Equipment Floater Insurance for Contractors: What It Covers and the Gaps That Show Up at Claim Time
By Justin MacKenzie | Contractor Insurance
The following is general guidance from an insurance perspective only. Coverage determinations depend on specific policy language, the facts of a claim, and applicable law. Consult a licensed insurance professional for guidance specific to your operations.
Key Takeaways
An equipment floater is an inland marine policy that covers a contractor's owned, leased, and rented tools and equipment wherever they go. Unlike commercial property which covers equipment at a fixed location, the equipment floater follows the equipment from job site to job site.
Most equipment floaters pay claims on an actual cash value basis, not replacement cost. For equipment that depreciates quickly, the difference between what the policy pays and what it costs to replace the equipment can be substantial. A five year old excavator with significant hours may be worth 40 to 50 percent of its purchase price on an ACV basis.
Removing items from the schedule near the deductible threshold to save premium is a rational decision on each individual item but a potentially catastrophic collective decision. A single covered event that destroys multiple unscheduled items creates an uninsured loss that could have been covered for modest additional premium.
Rental reimbursement coverage for specialized equipment is one of the most commonly underinsured gaps in contractor equipment programs. When a specialized rented machine is damaged the contractor may owe ongoing rental charges on the damaged machine while simultaneously renting a replacement. Standard sublimits on most policies are rarely adequate for specialized equipment with long repair timelines.
A contractor lost a piece of excavation equipment in a fire at a job site. The machine was five years old and had accumulated significant hours. The equipment floater paid the claim promptly. The payout was based on actual cash value.
The contractor had purchased the machine for two hundred fifty thousand dollars. The ACV settlement was one hundred ten thousand dollars. That amount did not come close to purchasing a comparable replacement. The contractor had assumed the policy would make them whole. The policy did exactly what it said it would do.
Equipment floater insurance is one of the most frequently misunderstood components of a contractor's insurance program. Most contractors know they have it. Few understand what it actually pays when a claim arrives. This article explains how equipment floaters work, where the most common gaps appear, and what questions to ask before the next renewal.
What an Equipment Floater Covers
An equipment floater is a type of inland marine insurance that covers a contractor's tools and equipment while they are being used, transported, or stored away from the contractor's primary premises. The defining characteristic of the equipment floater is that it follows the equipment wherever it goes rather than being tied to a specific location.
Commercial property insurance covers equipment at the contractor's shop or yard. Once that equipment leaves the premises for a job site, standard commercial property coverage typically does not follow it. The equipment floater fills that gap, providing coverage for the equipment in transit, at job sites, and at any temporary location where the contractor is working.
The equipment floater is distinct from the installation floater, which covers materials being incorporated into a project. The equipment floater covers the tools and machines the contractor uses to do the work. An excavator, a drill rig, a compactor, a generator, a concrete saw, hand tools, and specialty attachments are all equipment floater exposures. The dirt being moved, the pipe being installed, and the concrete being poured are installation floater or builder's risk exposures.
Equipment floaters typically cover the contractor's owned equipment. Coverage for non-owned equipment, including machines rented or leased from third parties for which the contractor has assumed financial responsibility, is often addressed through a sublimit or by scheduling the item rather than the full policy limit and should be confirmed specifically with your broker before signing any agreement that creates that obligation
Common causes of loss covered under equipment floaters include fire, theft, vandalism, and accidental damage during operations.
Actual Cash Value Versus Replacement Cost: The Gap That Shows Up at Claim Time
The most significant and most commonly misunderstood feature of most equipment floaters is the valuation basis. Most policies pay claims on an actual cash value basis, which means the depreciated market value of the equipment at the time of loss rather than the cost to replace it with a comparable new machine.
For equipment that depreciates quickly, the difference between ACV and replacement cost can be substantial. Construction equipment loses value rapidly in the early years of its life. A new excavator in the mid-size range costs approximately one hundred fifty thousand to two hundred fifty thousand dollars depending on configuration. After five years of use with significant operating hours, that same machine may have an actual cash value of sixty thousand to one hundred twenty-five thousand dollars, roughly forty to fifty percent of its purchase price.
