1. Material damage (MD) & Consequential Damage/loss (CD/CL)
Before we proceed to understand the scope of spoilage material damage cover, it is necessary to understand the relationship of the terms material damage & consequential damage/ loss. There is a general exclusion in property policies for any consequential damage arising from/resulting from an insured peril. e.g. the shop of a Shopkeeper with a Fire insurance policy is damaged due to an incident of fire. The policy shall cover the (material) loss due to this incident but not cover the loss of sales/ profits resulting (consequential) to it. The market demand for covering the consequential damage/ business interruption loss are met by specific Consequential policies.
Similarly any spoilage resulting from a material damage caused by an insured peril in the Standard Fire and Special Peril policy is also excluded from a standard cover. This need is met by a specific add on cover which is explained below:
2. Spoilage cover
- The add on cover is provided only for any spoilage (material damage) resulting from a peril covered by the policy ( & not the consequential commercial effect of the incident)
- This spoilage damage should have been caused from interruption or cessation of the manufacturing process due to a peril covered under the Standard Fire and Special Perils policy
- A claim under this add on cover is payable only after the liability under the material damage policy for the same peril covered by it has been admitted by the insurer.
- This cover is limited to material damage (spoilage) to stock in process and machinery containers and equipment of the specifically identified block only.
- The sum insured declared for the purposes of this add-on cover must include the value of all stocks and machinery, containers and equipment in specified blocks declared for this specific cover
3. Who should opt for this cover
The obvious answer to this question is-any manufacturing process that involves continuous processing and where interruption in the process would result in spoilage of the stock in process as well as have effect on the machinery/equipment etc. too.
- A concrete mixer is probably the simplest example, where an interruption of the constant rotatory movement may result in concrete setting in the mixer itself & thus spoiling both the mix (unusable for construction) as well as effecting the mixer.
- In a sugar factory the cane juice in various stages of processing will ferment & effect the various pipelines, storage & processing machines.
- Plastic moulding unit will have a lot of unusable lumps of molten plastic clogging the various machines
- Pharmaceutical processes may be more susceptible to this eventuality due to high degree of care & purity required.
