4/E - Commercial Package Policies Flashcards
Commercial Package Policies
A Commercial Package Policy (CPP) combines two or more lines of commercial insurance into a single insurance contract.
Benefits to policyholders
- Simplicity
a. One policy for all needs
b. One common dec page, one common
conditions page
c. Interline endorsements - Elimination of gaps in coverage
- Reduced premiums
Benefits to insurers:
- Less diverse selection of lines
- Customer loyalty strengthened
Representative Lines of Coverage
- Commercial property
- Commercial general liability
- Employment related liability
- Professional liability
- Commercial crime and employee dishonesty
- Commercial inland marine
- Business auto
- Boiler and machinery
- Equipment breakdown
Lines not available:
- Workers’ comp
- Health
- Life
- Disability
What is a BOP?
A Business Owner Package bundles property, liability, and income protection in a single package.
Insurance to value requirement
Not technically called “coinsurance,” but works in the same way:
- Policy pays RC if coverage is at least 80% of property’s value
- If coverage is less than 80% of property’s value, policy pays the higher of:
a. ACV
b. Replacement cost X (Amount of insurance/80% of property value)
Notice that this is the same as the coinsurance penalty equation:
(Insurance carried/Insurance needed to meet coinsurance requirement) X Amount of loss
BOP Overview
Features of the typical BOP:
- 12 months business income coverage
- 12 months extra expense coverage
- Inflation guard for buildings and structures
- Liability protection for lawsuits from accidents or products
- Slander and copyright protection
- Deductibles on most claims
- RC valuation
a. ACV endorsement option - Open-peril coverage
b. Named-peril endorsement option
Not typically included:
- Coverage for company owned vehicles
- Professional liability coverage
- Malpractice coverage
- Many insurers follow similar eligibility guidelines, but many write their own
- Adjusters must study each BOP carefully when investigating claims
BOP Eligibility
Eligibility is involved in these businesses:
- wholesalers and distributors
- processing and service businesses
- limited cooking and fast food restaurants
- convenience stores with or without gasoline
- self storage facilities
- specialty contractors
- motels
- apartment house & condominium association buildings
- office buildings
Wholesalers & Distributors
BOP qualifications
- Retail sales account for 25% or less of gross income
- 25% or less of floor space is available to general public
Processing & Servicing Businesses
BOP qualifications:
- Annual sales are under $3 million
- No more than 25% of sales occur off-premises
Limited Cooking, Convenience
Limited Cooking and Fast Food Restaurant BOP qualifications: - 7500 square feet or fewer - Max seating: a. Limited Cooking: 75 b. Fast Food: 150 - Beer and wine sales no more than 25% annual income - No liquor sales - Maintenance of fire extinguishing equipment
Convenience Store
BOP qualifications:
- Gasoline sales less than 75% annual income
- No auto repair or car wash
- No propane or kerosene sales
Self Storage Faciliity
BOP qualifications:
- Maximum of two stories (but floor space not limited)
- No storage of pollutants, waste, chemicals, industrial materials
Specialty Contractors
BOP qualifications:
- Annual payroll no more than $300,000
- Annual sales no more than $3,000,000
- Subcontracted work no more than 10% total sales
- No heavy construction
- No working on buildings over three stories
Motels
BOP qualifications:
- Maximum three floors
- No bars or cocktail lounges
- Not seasonal
- Not closed more than 30 days per year
Apartment Building and Condominium
BOP eligibility:
- Occupancy must be residential or office
- Incidental occupancy no more than 25,000 square feet
- Incidental occupancy by contractors not exceeding 7,500 sq ft or 15%
Note - Incidental occupants are businesses or offices
Office Building
BOP qualifications:
- Less than 100,000 sq ft
- No higher than six stories
- Tenants occupy no more than 25,000 sq ft
- Contractors occupy no more than 7,500 sq ft or 15% of total sq ft
Ineligible Businesses
Ineligible for a BOP:
- Car dealerships, service stations, repair shops
- Parking lots, garages
- Amusement parks
- Bars, nightclubs, and the like
- Banks and similar financial institutions
- Manufacturing, processing, servicing businesses (except those eligible)
- Condominium associations (except residential and office)
Note - No coverage for household personal property with BOP
