2-4.011 December 2011

Preventing equipment losses in Commercial Market businesses Cause of loss - Machinery and equipment

The phrase ‘‘cause of loss’’ refers to an incident or event that can result in loss or damage to property including breakdown of machinery and equipment. For Zurich, equipment breakdown cause of loss means:

Artificially generated electrical current, including electrical arcing, that injures or disturbs electrical devices, wiring or equipment

Explosion, rupture or bursting of steam boilers, steam pipes, steam engines, steam turbines, gas turbines, or apparatus attached to and forming a part thereof that are owned, operated or controlled by you; except for explosion of accumulated gases or fuel within the furnace of any fired vessel, other than gas turbines, or within the flues or passages through which the products of combustion pass

Any condition or event inside steam boilers, steam pipes, steam engines, steam turbines, gas turbines, or apparatus attached to and forming a part thereof that are owned, operated or controlled by you; except for explosion of accumulated gases or fuel within the furnace of any fired vessel, other than gas turbines, or within the flues or passages through which the products of combustion pass

Any condition or event, other than an explosion, inside hot water boilers, other water heating equipment, engines other than steam engines, or pressure vessels when owned, operated, or controlled by you

Mechanical or machinery breakdown, including rupture or bursting caused by centrifugal force, of property owned, operated, or controlled by you

Our Risk Engineering department has recently completed a study of the types of losses most likely to occur in the Commercial Markets business segment to help provide our customers some guidelines in preventing or mitigating the costs of these types of losses. This includes businesses comprising various industry segments, including: manufacturing, commercial real estate, financial institutions, wholesale/distribution and construction contractors. Commercial Market (CM) equipment losses

Following are the three types of equipment losses that have been reported with the highest frequency, severity notwithstanding, to our Zurich Claims department from 2006 to 2011:

Miscellaneous electrical losses constituting 32% of all CM losses reported

Refrigeration/compressor losses constituting 24% of all CM losses reported

Boiler losses constituting 15% of all CM losses reported These top three types of losses make up over 70% of the losses that have been reported for the CM business segment in the last five years. Other types of losses reported include those occurring to elevators and lifts, production equipment, pumps, motors and pressure vessels. What we want to do in this Risktopic is touch on ways the equipment owner can help prevent losses to these top reported categories. Actions taken on 70% of what is causing losses to an industry can go a long way in helping to reduce overall costs to both the equipment users and to the insurers, providing a better business atmosphere for both parties. Please remember, however, that we can only provide general guidelines in this type of article. To obtain direction on how to take care of your specific equipment, you should always follow the Original Equipment Manufacturers (OEM) guidelines provided with the equipment, obtain the services of a qualified repair organization to assist you in the care and maintenance of the equipment and/or you can contact your assigned Zurich Risk Engineer who can help you with questions about the care and upkeep of your mechanical equipment. Miscellaneous electrical apparatus loss prevention

The types of problems that can occur to electrical equipment are numerous and varied. Many of these problems can be prevented though the use of a proper maintenance program. Commercial Markets coverages range from small, non-manufacturing facilities such as a small retail space up to a mid-size manufacturing facility owning its own transformers and electrical generating equipment. Whatever the size of the facility, there is a maintenance plan that will help prevent damage to the equipment in use if properly incorporated into the facility’s overall business plan. The most common types of electrical losses reported in this business segment have been:

Circuit breaker damage

Arcing across electrical equipment

Damage from power surges

Generator damage Following are some general guidelines to help you prevent these types of damages to your electrical equipment. Circuit breakers