A contractor who purchased a two hundred fifty thousand dollar excavator five years ago and has been renewing their equipment floater without updating the scheduled value may be carrying that machine at or near its original purchase price on the schedule while the policy pays claims on ACV. The schedule value affects the premium. The ACV determines the claim payment. Those two numbers are not the same thing and the gap between them is where contractors get surprised.
Some carriers offer replacement cost coverage on equipment floaters, and some offer a hybrid approach where equipment is covered at replacement cost for the first two to three years and then transitions to ACV thereafter. These options are worth asking about specifically rather than assuming the policy provides replacement cost protection because the contractor paid replacement cost premiums.
The practical guidance is to understand which valuation basis your policy uses before a claim arrives, not after. If the policy pays ACV, understanding what that means for your most significant pieces of equipment in their current condition gives you an accurate picture of your actual coverage position.
The Schedule Pruning Problem
Equipment floater premiums are based in part on the total scheduled value of the equipment listed on the policy. Contractors who are managing costs sometimes remove individual items from the schedule when the item's value is close to or below the policy deductible, reasoning that a claim on that item would not exceed the deductible anyway so there is no point paying premium to insure it.
That reasoning is sound when applied to a single item in isolation. It creates a significant problem when applied systematically across many items of similar value.
Consider a contractor with a ten thousand dollar deductible who has twenty items on their equipment schedule each valued between eight thousand and twelve thousand dollars. They remove all twenty items because each individual item is near or below the deductible. The decision on each item is rational. The collective result is that twenty pieces of equipment are now uninsured.
When a fire, a theft, or a flood hits the job site and takes all twenty items in a single event, the contractor faces a loss of one hundred sixty thousand to two hundred forty thousand dollars with no coverage. The deductible applies per occurrence, not per item. A single covered event that destroys all twenty pieces would have resulted in a claim payment of one hundred fifty thousand to two hundred thirty thousand dollars after the ten thousand dollar deductible. Instead the contractor bears the entire loss.
The premium cost to keep those twenty items on the schedule was modest relative to the exposure created by removing them. The individual item logic is sound. The portfolio logic is not. This is a conversation worth having with your broker when reviewing the equipment schedule at renewal, specifically to evaluate whether items have been removed that create meaningful uninsured exposure in aggregate.
Not sure whether your equipment schedule reflects your actual exposure?
Get a no-obligation review of your contractor equipment program. justin@fstwest.com
Rented Equipment and the Rental Reimbursement Gap
Many contractors rent equipment for specific projects rather than owning every machine they need. Rental agreements typically make the contractor responsible for physical damage to the rented equipment during the rental period. That obligation needs to be covered under the contractor's equipment floater, either through automatic coverage for rented equipment up to a sublimit or through a specific rented equipment endorsement.
The physical damage coverage question is the one most contractors think about. The more consequential gap is rental reimbursement coverage for specialized equipment when a rented machine is damaged and taken out of service for repair.
When a rented piece of equipment is damaged, most rental agreements require the contractor to continue paying the rental rate while the machine is being repaired. The equipment is sitting in a shop. The invoice keeps coming. If the project cannot wait for the repair to be completed, the contractor also needs to source a replacement machine, incurring a second rental cost simultaneously. For common equipment that can be replaced from a local rental yard in a day or two, this is manageable. For specialized equipment with limited availability, the situation is very different.
A specialty drilling rig, a particular type of ground improvement equipment, or a large specialty attachment may not be available from a local source on short notice. The repair timeline for specialized equipment can extend to weeks or months. During that entire period the contractor is paying rental charges on a machine that is not working while trying to source and pay for an alternative. The financial exposure from that scenario can dwarf the cost of the physical damage to the equipment itself.
Rental reimbursement coverage addresses this gap. It covers the ongoing rental cost obligations and the cost of renting a replacement machine when a rented piece of equipment is out of service due to a covered loss. Most equipment floater policies include a rental reimbursement sublimit as part of the standard form, but that sublimit is frequently inadequate for the actual cost of a prolonged rental situation involving specialized equipment.
Higher rental reimbursement limits are available but must be specifically requested. They can be difficult to obtain depending on the carrier and the nature of the equipment involved, and underwriters evaluate the risk profile of the contractor's equipment usage and project types when pricing and structuring this coverage. For contractors who regularly rent specialized equipment on projects where downtime creates significant financial exposure, discussing rental reimbursement limits specifically with your broker is worth the conversation rather than accepting whatever sublimit is included in the standard form.
