HVAC Failures: Insurance Implications for Office Buildings

Introduction

In an office building, HVAC isn’t just about comfort—it’s a critical system that protects people, property and productivity. When heating, ventilation and air conditioning fails, the consequences can escalate quickly: frozen pipes and water escape, overheating server rooms, mould growth from poor ventilation, tenant complaints, and even regulatory scrutiny.

For landlords, managing agents and office occupiers, the biggest surprise is often not that something broke—but that the insurance response is more complex than expected. Coverage can hinge on maintenance records, policy definitions, the cause of failure, and how quickly you acted to mitigate further loss.

This guide explains the most common office-building HVAC failure scenarios, the insurance implications, and how to structure your insurance programme (and risk management) so you’re not caught out.

What counts as an “HVAC failure” in an office environment?

HVAC failures aren’t limited to a boiler breaking down. In offices, failures often involve interconnected systems and controls, including:

• Boilers, chillers, heat pumps and air handling units

• Pumps, valves, expansion vessels and pipework

• Building management systems (BMS) and control panels

• Ducting, dampers, filters and ventilation fans

• Condensate drainage and drip trays

• Refrigerant lines and leak detection

• Power supply issues affecting plant rooms

From an insurance perspective, the key question is usually: what caused the failure and what did it damage? A worn bearing that seizes might be “wear and tear” (often excluded), but the resulting fire damage or water escape may still be covered depending on the wording.

Why HVAC failures become expensive so fast

HVAC incidents in office buildings can create “secondary losses” that dwarf the cost of the original repair.

1) Water escape and internal damage

A frozen pipe, split coil or failed condensate drain can cause water escape, damaging:

• Ceiling tiles, plasterboard and finishes

• Carpets and flooring

• Electrical systems and lighting

• Lift shafts and plant rooms

• Tenant fit-outs and contents

Water escape claims can also trigger disputes over responsibility between landlord and tenant, especially where leases split repair obligations.

2) Business interruption (BI)

If HVAC failure makes a building unusable (or partially unusable), you can see:

• Loss of rent for landlords

• Alternative accommodation costs for occupiers

• Reduced productivity and operational disruption

• Increased costs of working (temporary cooling/heating)

BI cover is often misunderstood. Many policies require physical damage from an insured peril to trigger BI. A “breakdown only” that doesn’t cause insured damage may not trigger BI unless you have specific extensions.

3) Liability claims and tenant disputes

HVAC failures can lead to allegations of negligence, nuisance, or breach of lease obligations. Common claims include:

• Tenant claims for loss of trade or additional costs

• Slip and trip incidents from water escape

• Poor air quality complaints (headaches, respiratory issues)

• Damage to tenant equipment (IT, servers, stock)

4) Compliance and health & safety issues

Offices have legal duties around safe workplaces and, in many cases, specific obligations for ventilation and temperature control. Failures can raise issues around:

• Workplace health and safety duties

• Legionella management (where water systems are involved)

• Fire safety (smoke control systems, pressurisation)

• Refrigerant handling and environmental rules

Insurance won’t replace compliance—but poor compliance can complicate claims.

Common HVAC failure scenarios (and the insurance implications)

Below are real-world scenarios that regularly lead to claims or disputes.

Scenario A: Chiller failure overheats a server room

What happens: A chiller or air handling unit fails during a warm period. The server room overheats, causing equipment damage and downtime.

Insurance implications:

• Property damage: Damage to servers may be covered under contents/tenant improvements if insured, but “electrical/mechanical breakdown” exclusions can apply.

• Deterioration of stock: Not relevant for most offices, but critical for buildings with temperature-sensitive materials.

• BI: Downtime may not be covered unless triggered by insured damage or you have a suitable extension.

• Cyber angle: If overheating causes system outages leading to data loss or service disruption, cyber policies may come into play—but only for insured cyber events, not pure mechanical failure.

Risk tip: Consider separate cooling redundancy for critical rooms and ensure maintenance and alarm monitoring are documented.

Scenario B: Boiler failure leads to frozen pipes and water escape

What happens: A boiler fails during cold weather. The building loses heat, pipes freeze, and a burst pipe causes water escape.

Insurance implications:

• Boiler repair: The boiler itself may not be covered if the cause is wear and tear.

• Resulting damage: Water escape damage is often covered (subject to excesses and conditions).

• Conditions: Many policies require minimum heating levels, drain-down procedures, or regular inspections during unoccupied periods.