There are many types of circuit breakers in use for many different types of applications. All of them must be inspected and operated on a regular basis to ensure safe and reliable operation. Under NO circumstances should this equipment be opened by untrained personnel. Most inspections of circuit breakers will have the maintenance staff checking for cracks in the casing, loose bolts or connections, poor installation, etc. Testing of the equipment will range from insulation testing to verification of proper operation when required to trip the circuit. Periodic nondestructive testing such as infrared testing can also identify hot spots or areas in breakers that may require additional attention. For the specific type of breakers in use at your facility, it is important that you use the services of a certified electrician familiar with the type of installed equipment and the tests required for that equipment. It is important that you establish a routine maintenance plan for whatever types of circuit breakers are in use in the facility and follow it as closely as possible depending on business requirements. Remember, too, that changes to the facility operations can cause an increase in electrical demands in the facility. Increased power demand can adversely

affect installed circuit breakers and other electrical components. Any major changes to the electrical demands in a business operation should be approved by an electrical engineer to ensure continued system stability. Arc prevention

Unintended electric arcing can have serious detrimental effects on electric distribution systems, electric power transmission, and electronic equipment. Devices which may cause arcing include circuit breakers, fuses, relay contacts, switches, and poor cable terminations. If a circuit has enough current and voltage to cause and sustain an arc formed outside of a switching device, the same resulting arc can cause damage to equipment such as melting of conductors, destruction of insulation, and fire. This is called an arc flash which describes an explosive electrical event from arcing that can present a hazard to people and equipment. Undesired arcing in electrical devices can be prevented primarily through proper preventive maintenance techniques which include:

Regular cleaning and inspection program of all electrical equipment by trained electrical technicians

Ensuring the properly rated equipment is installed for the service it is being used for

Regular testing of electrical equipment per OEM specifications

Regular infrared testing of electrical equipment to ensure proper connections are maintained There is much more information available regarding arcing and arc flash that you might discuss with your electrical contractor or Zurich Risk Engineer. Now may also be a good time to explore whether or not an Arc Flash Hazard Analysis might be a useful exercise for your business. Damage from power surges

A power surge is an uninterrupted, abnormal voltage increase in an electrical system that lasts more than a few seconds. It can be caused by a malfunction in the electric distribution system or by a sudden increase in electrical power added to the system such as an occurrence with a lightning strike to or near the electrical distribution system. Other causes of power surges include:

Power outages and subsequent return of power

Tripped circuit breakers and subsequent reenergization of the breaker

Short circuits

Power transitions in other large equipment on the same power line

Electromagnetic pulses (EMP) Generally, though, most power surges will be related to weather, specifically lightning-related, causes. Following are some steps to help prevent damages or business interruptions due to power surges. Install surge arresters - This equipment should be installed close to the terminals of the equipment to be protected. Ensure grounding of the surge equipment is proper. The installation requirements for this equipment differs depending on the equipment it is installed on; be sure to follow the manufacturer’s guidelines or requirements for surge protection when installing the protective devices. Consider additional generating equipment - Some geographical areas have electrical distribution systems that are not the most reliable when it comes to providing a steady power source. Power surges may occur regularly due to a faulty or old electrical distribution system. Depending on the size of your business and potential loss of business income, there could be a case made for the installation of an emergency power generation system to cover this type of emergency. This type of system can be arranged to sense when a power surge is occurring and move to protect the in-house electrical system from damage while starting up its own power generating capabilities to keep production moving until main power is restored. Again, this may be an expensive way to address this problem, but may be worth your while depending on where your facility is located and how often this problem occurs.

Generator damage

Electric generators come in many sizes and are used in different capacities - from providing just enough backup power to keep the emergency lights on to providing power sufficient to maintain production. It is not the intent of this document to relay all of the tests that should be carried out on electric generators to ensure their readiness. However, we can speak to their general upkeep so the user may have some idea of what the user should be doing to maintain their generator in its optimum condition. Following the OEM recommendations for maintenance is at the top of the list for any electric generator. Most insurance companies’ risk engineers use maintenance lists as guidelines to verify that an owner/user is maintaining their electric generators. The OEM listing will be specific to the machine and is suited to maintaining the equipment in its best condition. This OEM should include, as a minimum, standards for the following:

Regular visual inspections

Regular operational, or run-time, testing

Load testing

Nondestructive testing including vibration analysis and infrared testing

Overvoltage (hipot) testing

Regular dismantling and overhaul per manufacturer’s recommended schedule One other often overlooked aspect of generator upkeep is ensuring the backup generator is the proper size for the intended service. Where an original installation may have been more than sufficient for the original facility, a plant that has grown and expanded over the years may actually “outgrow” its original backup generator. Attempting to use an undersized electric generator in a service that requires more power than can be delivered can cause unforeseen damages to the equipment as well as a business interruption. As mentioned previously, any facility that is adding electrical services should be carefully reviewed for capacities and supply capabilities by an electrical engineer to ensure all equipment will operate properly under full load conditions. Obviously, this is a very basic list for a machine like an electric generator. The actual list of maintenance items checked during the visual inspections and dismantling and overhaul is extensive. However, to ensure your generator is ready when you need it and runs with minimum or no breakdowns when called upon, these are the measures that should be taken throughout the life of this equipment. Refrigeration/compressor loss prevention

Most of us are familiar with and use refrigeration compressors without ever thinking about it - our refrigerators, home air conditioners, home freezers, etc. They are all around us. When you walk into the grocery store and go to the cold aisle, have you ever wondered how much equipment is keeping all of that food and drink cold? There is a lot of it and most of it is insured.

Like any other mechanical equipment, much of this equipment is also prone to breaking down. Causes of breakdowns in the CM business segment have included the following:

Mechanical breakdown

Electrical breakdown

Pressure component failure The predominant causes of the above listed failures include:

Incomplete or no regular maintenance performed

Failure to properly drain the system when required

Tube abrasion/wear

Flow induced tube and piping vibration

Improper equipment installation or reinstallation

Thermal stresses

Fatigue and/or age (pitting and corrosion)

Improper operation of materials handling equipment For mechanical failures, some of the sources are lube oil contamination, bearing failure, balance issues, metal fatigue, and wear/abrasion. Electrical failures can stem from single phasing of motors, bad connections, controller failures, overloading, overheating, and short circuits. Pressure component failures can stem from mechanical stresses (hangers), wear, "water" hammer, corrosion (both internal and external), packing, control and check valve failure and of course forklift drivers. Following are some general guidelines to help prevent these types of damages to your cooling and refrigeration equipment.

Perform annual infrared testing of electrical connections

Perform oil sampling of the compressors for contaminants, wear products and deterioration

Perform vibration analysis for rotary units; this will be less effective on reciprocating units

Maintain good log keeping and trend analysis in equipment records

Perform eddy current testing of chiller and evaporator tubing on a five-year cycle

OEM required testing and maintenance items Again, this is not by any means a complete and comprehensive listing of all of the maintenance that could or should be performed on refrigeration and compressor equipment that you may have operating in your facility. These are just guidelines to help get a facility started in taking care of this type of equipment. You should turn to a refrigeration contractor experienced in the care of the type of equipment you are using to keep it in its best running condition, thereby preventing or reducing damage and losses. Boiler loss prevention

Boiler loss control used to be all the rage; after all, the coverage used to be called Boiler and Machinery coverage. Not so any longer. As times have changed, so has the name of the coverage - to Equipment Breakdown coverage. However, boilers are still covered and most states and large cities (jurisdictions) in the US and Canada still require boilers and pressure vessels to be inspected by certified boiler inspectors on a regular basis. That may be why boilers have fallen further down this list in terms of failure amounts. But boiler failures still do occur. The following are common causes for boiler failures:

Overheating due to low water level or scale build up

Failure of pressure retaining components due to thinning caused by erosion/corrosion (usually due to poor water treatment practices)

Failure of pressure relief devices to operate properly

Failure of alarms and/or automatic protective devices

Improper repairs

Poor or minimal routine maintenance

Poor or improper water treatment program To help prevent these types of failures, there are several types of regular inspections and maintenance checks to be followed on most types of boilers whether they are processing boilers used in manufacturing or low pressure steam boilers used in a church for heating. Following are the typical types of maintenance that will help prevent most types of boiler failures, if followed.

