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Recap of Chapter Fifteen

A Businessowners Policy (BOP) combines property and liability coverages for small- to medium-sized businesses that do not have highly specialized operations. To qualify, a business may have up to $6 million in annual sales per location and occupy no more than 35,000 square feet.

Some businesses have additional BOP eligibility requirements. Eligible businesses include:

  • Restaurants with limited-line cooking.
  • Office buildings up to 6 stories.
  • Apartment buildings of any size, including residential condominium associations.
  • Motels up to 3 stories that do not have a bar.
  • Storage facilities up to 2 stories that do not provide cold storage.
  • Eligible contractors, commercial condominium unit owners, processing and service businesses, convenience and grocery stores, and wholesalers.

Ineligible risks for a Businessowners Policy (BOP) include:

  • Automobile operations, such as repair or service stations.
  • Amusement parks.
  • Financial institutions.
  • Manufacturers.

Section I of the Businessowners Policy (BOP) provides property coverages written on an open perils basis. However, some coverages apply only when the loss results from a specified cause of loss, such as fire or lightning, windstorm or hail, explosion, riot or civil commotion, smoke (other than from agricultural smudging or industrial operations), sinkhole collapse, and other listed perils.

The Businessowners Policy (BOP) provides two categories of covered property:

  • Building coverage applies to buildings and structures at the described premises, including:
    • Completed additions
    • Fixtures
    • Permanently installed machinery and equipment
    • Landlord's furnishings
    • Property used to service the building or structure
  • Business Personal Property coverage applies to business personal property located in or on the described buildings, or in the open or in a vehicle within 100 feet of the premises. This includes:
    • Property of others in the insured's care, custody, or control
    • Leased personal property the insured is required to insure
    • Tenant's improvements and betterments

The following are generally not covered property under the Businessowners Policy (BOP) unless coverage is provided elsewhere in the policy:

  • Money
  • Securities
  • Accounts receivable
  • Valuable papers and records
  • Electronic data
  • Vehicles subject to registration
  • Computers permanently installed in vehicles
  • Land
  • Outdoor fences
  • Unattached outdoor signs
  • Animals (except as specifically provided by the policy)

Section I – Additional Coverages include protection for collapse, business income, extra expense, forgery or alteration, electronic data, and interruption of computer operations. Key coverage limits include:

  • Debris Removal: Up to an additional $25,000 if policy limits are exhausted.
  • Preservation of Property: Property removed to protect it from a covered peril is covered for up to 30 days.
  • Ordinance or Law: Up to $10,000 per building for increased construction or zoning costs, provided the building is insured on a replacement cost basis.
  • Electronic Data: Up to $10,000 for covered losses to electronic data.
  • Fungi, Wet Rot, or Dry Rot: Up to $15,000 for covered losses during a 12-month policy year.

Business Income coverage pays for the actual loss of business income sustained during the period of restoration and within 12 consecutive months after the direct physical loss. The period of restoration begins 72 hours after the loss, and ordinary payroll is covered for 60 days, unless a longer period is shown in the Declarations. Extra Expense coverage pays the necessary expenses incurred to minimize the suspension of business during the period of restoration and within 12 consecutive months after the direct physical loss. For this coverage, the period of restoration begins immediately after the loss. For both coverages, the period of restoration ends on the earlier of the date the property should be repaired or the date business resumes at a new permanent location.

The Businessowners Policy (BOP) includes several Coverage Extensions, including:

  • Newly Acquired or Constructed Property: Up to $250,000 for newly acquired or constructed buildings and $100,000 for the business personal property in each building.
  • Personal Property Off-Premises: Up to $10,000 for covered property in transit or at certain off-premises locations.
  • Outdoor Property: Covers outdoor fences, antennas, unattached signs, trees, shrubs, and plants against specified perils, with up to $1,000 for any one tree, shrub, or plant.
  • Personal Effects: Covers the personal property of the insured and certain employees, but does not cover theft losses.

The Valuable Papers and Records Coverage Extension covers direct physical loss to documents, manuscripts, abstracts, deeds, films, maps, and mortgages. It also pays the cost to research, replace, or restore lost information. Samples, property held for delivery, and losses caused by processing or copying errors are excluded. The Accounts Receivable Coverage Extension covers direct physical loss to accounts receivable, including amounts that cannot be collected from customers, related interest charges, and reasonable expenses to re-establish accounts receivable. Losses caused by bookkeeping, accounting, or billing errors are excluded. Both extensions provide up to $10,000 per occurrence for on-premises losses and $5,000 per occurrence for off-premises losses.

The insured may add Optional Coverages for outdoor signs, equipment breakdown protection, employee dishonesty, and money and securities. The Money and Securities Optional Coverage protects money and securities while at a bank, the insured's residence, or the described premises. Money includes currency, bank notes, traveler's checks, and money orders. Securities include negotiable instruments and other written instruments or contracts representing money, such as tokens, tickets, and evidences of debt. Covered causes of loss are theft, disappearance, and destruction, subject to separate Inside the Premises and Outside the Premises limits.