Risk tip: Have a written winterisation plan, especially for weekends/holiday periods.

Scenario C: Condensate drain blockage causes slow leak and mould

What happens: A blocked drain causes a slow leak above a ceiling void. The issue is discovered weeks later, with mould and widespread damage.

Insurance implications:

• Gradual damage: Many policies restrict cover for gradual leaks or have time-limited “trace and access” and water escape provisions.

• Mould: Mould/fungus is frequently excluded or limited.

• Mitigation: Insurers will look at how quickly the leak was identified and addressed.

Risk tip: Routine inspections, moisture sensors in high-risk areas, and prompt reporting are key.

Scenario D: BMS failure causes temperature swings and tenant disruption

What happens: The building management system fails or is misconfigured after an update. HVAC runs incorrectly, causing uncomfortable temperatures and complaints.

Insurance implications:

• No physical damage: If there’s no insured physical damage, property insurance may not respond.

• BI: Often not triggered.

• Professional liability: If a contractor’s error caused the issue, their professional indemnity (PI) may be relevant.

Risk tip: Change control, backups, and clear contractor responsibility clauses help.

Scenario E: Refrigerant leak triggers evacuation and environmental concerns

What happens: A refrigerant leak is detected. Parts of the building are evacuated, and repairs require specialist contractors.

Insurance implications:

• Property damage: The leak itself may be treated as breakdown; resulting damage may be limited.

• Pollution: Many property policies have limited pollution cover. Environmental impairment liability (EIL) is specialist.

• Liability: If exposure causes injury allegations, public liability may respond (subject to policy terms).

Risk tip: Ensure leak detection is maintained and refrigerant handling is compliant.

Which insurance policies may respond?

Office buildings often have multiple parties and policies involved. Here’s how cover typically maps.

1) Commercial property / buildings insurance

This is usually the core policy for landlords and may include:

• Buildings sum insured (reinstatement)

• Landlord’s fixtures and fittings

• Loss of rent (BI for landlords)

• Property owners’ liability

Key points:

• HVAC plant may be included as part of the building definition, but not always.

• Exclusions for wear and tear, gradual deterioration, or defective workmanship are common.

• Water escape is typically covered but often has higher excesses.

2) Engineering inspection / boiler & machinery (equipment breakdown)

Often the most relevant cover for HVAC “breakdown” events.

It can cover:

• Sudden and accidental mechanical/electrical breakdown

• Damage to insured plant (chillers, boilers, pressure systems)

• Optional BI extensions for breakdown events

Key points:

• This cover is frequently missing in smaller office portfolios.

• It can fill the gap where property insurance excludes the cause of loss.

3) Business interruption (BI)

For office occupiers, BI cover is typically part of a commercial combined policy.

Key points:

• Standard BI usually requires insured physical damage.

• Consider extensions like:

  • Denial of access

  • Prevention of access

  • Public utilities failure

  • Equipment breakdown BI

4) Public / property owners’ liability

If an HVAC failure causes injury or property damage to third parties (e.g., a tenant’s equipment damaged by water escape), liability cover may respond.

Key points:

• Liability claims often turn on negligence and contractual obligations.

• Insurers may request maintenance logs and contractor details.

5) Employers’ liability

If employees are affected (e.g., injury from a slip due to water escape), employers’ liability may be relevant for the employer.

6) Contractors’ insurance (public liability and professional indemnity)

If a contractor’s poor workmanship, incorrect design, or negligent maintenance caused the HVAC failure, their insurance may be pursued.

Key points:

• Public liability covers bodily injury/property damage.

• Professional indemnity covers design/specification/advice errors.

• Contract wording and evidence of negligence matter.

Typical claim friction points (where disputes happen)

Even when you “have insurance,” HVAC-related claims can become contentious. The most common friction points include:

Wear and tear vs sudden damage

Insurers often exclude the cost of fixing an item that failed due to wear and tear, corrosion, or lack of maintenance. However, they may still cover resulting insured damage (e.g., water escape) depending on the policy.

Gradual damage and late discovery

Slow leaks, damp, and mould are frequent problem areas. If damage is deemed gradual or long-term, cover may be restricted.

Policy conditions and warranties

Some policies include conditions around:

• Regular inspections and servicing

• Heating requirements during cold spells

• Trace and access procedures

• Unoccupancy conditions

If these aren’t met, insurers may reduce or decline claims.

