8 Businessowners P olicy (BOP)
O h i o P r o p e r t y a n d C a s u a l t y I n s u r a n c e Businessowners Policy (BOP) Insurance companies have identified the six types of businesses that have been the most profitable to insure over the years. They designed the BOP as a package policy specifically for these types of businesses. The Businessowners Policy (BOP) is a package policy specially designed for limited cooking and fast food restaurants, convenience stores with or without gasoline pumps, service or processing businesses, small office buildings, apartment buildings, and retail stores. Casual and Fine Dining Restaurants may be eligible depending on individual company underwriting guidelines. These restaurants can seat up to 150 and beer, wine and alcohol sales can be no more then 50% of the total sales. Like all package policies, the BOP must contain at least two coverage sections Property and Liability. However, like the CPP, many optional coverage sections are available. So, the CPP is a package policy designed for large businesses. The BOP is a package policy designed for the smaller business. Eligible apartment houses include those that do not exceed six stories and have 60 units or less. Office buildings may not have more than 100,000 square feet. Retail or service businesses may not have more than 35,000 square feet and/or gross annual sales in excess of $6,000,000. Fast Food Restaurants may not have more then 7500 square feet of floor area and sitting capacity may not exceed 75. Beer and wine sales may not exceed 25% of receipts and no other liquor can be served. Residential or office condominium associations are also eligible, as are processing-type businesses. Taverns, auto dealers, repair shops, banks, contractors, and manufacturing risks are not eligible. Both Property and Liability coverage is included in the BOP, but the insured need not own the building. In fact, most BOPs are purchased by tenants in small office buildings or small retail shopping centers. For Example A client owns a small office building. As owner, he might purchase a BOP to cover it in case of fire, etc. Of course, his BOP would also cover his business liability in the event someone sued him due to an injury sustained on his premises. However, tenants are also eligible for a BOP. Even though they do not own the building, they still need to insure the business personal property located in the space leased from the owner, and they still need Liability coverage in case someone is injured in the space they occupy. The Property coverage on a BOP is very similar to the Property coverage on a CPP, which we have already discussed. The Liability coverage on a BOP is also very similar to the Liability coverage on a CGL. 134 BOP Common Policy Conditions Form Regardless of the type of business, the BOP contains conditions similar to those found in other Commercial Insurance contracts. Inflation Guard is automatic on the BOP. At renewal, the limit of insurance on the building, if covered, will automatically increase by 8%, unless a different percentage was selected by the insured on the declarations page. The policy limit on business personal property is automatically increased by 25% to provide for seasonal variations. This eliminates the need for the peak season endorsement found on the CPP.
B u s i n e s s o w n e r s 8 P o l i c y Claims Settlement on the BOP is on a replacement cost basis, without deduction for depreciation if the building and/or contents are insured for at least 80% of the cost to replace the property. This co-insurance requirement is standard on both BOP Forms. The Vacancy condition in the BOP states that if the building has been vacant for more than 60 days, there is no coverage for loss by vandalism, sprinkler leakage, glass breakage, water damage, or theft. Vacancy in the CPP and BOP is defined as follows: If the policy is issued to a tenant, the building is considered vacant when it does not contain enough business personal property to conduct customary operations. However, when the policy is issued to the owner, the building is considered vacant when 69% or more of its total square footage is not rented or is not used to conduct customary operations. Buildings under construction or renovation are not considered vacant. The standard deductible on a BOP is $500 per occurrence. The deductible may not apply to some additional coverages. Higher deductibles may be written with a reduction in premium. When two building owners share the same wall and desire to repair or rebuild it, each company will pay its insured s proportional share of the damage to the party wall. However, if the named insured wants to rebuild and the other party does not, the insurer pays the full value of the party wall and has the right to subrogate against the adjoining building owner. BOP Property Coverage Forms (Standard and Special) The BOP is available in an All Risk Form (the Special BOP), or a Named Peril Form (the Standard BOP). Both Forms provide Property coverage for the building (Coverage A) and/or business personal property (Coverage B), including property in or on the described premises, in a vehicle, or in the open within 100 feet of the described premises. A limit of insurance must be shown in the declarations for each type of property to be covered. Property Exclusions on the Businessowners are the same as we discussed in commercial property insurance, such as no coverage for money, securities, animals (except a pet store, kennel, or veterinarian whereby the animals are considered to be