Section I contains a number of exclusions, including earth movement, flood, and neglect. Other excluded causes of loss include loss of use, wear and tear, rust or decay, smog, and infestation by insects or animals. The policy also excludes losses resulting from errors or omissions in programming or storing electronic data, as well as errors in the design, installation, testing, maintenance, or repair of a computer system. In addition, damage caused by the continuous or repeated leakage of water that occurs over 14 or more days is excluded.

Losses resulting from the off-premises failure of power, communication, water, or other utility services are generally excluded. However, this exclusion does not apply to damage to computers or electronic data. Coverage for utility service interruptions may be added by endorsement.

  • The Utility Services – Direct Damage Endorsement covers direct physical loss to covered property caused by an interruption of water, communication, or power services resulting from direct physical damage to utility services property caused by a covered peril.
  • The Utility Services – Time Element Endorsement covers business income losses and extra expenses resulting from the same type of covered utility service interruption.

Section I limits of insurance may be written as scheduled limits or blanket limits. The Building limit automatically increases by 8% each year. To accommodate seasonal increases in inventory, the Business Personal Property limit automatically increases by 25% during the peak season.

The standard Businessowners Policy (BOP) deductible is $500, applied per occurrence at each insured location.

Covered losses under Section I are generally settled on a replacement cost basis, unless the insured elects an actual cash value (ACV) loss settlement option. The policy includes an Insurance to Value provision requiring property to be insured for at least 80% of its replacement value to avoid a penalty. Unlike many commercial property policies, the Businessowners Policy (BOP) does not contain a traditional coinsurance provision.

If a building has been vacant for more than 60 consecutive days before a loss, the insurer reduces the claim payment by 15%. In addition, the policy provides no coverage for losses caused by vandalism, sprinkler leakage (unless protected against freezing), building glass breakage, water damage, or theft.

The Protective Safeguards Endorsement adds a Section I condition requiring the insured to maintain specified protective safeguards. These may include an automatic sprinkler system, automatic fire alarm, or a security service with a watchperson. The endorsement primarily applies to fire protection and fire losses.

Section II provides liability coverages. Business Liability coverage pays damages the insured is legally obligated to pay because of bodily injury, property damage, or personal and advertising injury that occurs during the policy period and within the coverage territory. Medical Payments coverage pays reasonable medical expenses for others who sustain bodily injury from an accident on the insured's premises or arising out of the insured's operations. Payments are made regardless of fault, provided the expenses are incurred and reported within 1 year of the accident.

Most Section II – Business Liability exclusions are standard commercial liability exclusions. The policy excludes losses covered by other insurance, such as Workers' Compensation and Employers Liability. It also excludes criminal acts, damage to the insured's product or work, and expenses related to product recall.

Business Liability coverage excludes liability arising out of the ownership, maintenance, or use of an aircraft, auto, or watercraft, including damages that occur during loading or unloading. However, coverage for bodily injury or property damage arising from the use of hired autos or non-owned autos may be added through the Hired Auto and Non-owned Auto Liability Endorsement.

  • A hired auto is any auto the insured leases, hires, rents, or borrows, but does not include autos owned by employees, partners, or executive officers.
  • A non-owned auto is any auto the insured does not own, lease, hire, rent, or borrow, including autos owned by employees, partners, or executive officers when used in the insured's business.

The policy excludes certain personal and advertising injuries, including those arising from knowingly violating another person's rights, knowingly publishing false information, incorrect price descriptions in advertisements, and the failure of goods, products, or services to conform to advertised quality or performance statements.

The policy includes an exception to the liability exclusions for the insured's fire legal liability, providing coverage for property damage caused by fire to property rented by the insured, subject to a separate limit of insurance.

Medical Payments coverage does not apply to:

  • Any insured.
  • Any person hired by the insured or the insured's tenant.
  • Any person eligible for Workers' Compensation benefits.
  • Anyone injured while participating in physical exercise or athletic activities.

Volunteer workers are an exception and may receive Medical Payments coverage.

Under Section II, who qualifies as an insured depends on the designation of the named insured. In addition to the named insured, volunteer workers, employees, the named insured's real estate manager, and the named insured's legal representative are also considered insureds, as provided by the policy.

Section II includes the following limits of insurance:

  • Liability and Medical Expenses limit
  • Medical Expenses limit
  • Damage to Premises Rented to You limit
  • Products-Completed Operations Aggregate limit
  • General Aggregate limit

The Products-Completed Operations Aggregate limit and the General Aggregate limit are each equal to twice the Liability and Medical Expenses limit.

Section III contains the Common Policy Conditions. The insurer may examine and audit the insured's books and records during the policy period and for up to 3 years after it ends. The insurer also has the right, but not the obligation, to conduct inspections and surveys, which are not considered health or safety inspections. If other insurance also covers a loss, the Businessowners Policy (BOP) generally applies as excess insurance.