Underinsurance

Office building reinstatement costs have risen significantly in recent years. Underinsurance can reduce claims settlements proportionally.

Lease responsibilities and who should claim

In multi-let buildings, the lease may allocate responsibilities for:

• Plant maintenance

• Internal fit-out

• Tenant contents

• Service charge recovery

This affects which policy should respond and who bears the excess.

Practical steps to reduce risk (and strengthen your claim position)

Insurers love evidence. The best way to protect yourself is to reduce the chance of failure and be able to prove you did.

Build a simple HVAC risk management pack

Keep a central file (digital is fine) with:

• Maintenance schedules and service reports

• Call-out logs and repair invoices

• BMS change logs and contractor access records

• Photos of plant rooms and key components

• Winterisation procedures and checklists

• Emergency contacts and shut-off locations

Improve detection and response

• Install leak detection in high-risk areas (plant rooms, ceiling voids)

• Use temperature alarms in server rooms

• Ensure out-of-hours monitoring is in place

• Train staff/contractors on rapid isolation procedures

Review your insurance programme annually

Ask your broker to confirm:

• Is HVAC plant included in the buildings definition?

• Do we have equipment breakdown/engineering cover?

• Does BI respond to breakdown events?

• Are water escape excesses and conditions acceptable?

• Are sums insured and indemnity periods adequate?

What to do immediately after an HVAC incident

When something fails, the first 24–72 hours can make or break the claim.

1. Make safe and stop the loss (isolate water, power down safely, ventilate as needed)

2. Document everything (photos, timestamps, contractor notes)

3. Notify your insurer/broker promptly (don’t wait for full quotes)

4. Mitigate further damage (drying, temporary heating/cooling)

5. Keep damaged parts if safe—insurers may want inspection

6. Track costs separately (labour, hire equipment, temporary works)

Insurance checklist: office building HVAC failures

Use this quick checklist to sense-check your cover.

• Buildings policy includes plant and machinery (or clearly defines it)

• Engineering/equipment breakdown cover in place for chillers/boilers

• BI cover includes suitable extensions (or equipment breakdown BI)

• Water escape excess and conditions understood

• Trace and access cover adequate

• Liability limits appropriate for multi-tenant buildings

• Contractor management and contract wording reviewed

• Maintenance documentation centralised and up to date

FAQs

Does buildings insurance cover HVAC breakdown?

Sometimes, but often only for resulting damage. Many buildings policies exclude the cost of repairing the failed component if the cause is wear and tear or mechanical breakdown. Equipment breakdown (boiler & machinery) insurance is commonly needed for the breakdown itself.

Will business interruption cover office closure due to no heating or cooling?

Not always. Standard BI usually requires insured physical damage from an insured peril. If the closure is due to a breakdown without insured damage, BI may not respond unless you have an extension such as equipment breakdown BI or specific denial/prevention of access wording.

Is mould from poor ventilation covered?

Mould and fungus are frequently excluded or tightly limited. Even where water escape is covered, mould remediation may be restricted if the leak was gradual or not addressed promptly.

Who is responsible in a multi-let office building—landlord or tenant?

It depends on the lease. Often the landlord insures the building and recovers premiums via service charge, while tenants insure contents and fit-out. Responsibility for HVAC maintenance can vary, so it’s important to review the lease and ensure policies align.

Can we claim for tenant complaints or loss of productivity?

Insurance typically responds to defined losses (property damage, BI triggered by insured events, liability claims). General dissatisfaction, inconvenience, or productivity loss without an insured trigger is usually not covered.

What evidence do insurers usually ask for?

Common requests include maintenance records, service contracts, inspection reports, photos, incident timelines, invoices, and details of any contractors involved. Clear documentation can speed up settlement.

Does a contractor’s insurance cover HVAC issues?

If the loss is caused by negligent workmanship, incorrect advice, or design errors, the contractor’s public liability or professional indemnity may be pursued. Proving negligence and linking it to the loss is key.

Conclusion

HVAC failures in office buildings are rarely “just a repair.” They can trigger water escape, business interruption, liability disputes, and compliance concerns—especially in multi-tenant properties where responsibilities are split.

The best protection is a combination of proactive maintenance, fast incident response, and an insurance programme that matches the reality of modern building systems. If you’re unsure whether your current cover would respond to a major HVAC failure, a quick policy review now can prevent a painful surprise later.