stock or the property of others ), automobiles, growing crops, boats and airplanes. The Standard BOP covers fire, lightning, extended coverage, vandalism, sprinkler leakage, sinkhole collapse, volcanic action, and the peril of transportation (loss to business personal property in transit due to collision, derailment, or sinking of vessels). These causes of loss are similar to those covered in the Commercial Property Basic Cause of Loss Form. The Special BOP is All Risk, which covers everything except what is excluded. Theft of business personal property is covered, since the All Risk coverage applies to both the building and the contents. However, the Special BOP limits theft coverage to furs, jewelry, and watches to a maximum of $2,500. The standard exclusions of flood, war, earthquake, off premises power interruption, ordinance and law costs, intentional acts and neglect apply to both Forms. The All Risk Special BOP will also exclude wear and tear, deterioration, rust, dry rot, industrial smoke, pollutants, mechanical breakdown, settling, shrinking, expansion, vermin, rodents, insects, domestic animals, & mold. Additional coverages provided at no extra premium charge on both the Standard and the Special Bop are as follows: Debris Removal: Both BOP Property coverage forms provide additional coverage for debris removal. The most the insurer pays for debris removal is 25% of the amount paid for the direct loss (such as a fire). If the amount of the direct loss plus the amount payable for debris removal exceeds the policy limit, then only an additional $10,000 is available. 135
O h i o P r o p e r t y a n d C a s u a l t y I n s u r a n c e 136 Pollution Cleanup: If a covered loss causes the discharge of pollutants, the BOP pays up to $10,000 of the expense of extracting these pollutants from land or water at the described premises. Ordinance & Law: $10,000 is available for the increased cost of construction due to building ordinances or law. Fire Department Service Charge: $2,500. Removal to Protect: 30 days All Risk coverage for removal of property to protect it further damage is provided by both BOP Forms. Business Income and Extra Expense are included without any maximum policy limit. In other words, 100% of the loss of business income and 100% of the extra expenses incurred after a loss to minimize suspension of operations is covered up to 12 consecutive months after the loss. Even if the policy was set to expire in the meantime. There is a 72 hour waiting period after a loss before coverage begins. Civil Authority pays for the insured s loss of income, if the actions of civil authorities prohibit access to the insured s premises when property other than at the insured s premises is damaged by an insured peril. This coverage begins 72 hours after the action by the civil authority and is available for up to four consecutive weeks. Extra expense is not subject to the waiting period and ends after four weeks or when the civil authority business income ends, whichever is later. Collapse applies to specified causes of loss resulting in an abrupt collapse or cave-in of a structure or a part of a structure. The collapse must be such that the building cannot be used as intended. Examples of specified causes of loss include fire, lightning, explosion, windstorm or hail, smoke, aircraft or vehicles, riot or civil commotion, vandalism, sinkhole collapse, decay, insect or vermin damage that is hidden from view (unless the presence of such damage is known prior to collapse), weight of people or personal property, weight of rain that collects on a roof, use of defective materials or methods in construction, and remodeling or renovation if the collapse occurs during the course of construction. Collapse caused by the sheer age or deterioration of a building is not covered. This additional coverage does not apply to the Named Perils Endorsement Form (referred to later in this chapter) used to change the coverage from open peril to named peril coverage. The collapse coverage is only found in the Special Perils Form. The coverage does not apply to a building or any part of a building that is in danger of caving in or falling down but has not yet done so. It also does not apply to a part of the building that has separated from another part of a building but remains standing, to a standing building, or to a building part that can be proved to be leaning, settling, shrinking, expanding, bulging, cracking, sagging, or bending. Six extensions of coverage are available on both Forms at no extra premium charge as long as the insured maintains the 80% insurance to value required by the co-insurance condition. 1. Newly Acquired Business Property: Business property at a newly acquired location is automatically covered up to 30 days with a limit of $250,000 for buildings and $100,000 for contents. 2. Business property off the premises (except for money or securities) is also covered up to $10,000. 3. Outdoor property, such as unattached signs, fences, antennas, trees, shrubs, and plants is covered for certain specified perils up to a maximum per loss of $2,500. However, the insurer does not pay more than $1,000 for loss to any one tree, shrub, or plant. 4. Valuable Papers and Records: $10,000 coverage is provided for the cost of replacing lost information contained on valuable papers or records, including those stored on electronic media. Money is not covered. 5. Accounts Receivable: $10,000 for the reconstruction of accounts receivable records. 6. Attached Signs: $1,000 for signs attached to the building.
