Machinery, Electronics,
Construction & Operations:
Complete Coverage
for Engineering Risks

Eight components of engineering insurance

Engineering insurance is not a single product but a complementary family of covers. Each component addresses different causes of loss and different project or operational phases.

Core technical boundaries: covered vs excluded

The most critical concept in engineering insurance is this: the policy covers sudden and accidental damage. Gradual deterioration, wear and tear or damage resulting from maintenance failure occurring over time is excluded. This boundary is one of the most frequently disputed topics in loss cases.

Internal vs External Cause: Coverage Boundary

MB insurance covers primarily internally caused failures — the machine breaking down from its own internal cause. External events such as fire, water damage or storm fall under the property/fire policy. The boundary point matters:

• Motor burnout caused by external fire → property/fire policy (externally caused event)
• Motor burnout from internal short circuit → MB policy (internally caused failure)
• Clarifying the boundary between the two policies is critical for rapid claims settlement in large loss scenarios.

Defective Design, Defective Materials and Workmanship: coverage boundaries

The LEG clauses in construction (CAR/EAR) policies have an equivalent distinction in the operating MB policy: defective design/materials/workmanship in themselves are excluded, but damage caused by that defect to other sound parts may be covered.

Maintenance deficiency and its effect on claims

Failure to carry out maintenance in accordance with manufacturer instructions directly affects loss causation. Evidence of maintenance deficiency can give the insurer grounds for claim rejection or reduction. However:

• Even if maintenance deficiency is a precondition, the claim may still be valid — though contested — if the damage occurred suddenly.
• Keeping complete maintenance records facilitates both claims management and renewal premium negotiations.
• The underwriter requests the maintenance plan and latest service reports at the submission stage; these form the basis of the risk assessment.

Machinery breakdown vs electronic equipment insurance

MB and EEI are similar but address different equipment categories. The scope of the two policies can sometimes overlap; defining the correct boundary is important.

Where EEI extends beyond MB

• External damage coverage: EEI goes beyond MB to also cover externally caused damage — water damage, spillage, impact, theft (subject to policy wording).
• Portable equipment: Laptops, tablets, portable measurement instruments — MB generally covers fixed equipment; EEI can extend to these portable categories.
• Data media: Damage to storage media and data reconstruction costs can be structured as an additional cover within EEI.
• Extra expense: Cost of temporary equipment rental or outsourcing services as a replacement for the damaged system.

Contractors' Plant & Machinery (CPM): difference from CAR Section II

CAR Section II covers contractors' plant at the site on a project-specific basis. CPM is an independent, continuous policy for the equipment-owning contractor.

Boiler and pressure vessel: mandatory insurance and technical obligations

In Türkiye, both compulsory insurance and periodic technical inspection obligations exist for boilers and pressure vessels above certain capacity thresholds. These two requirements complement each other but are administered by different bodies.

MLOP and DSU/ALOP: loss of profits and delay coverage

Machinery Breakdown Loss of Profits (MLOP)

DSU / ALOP — Delay During the Construction Phase

DSU (Delay in Start-Up) or ALOP (Advanced Loss of Profits) covers lost revenue resulting from a project starting later than the planned commissioning date due to a loss covered under the CAR/EAR policy.

• Dependent on CAR/EAR damage: Only delays caused by an insured construction/erection loss are covered. Delays from contractor performance, supply chain issues or design changes are excluded.
• Waiting period / franchise: No payment is made for the first X days of delay resulting from the insured loss.
• Project financing requirement: Lenders may require DSU/ALOP in the loan agreement; the Indemnity Period must cover at least the minimum debt service period.
• Supporting documentation: Project revenue projections, operating costs and financing cost records must be provided to the underwriter for indemnity calculations.

Sum Insured, Replacement Value and Deductible Structure

Sum Insured — basis of valuation

Accurate determination of the sum insured in engineering insurance prevents underinsurance at the time of a claim. The valuation basis differs for each equipment category:

• Machinery and equipment: Replacement Value — the current cost of purchasing the same or equivalent new equipment without depreciation. International market price + installation + freight, not domestic production cost.
• Construction projects (CAR): Total contract value of the completed project + materials + contractors' plant; professional fees separately in some structures.
• Electronic devices (EEI): Replacement Value; current market price of the latest model with equivalent technical specifications. Note the difference in value arising from technological obsolescence.
• CPM: Fair market value of each item of equipment — separate valuation for machines of different ages.

Deductible Structure

Which engineering policy covers which risk?

In real loss scenarios, which policy responds is sometimes disputed. The table below classifies the most common scenarios by engineering policy type.

What Does the Underwriting Submission Require?

The following information and documents must be prepared for the engineering insurance submission to be assessed quickly and accurately. This list also brings risk improvement opportunities to the agenda.

Serial Loss risk assessment

For facilities where multiple units of the same manufacturer and model are used, the underwriter makes additional enquiries:

• How many units of each equipment brand/model are present
• How many units would be affected in a mass failure scenario and the PML estimate
• Whether a sublimit will be applied for Serial Loss
• Whether diversification will be undertaken (use of different brands/models)

Frequently Asked Questions

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