Equipment Breakdown
Also known as: Boiler & Machinery, EB
Standard property policies exclude internal mechanical breakdown. Equipment Breakdown fills that gap, covering the equipment itself plus business income loss while equipment is being repaired. Critical for restaurants (walk-in refrigeration), manufacturers, hotels.
Real-world scenario
Summit Ridge Framing LLC is a residential carpentry contractor in Kentucky with nine field employees and an annual payroll of $840,000. Because framers are rated under carpentry NCCI class code 5645, the carrier applies a rate of $9.50 per $100 of payroll, producing a manual premium of $79,800. Summit Ridge has a clean three-year loss history, so its experience modifier of 0.88 discounts that figure to a net premium of $70,224. The policy carries employers liability limits of $1,000,000 per accident, $1,000,000 per disease policy limit, and $1,000,000 per disease each employee.
In March a framer falls from a second-story deck and fractures his pelvis. The workers' comp side of the policy pays the medical bills without a deductible: an emergency and hospital stay of $142,000, orthopedic surgery of $48,000, and temporary total disability wage benefits of $1,050 per week for 20 weeks, or $21,000. A permanent partial disability rating later adds $65,000, bringing the claim to roughly $276,000.
The injured worker cannot sue Summit Ridge for negligence because of the exclusive remedy doctrine, but his spouse files a loss-of-consortium action. The carrier's employers-liability coverage defends the suit and absorbs $38,000 in legal costs. Had Summit Ridge chosen a $5,000 per-claim deductible option, it would have reimbursed the insurer that amount; instead it paid a full guaranteed-cost premium and owed nothing further out of pocket.
How it affects your premium
Workers' compensation pricing is driven almost entirely by who your employees are and how safely they work, not by a flat rate. The biggest levers include:
- Job classification (class code): Each duty maps to an NCCI class code with its own rate; a roofer costs many times more per $100 of payroll than a clerical worker.
- Total payroll: Premium is calculated per $100 of remuneration, so headcount, wages, overtime, and bonuses all raise cost — subject to owner and officer payroll limitation caps.
- Experience modifier: Your three-year loss history produces a debit or credit multiplier that rewards safe employers and penalizes frequent claims.
- State of operation: Statutory benefit levels and approved loss costs vary widely by state, so identical crews cost different amounts across state lines.
- Claims frequency and severity: Many small lost-time injuries hurt your mod more than one large medical-only claim.
- Payroll audit accuracy: The year-end workers' comp audit reconciles estimated payroll to actual, generating additional or return premium.
- Safety programs and credits: Documented safety committees, return-to-work programs, and drug-free workplace credits can meaningfully lower the final rate.
Common misconceptions
Myth: If I only have a few employees, my state doesn't require workers' comp.
Reality:
Thresholds vary, but most states mandate coverage once you have one to three employees, and some require it from the first hire. Going bare exposes owners to uncapped medical and wage liability plus fines, and hard-to-place risks can still buy coverage through an assigned risk pool.
Myth: Workers' comp covers me if an injured employee decides to sue my business.
Reality:
The comp benefits themselves are no-fault, but lawsuits — such as a fellow-employee or loss-of-consortium action — are defended under the separate employers liability section of the policy, which is why its limits matter.
Myth: My general liability policy will cover an employee who gets hurt on the job.
Reality:
General liability specifically excludes employee injuries; those are the job of workers' compensation. Relying on the wrong policy leaves you personally exposed to the full cost of the claim.
Frequently asked questions
Does workers' comp pay an injured employee's full salary while they're out?
No. Most states pay roughly two-thirds of the worker's average weekly wage, tax-free, subject to a statutory maximum. These wage-replacement benefits are classified as temporary or permanent disability depending on the injury's severity and recovery.
Are business owners and officers covered by their own workers' comp policy?
In many states owners, partners, and officers are automatically included but can elect to exclude themselves, while in others they must opt in. Their payroll is counted using a state-set minimum and maximum under payroll limitation rules rather than actual earnings.
How is my premium finalized at the end of the year?
Your policy starts on estimated payroll; after the term the carrier performs a workers' comp audit of actual payroll by class code and bills additional premium or issues a refund.
I operate in a monopolistic state — can I still get coverage from a private insurer?
In a monopolistic state you must buy the comp benefits from the state fund, and a private insurer cannot write them. You should add stop-gap coverage to your general liability or comp package to supply the employers-liability protection the state fund omits.
Will one claim ruin my rates forever?
A single claim affects your experience modifier for three policy years, then rolls off. Frequent small lost-time claims typically hurt your mod more than one large medical claim, so early return-to-work programs pay off.
Sources cited
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