B u s i n e s s o w n e r s 8 P o l i c y BOP Liability Coverage Form The Liability coverage provided by the BOP is very similar to that provided by the Commercial General Liability (CGL) policy. Generally, no deductible applies. The BOP Liability Coverage Form covers the legal liability of the insured for bodily injury and/ or property damage and personal/advertising injury. Fire Legal Liability (Damage to Premises Rented to You) is also covered up to the specified limit as shown in the declarations. Policy limits are standardized, with most insurers offering a minimum of $300,000 per occurrence. Medical Payment to Others is also included. Liability coverage is provided for the named insured, business partners, corporate officers, and employees with respect to their activities as employees. The declarations show three separate limits of liability which are: 1. Occurrence Limits for BI and PD and personal and advertising injury liability. 2. Medical Payments to Others, on a per person basis. 3. Fire Legal Liability (Damage to Premises Rented to you), which applies on a per fire basis. However, the per occurrence policy limits shown on the declarations page are also subject to aggregate limits as well. The aggregate limit is the most the policy will pay out for all claims during the policy period. There will be a general aggregate and a products/completed operations aggregate similar to the CGL. These two aggregate limits on a BOP are always twice the selected occurrence limit. For Example The liability coverage on a BOP is written at $1,000,000 BI and PD per occurrence. But the aggregate limit for all BI and PD claims during the year is twice the occurrence limit, which means that once the insurer has paid out $2,000,000 (no matter how many claims were involved), the aggregate (total) policy limit has been exhausted for the one-year policy period. At renewal, the aggregate limit starts over. This policy form does not cover: Liquor liability Workers Compensation Pollution liability Liability for failure to render professional services Property damage liability to the insured s own property Property of others in the insured s care, custody, or control Cost of a recall or loss of income relating to a recall of the insured s products. Supplementary payments in addition to the policy limits, such as the cost of bonds, loss of earnings up to $250 per day and accrued interest on judgments are also included. Selected BOP Endorsements If needed, the insured may add several optional coverages to the BOP. Of course, these optional coverages must be listed on the declarations page and an additional premium paid. These optional coverages include coverage for outdoor signs, glass, employee theft, and equipment breakdown. 137
O h i o P r o p e r t y a n d C a s u a l t y I n s u r a n c e In addition, clients purchasing the Standard Form BOP (which does not include theft) may add optional crime coverage for burglary and robbery only. The Special Form is all-risk and the crime perils studied in the previous chapter are not excluded however money and securities are still not covered. Clients needing crime coverage for money and securities may purchase this coverage as an option, but only on the Special Form. Hired Auto and Non-Owned Auto Liability: Although liability for the operation of owned autos is excluded on the BOP, Hired Auto and Non-owned Auto Liability coverage may be added by endorsement for an additional premium Hired autos include all autos the insured leases, hires, rents, or borrows, but not autos owned by employees, partners, or members of their households. Non-owned autos include all autos the insured does not own, lease, hire, or borrow that are used in connection with the business, including autos owned by employees, partners, and members of their households, while being used in the business of the insured. Protective Safeguards: This endorsement requires the business owner to maintain protective safeguards, such as burglar alarms or sprinkler systems, in order to receive a credit on the premium. The endorsement requires that the business owner notify the insurance company within 48 hours if the system is not working. Utility Services Direct Loss: This endorsement covers property damage loss to scheduled property caused by the interruption of an outside utility, such as power, communication, or water services. Utility Services Indirect Loss: This endorsement is similar to the Utilities Services Direct Loss endorsement except that it covers the loss of business income and extra expense incurred after an interruption in utility services. 138