Keeping the Schedule Current
An equipment schedule that does not reflect the contractor's actual equipment creates problems in both directions. Equipment that has been sold or retired but remains on the schedule generates unnecessary premium. Equipment that has been purchased or leased since the last renewal but has not been added to the schedule is uninsured.
For contractors who acquire equipment throughout the year, most policies include an automatic coverage provision for newly acquired equipment up to a specified limit and for a limited period, typically thirty to ninety days, after which the equipment must be specifically scheduled to remain covered. Missing the deadline to add new equipment is a common gap that leaves contractors with the impression they are covered on a machine that has fallen outside the automatic coverage window.
The scheduled values on the policy should also be reviewed at each renewal against current market values for each item. Scheduled values that were accurate three years ago may significantly overstate or understate the current value of the equipment, particularly on items that have depreciated substantially or on items where replacement costs have increased due to market conditions.
A schedule review at each renewal that confirms what is on the list, what should be added, what should be removed, and whether the values reflect current conditions is a basic practice that significantly reduces the likelihood of a coverage surprise at claim time.
Frequently Asked Questions
What is the difference between an equipment floater and an installation floater?
An equipment floater covers the contractor's tools and equipment used to perform the work. An installation floater covers the materials and property being incorporated into a project. An excavator digging a trench is covered under the equipment floater. The pipe being laid in that trench is covered under the installation floater or the project's builder's risk policy. Both are types of inland marine coverage but they address entirely different property exposures. For a complete guide to installation floater coverage see our dedicated installation floater insurance article.
Does my equipment floater cover equipment I rent for a project?
It depends on how your policy is written. Most equipment floaters include some coverage for rented equipment, typically up to a sublimit. Others require rented equipment to be specifically scheduled or endorsed onto the policy. Before signing a rental agreement that makes you responsible for physical damage to the equipment, confirm with your broker that your policy covers it and at what limit. The rental agreement value and your policy limit need to be reviewed together.
My policy is written on actual cash value. How do I know what a claim would actually pay?
The best way is to ask your broker to walk through your most significant scheduled items and discuss what the current ACV of each item would be based on its age, hours, and condition. For equipment that has been in service for several years, the ACV can be substantially lower than the scheduled value or the original purchase price. Understanding that gap on your most critical equipment before a claim arrives lets you make an informed decision about whether to seek replacement cost coverage, adjust your scheduled values, or accept the ACV exposure with clear eyes.
How often should I update my equipment schedule?
At every renewal at minimum. For contractors who acquire or dispose of equipment regularly, a mid-term review is also worth doing. The automatic coverage provisions for newly acquired equipment typically run for thirty to ninety days. Missing the window to add a newly purchased machine leaves it uninsured after that period expires. A schedule that is reviewed and updated at each renewal and supplemented with mid-term additions when significant equipment is acquired is the baseline practice for keeping the coverage current.
Is equipment floater the same as inland marine insurance?
An equipment floater is a type of inland marine insurance. Inland marine is a broad category that includes equipment floaters, installation floaters, motor truck cargo, and other coverages for property that moves from location to location. When contractors refer to their inland marine policy they are often referring to their equipment floater. The terms are sometimes used interchangeably in conversation but they are not identical. Inland marine describes the category. Equipment floater describes the specific product within that category that covers contractor tools and equipment.
About the Author
Justin MacKenzie is a Commercial Lines Producer at First West Insurance, licensed in all 50 states, specializing in insurance programs for specialty contractors and construction businesses. Before moving into insurance, Justin spent over two decades in commercial real estate development and construction, working across more than a million square feet of projects with Fortune 500 companies, private equity firms, and national retailers, giving him a firsthand understanding of how construction contracts, subcontractor relationships, and risk transfer obligations actually work in practice. justin@fstwest.com
This article is for general informational purposes only and does not constitute professional insurance or legal advice. Coverage availability, terms, and conditions vary by insurer, jurisdiction, and individual risk characteristics. Consult a licensed insurance professional for guidance specific to your operations.