BOP structure
- Section I - Property
a. Coverage A
b. Coverage B
c. Additional Coverage
d. Extensions to Coverage - Section II - Liability
a. Coverages - Section III - Common Policy Conditions
Coverage A: Buildings and Structures
- Buildings and structures on dec page
- Additions completed or under construction and construction materials
- Fixtures, equipment, machinery permanently installed
- Building maintenance equipment
- Flooring, floor coverings
- Heating, ventilating, refrigerating, cooking, washing equipment
- Outdoor fixtures
- Owner’s furniture in apartment rented as furnished
Coverage B: Business Personal Property
- Furniture belonging to the business
- Loose fixtures, machinery, office equipment, stock
- Other personal property owned and used by business
- Improvements made at a tenant’s own expense
- Leased business personal property that must be insured
- Business personal property in the open or in a vehicle 100 feet away
- Value of labor, service, materials arranged for others’ personal property
Coverage A and B Exclusions
- Currency, stock certificates, bullion
- Vehicles and aircraft that must be registered
- Watercraft while in water
- Contraband and property being illegally shipped or traded
- Land, water, lawns, crops
- Outdoor antennas unless under building extensions
- Trees and other plants unless under extensions
Property: Additional Coverage
Additional Coverage at no extra charge:
- Inflation guard
- Debris removal
- Preservation of property
- Fire department service
- Business income, extra expense
- Pollution cleanup
- Civil authority action
- Seasonal increase
- Electronic data, computer operation interruption
- Fire extinguisher recharge
- Fungi, rot, bacteria
- Business income from property dependent on it
- Increased construction costs
- Collapse
- Glass
- Forgery
- Counterfeit money
Inflation Guard, Debris, Preservation of Property, Fire Dept. Service Charge
Inflation Guard:
- Annually increases coverage for buildings automatically
Debris Removal:
- Pays for debris
- Pays if covered loss caused the debris
- Pays if debris is reported within 180 days from date of loss
Preservation of Property:
- For expense of protecting property from impending covered peril
Fire Department Service Charge:
- Covers charges for emergency services to protect property
- Requires no deductible
Income, Extra Expense, Pollution
Business Income coverage:
- Protects from loss of income caused by property damage
- Starts 72 hours after damage occurs
- Continues until normal business can resume, for up to 12 months
Extra Expense coverage:
- Pays to keep business going after property loss
- Begins immediately
- Provides up to 12 months’ coverage, or until business can operate
Pollution Cleanup and Removal:
- Covers pollution damage caused by loss from covered peril
- Indemnifies for cost to clean up pollutants from land or water
- Pays only if insurer is notified within 180 days of the loss
Electronic Data and Computer Operations Interruption
Electronic Data coverage:
- Indemnifies for replacing or repairing data destroyed by a covered peril
- Causes of loss can be viruses, harmful code
- Does not apply if an employee caused damage
Computer Operations Interruption:
- Covers income lost if computer stops working
- Covered causes include viruses and harmful code
- Does not cover damage caused by employees
Fire Extinguisher Recharge, Fungi, Rot and Bacteria Coverage
Fire Extinguisher Recharge coverage:
- Pays for accidental discharge, but not if during test or installation
Fungi, Rot, and Bacteria coverage:
- Is for specific perils only
- Pays cost of property tear-out and replacement
Contingent Business Interruption, Construction Costs
Business Income from Dependent Properties:
- Is also called Contingent Business Interruption
- Covers income lost when suppliers suffer damage affecting the insured
- Covers income lost when business’s customers suffer damage affecting the insured
Increased Cost of Construction:
- Is for cost of bringing property up to code after a covered loss
Collapse, Glass, Counterfeit Currency and Forgery
- Collapse coverage covers specific perils: not natural deterioration
- Glass Expense pays to board up broken windows, doors
- Counterfeit Currency coverage protects against good faith acceptance of faked money orders or cash
- Forgery or Alterations covers losses from forged checks
BOP Extensions
Business Owners Policies contain many eligibility factors, additional coverages, extensions, and other parts that can make examining claims quite challenging.
