fire insurance guide for shops and factories.
Great Eastern General's machinery breakdown claim form also asks for the damaged item's number in the schedule of machinery and its sum insured. Keep that schedule up to date: tell the insurer when you buy or sell machines, or a new machine may not be on the list when it breaks.
A machine has broken down: what to do and what to prepare for the claim
- Stop the machine and make it safe. Do not keep running a machine that is making strange noises, vibrating or smoking; damage that grows from continued operation is exactly what the exclusion targets.
- Tell the insurer or your insurance agent quickly, and ask whether to wait for the loss adjuster before repairing anything or throwing parts away.
- Take photos and video of the whole machine, the maker's plate, the damaged parts and the surroundings.
- Write an incident report: date, exact time, who was operating, anything unusual before it happened, and witnesses.
- Get a technical report on the cause from your technician or the supplier.
- Get a repair quotation, keep the final invoice, and keep the replaced parts for now.
Great Eastern General's document checklist sets out what each claim type needs:
| Claim type | Documents to prepare |
|---|---|
| Machinery breakdown | Claim form, incident report of the breakdown, photos of the damaged machinery, last maintenance record and service report, technical report on the cause, repair estimate or final repair invoice |
| Electronic equipment | Claim form, incident report, historical purchase invoice for the equipment, quotation or final invoice for repair or replacement, technical report on the cause, photos of the damaged equipment |
| Machinery breakdown loss of profit | Claim form, incident report (date and time, model and specification of the machine, cause), audited accounts for the last 2 to 3 years, actual sales or turnover records, production reports before and after the interruption, proof of cancelled orders or contracts |
| Company documents (since 1 October 2021) | Sdn Bhd or Bhd: Form 24 and Form 49 (or the Section 14, 78 and 58 notices) or the latest annual return, plus the authorised signatory's NRIC; sole proprietors and partnerships: Form A and Form B, plus the signatory's NRIC |
The claim form also asks some telling questions: has the guarantee period of the damaged item expired? Do the fractures show signs of faulty casting, faulty material or previous repair? How will it be repaired and by whom? Will the design or material be changed or improved in the repair? What is the estimated cost? The answers decide whether the insurer pays, the supplier pays, or you pay for the upgrade part yourself.
Repair or replace is a common dispute. A case in the annual report of the OFS (Ombudsman for Financial Services, the predecessor of FMOS) involved a clinic X-ray machine damaged by flood water. The insurer offered to repair certain components based on its forensic experts; the owner wanted the whole machine replaced. Tests carried out by the forensic specialist with the machine vendor's representative showed it powered up and worked normally, with corrosion only on floor-level components, and the Ombudsman upheld the insurer's offer (the case). Photos, technical reports and maintenance records from day one carry far more weight than arguments later. If a claim is refused, my guide to taking a rejected claim to FMOS explains the steps.
Which factories need it most, and the five most common mistakes
Any factory whose machines earn the money should look at it seriously: plastic injection moulding, metal stamping, CNC machining, food processing (chillers and boilers), printing, textiles, and any plant that depends on compressors, generators and air-conditioning. The more expensive the machine, the harder it is to replace, and the longer spare parts take to arrive from overseas, the more a breakdown costs you.
The mistakes I see most often:
- Assuming the fire policy is enough. It covers fire, not a machine breaking down by itself.
- Insuring at the original price. The wording asks for today's price of a new machine of the same kind.
- Never updating the machinery schedule. A new machine that is not listed is found to be uninsured only after it breaks.
- Keeping no maintenance records. The claim checklist asks for the last maintenance record and service report.
- Running a machine that is already showing trouble. Damage that grows from continued operation is what the wear and tear exclusion is about.
| Questions to ask before you buy | Why it matters |
|---|---|
| Does my fire schedule include machinery breakdown or Electrical installation Clause B? | Many owners think it does when it does not |
| What does each machine cost new today? | It sets the right sum insured |
| Which items are electronic and belong on EEI? | CNC controllers, servers and PLCs are the ones most often missed |
| How much would I lose if a key machine stopped for a month? | It decides whether to add machinery breakdown loss of profit |
| Are the DOSH certificates and maintenance records for my pressure vessels in order? | The wording requires compliance with statutory requirements and manufacturer's recommendations |
Not sure what your factory is covered for? How I can help
I look after shop and factory owners across Kuala Lumpur and Selangor, including Klang, Shah Alam, Puchong, Seri Kembangan and Serdang, in Mandarin, English or Cantonese. Send me the schedule of your current fire or business policy and a list of your main machines, and I will:
- check whether your policies already include machinery breakdown, electronic equipment or loss of profit cover, and at what limits;
- sort your machines into those that belong on machinery breakdown and those that belong on EEI;
- check the sums insured against new replacement prices and point out machines that are missing;
- check what Great Eastern General offers for your factory. Easi-Biz Standard and Premier include a machinery breakdown section; for a larger factory or one with a lot of electronic equipment, I will ask what can be arranged for your case;
- if a machine breaks down, help you put the documents together and follow up the claim.
If what you have is already enough, I will tell you so. No hard selling. For the other covers a factory usually needs, see business insurance for SMEs, factories and shops.
This is general information, not legal advice. Your cover and exclusions are those in your own policy wording and schedule, and each claim is decided by the insurer on its facts.