For specific operating and maintenance instructions, consult the equipment manufacturer’s instructions. Daily

Check gages, monitors, and indicators on a regular schedule (hourly, every four hours, etc.); a log documenting important operating parameters and any actions taken is strongly recommended

Test the low-water fuel cutoff device and alarm

Check instrument and equipment settings

Check burner flame to ensure proper furnace operation Weekly

Check flame failure detection system

Check igniter

Check flame signal strength

Check firing rate control

Make aural and visual check of pilot and main fuel valves Monthly

Check flue, vent, stack, or outlet dampers

Test low draft, fan air pressure, and damper positions interlocks

Check low-fire start interlock

Test high and low oil pressure and temperature interlocks

Test high and low gas pressure interlocks Quarterly

Perform a slow drain test of the low-water fuel cutoff device where applicable Semi-annually

Perform operational test of pressure relief devices per NBIC instructions. Ensure safety valves are of proper size and are fully functional (these valves function to prevent an overpressure condition)

Recalibrate all indicating and recording gages

Check flame failure detection system components

Check firing rate control

Check piping and wiring of all interlocks and shutoff valves

Inspect burner components Annually

Perform a complete internal inspection of the boiler water and fire-sides. Inspect pressure components for wear, corrosion, erosion and signs of overheating

Test flame failure detection system, pilot turndown test

Test flame failure detection system

Check dual fuel change over control

Test high-limit and operating temperature or steam pressure controls

Replace vacuum tubes, scanners, or flame rods in accordance with manufacturer's instructions

Conduct a combustion test

Check all coils and diaphragms; test other operation parts of all safety shutoff and control valves

Test fuel valve interlock switch per OEM

Perform leakage test on pilot and main gas and/or oil fuel valves

Test purge air switch per OEM

Test air/steam interlock per OEM

Test burner position interlock per OEM

Test rotary cup interlock per OEM

Test low-fire start in interlock per OEM Other important areas to verify especially for high pressure applications:

Proper initial operator training with regular refresher training

Effective boiler feed water treatment program with documentation logs in place Conclusion

As mentioned earlier, there are other types of equipment that fails; we just mentioned the “Big Three” in this article. However, if you use the type of equipment discussed in this article and are able to follow the suggestions here, we believe you will reduce the chance of equipment failure in your facility. This is machinery we are talking about here, so there are never any 100% guarantees to prevent losses and downtime. However, preventive maintenance is, by far, the best protection against those losses today. Do not forget your other resources as well. Any major piece of equipment should have a technical manual that provides all required and recommended maintenance practices; these should be followed as closely as possible throughout the life of the equipment. You also have access to a Zurich Risk Engineer through your Zurich Equipment Breakdown policy. We also have a Boiler Hot Line number at 800-562-5814 that you can call anytime should you need assistance with equipment covered under your policy. References

1. Zurich Technical Tools and References 20110913: MB Field Guide Key Equipment. 2. FM Data Sheet 5-11: Lightning and Surge Protection For Electrical Systems, Sept, 2007. 3. http://en.wikipedia.org/wiki/Arc_flash (website) 4. http://en.wikipedia.org/wiki/Voltage_spike (website)

Zurich Services Corporation Risk Engineering 1400 American Lane, Schaumburg, Illinois 60196-1056 800 982 5964 www.zurichna.com The information in this publication was compiled by Zurich Services Corporation from sources believed to be reliable for informational purposes only. All sample policies and procedures herein should serve as a guideline, which you can use to create your own policies and procedures. We trust that you will customize these samples to reflect your own operations and believe that these samples may serve as a helpful platform for this endeavor. Any and all information contained herein is not intended to constitute legal advice and accordingly, you should consult with your own attorneys when developing programs and policies. We do not guarantee the accuracy of this information or any results and further assume no liability in connection with this publication and sample policies and procedures, including any information, methods or safety suggestions contained herein. Moreover, Zurich Services Corporation reminds you that this cannot be assumed to contain every acceptable safety and compliance procedure or that additional procedures might not be appropriate under the circumstances The subject matter of this publication is not tied to any specific insurance product nor will adopting these policies and procedures ensure coverage under any insurance policy.

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