Machinery Loss of Profit Insurance (MLOP)

An industrialist faces losses due to unforeseen damage to machinery. Often, the repair period between breakdown and completion is lengthy, leading to substantial consequential losses. Machinery Loss of Profit (MLOP) insurance covers the financial loss suffered by the insured due to the breakdown of machinery as a result of an accident.

Key Benefits

  • Provides financial coverage for losses caused by the breakdown or failure of essential machinery.
  • Offers comprehensive coverage in conjunction with the machinery breakdown policy, covering risks related to boilers, pressure plants, and industrial machinery.
  • Extensions available for covering wages and auditor fees.

Coverage

The policy covers the loss of gross profit due to:

  1. Reduction in Output: This is calculated by applying the gross profit rate to the reduction in output during the indemnity period resulting from damage, compared to the standard output.
  2. Increase in Cost of Working: This covers additional expenditures (subject to conditions) incurred to prevent or minimize the reduction in output. This cost cannot exceed the sum produced by applying the gross profit rate to the reduction in output that is avoided.
  3. Savings from Reduced Standing Charges: If certain standing charges are reduced or eliminated due to the damage, the savings during the indemnity period are also covered.

However, if the sum insured is less than the amount calculated using the gross profit rate on the annual output, the payout will be reduced proportionally.

Exclusions

The policy does not cover:

  • Losses caused by willful acts or gross negligence of the insured or their representatives.
  • Spoilage of raw materials, semi-finished goods, or operating media like fuel, catalyst, or lubricant.
  • Losses due to restrictions imposed by law enforcement authorities.
  • Extensions to the repair period beyond four weeks caused by:
    • Delays in securing replacement parts or performing repairs.
    • Customs restrictions.
    • Transportation delays for damaged or replacement parts.
    • Alterations or improvements during repairs.
  • Losses caused by war, nuclear perils, or allied risks.
  • Defects that existed at the start of the policy, known to the insured.

Claim Process

In case of a claim, the following steps must be taken:

  1. Notify the insurer about the loss and submit a detailed written statement, including the nature and extent of the damage, along with an estimated loss. Failure to report promptly may lead to rejection of the claim.
  2. Take steps to reduce further loss or damage and minimize liability.
  3. Identify the proximate cause of the loss and assess the type, extent, and whether it falls within the scope of the policy.
  4. Cooperate fully with the insurer and surveyor for survey work and loss assessment.
  5. Provide all required documents, such as the claim form, claim bill, and a copy of the policy, to support the claim.
  6. Keep the damaged property under safe custody until the insurer or surveyor advises on its disposal.
  7. Ensure proper identification of the insured subject matter.