Newly Acquired or Constructed Buildings
- Coverage for 30 days
- Applies to:
a. New buildings under construction
b. Newly acquired properties off the insured premises
Personal Property Off-Premises
- For business personal property
- For property in transit
Personal Effects
- Covers personal property under the insured’s care, if damage is on insured property
- Does not cover theft
Outdoor Property
Examples of eligible property:
- Fences
- Satellite dishes
- Antennas
- Detached signs
- Trees, shrubs, and plants
Covered Causes of Loss
- Fire
- Lightning
- Explosion
- Riot or civil commotion
- Aircraft
Valuable Papers and Records
Covers the cost of replacing papers or computer records destroyed by a covered peril
Accounts Receivable
- Provides coverage for accounts the insured expects to collect, but cannot because of damage to account records by a covered peril
- Applies even if the records were off-premises at time of damage
Liability
Liability Coverage in a Business Owners Policy:
- Is provided on Occurrence Form basis
a. Occurrence Form: covers damages occurring during policy term, no matter when claim is filed - Covers liability for bodily injury and property damage from business operations and premises
- Covers product and operations liability
- Has aggregate limits like those in CGL
Liability Limits
Per Occurrence Limit:
- Typically $30,000, $500,000, $1 million, $2 million
- Applies per occurrence for bodily injury/physical damage
- Applies per person for personal/advertising injury
General Aggregate Limit: twice the per occurrence limit
Products-Completed Operations Aggregate Limit: twice the per occurrence limit
Damage to Premises Rented by You: usually starts at $50,000 per occurrence
Medical Payments: usually starts $5,000 per person
Possible Limits to Liability Claims
- Selected Per Occurrence Liability: $500,000
- General Aggregate: $1,000,000
- Products-Completed Operations: $1,000,000
- Per Occurrence (Liability and Medical Expenses): $500,000
- Per Person (Personal and Advertising Injury): $500,000
- Medical Payments Limit: $5,000
- Damages to Premises Rented by You: $50,000
Supplementary Payments
In conjunction with liability include:
- Costs for defending and investigating claims against insured
- Cost of bail bonds when accident involves a vehicle for which bodily injury applies
- Bail bonds to release attachments
- Costs taxed against the insured
- Prejudgment interest
- Interest accrued after judgment, before insurer pays
Liability Exclusions
- Injury caused by legal, medical, pharmacy services
- Expected or intentional injuries by insured, unless defensive
- Employee injuries
- Automobiles, aircraft, watercraft liability
- Contract, liquor, transportation of mobile equipment liability
- Pollutants, war, terrorist attack
- Property of insured, loaned to insured, or in insured’s care
- Property damage to insured’s work, products, data
- Product recall, work recall
Section III - Conditions:
- Cancellation/Non-renewal: Sets rights and duties of both insurer and insured if either cancels
- Changes to Policy: Changes must be made by endorsement with the agreement of both parties
- Concealment, Misrepresentation, Fraud: These void coverage
- Examination of Records: Insurer has right to inspect business records up to three years after policy expires.
- Inspections and Surveys: Insurer may inspect premises any time and recommend changes.
- Liberalization: Allows insured to be covered for no increased premium if insurer broadens coverage
- Premium Notices: Insured must pay all premiums and insurer will send notices to insured
- Premium Audit: Then at end of policy term, insurer audits actual exposure and calculates actual premium
- Transfer of Right of Recovery: Subrogation - insured transfers to the insurers the right to collect from third party
- Transfer of Your Rights Under This Policy: Insured cannot transfer rights to policy benefits to another person. If insured dies, rights can transfer to insured’s legal representative.
BOP Exclusions
A Business Owners Policy’s open-peril coverage means the insurer must prove any damage was excluded if a claim is denied
- Therefore, BOP exclusions are thorough
- An adjuster must examine exclusions with great care
Typical BOP Exclusions
- Dishonest, illegal or criminal acts by the insured
- Operations executed by the government or governmental authority
- Enforcement of ordinance or law
- War and military action
- Explosions of boilers and steam equipment
- Wear and tear, including deterioration
- Power failure
- Earthquakes
- Water damage by continuous leakage or seeping over a period of fourteen days or more
- Nuclear hazards
- Settling, shrinking, expansion or cracking of foundations, floors or ceilings
- Interruption or surge of artificially generated electric power supply
- Pollution
- Neglect of property
- Unexplained disappearance of property
BOP Endorsements
A business owner can add needed coverage by Endorsements.
Named-Peril Endorsement
Covered perils:
- Fire and lightning
- Windstorm and hail
- Explosions
- Smoke
- Aircraft or vehicles
- Riot or civil commotion
- Vandalism
- Sprinkler leakage
- Sinkhole collapse
- Volcanic action
- Transportation, if by
a. Collision, derailment, or overturn
b. Stranding or sinking of vessels
c. Collapse of bridges, docks, or piers
Outdoor Signs and Equipment Breakdown
Outdoor Signs Endorsement: provides open-peril coverage for signs unattached to building
Equipment Breakdown Endorsement: covers boilers, steamers, refrigeration systems, etc.
Spoilage, Burglary and Robbery, & Employee Dishonesty Endorsements
Spoilage Endorsement: covers perishable stock spoiled by refrigerator breakdown, contamination by refrigerants, or power loss
Burglary and Robbery: covers losses due to theft by burglars or robbers
Employee Dishonesty:
- Covers losses from theft by employees
- Applies up to year after policy expires
Protective Safeguards, and Ordinance or Law Endorsements
Protective Safeguards Endorsement:
- States that protective devices must be operating in order for coverage to apply
- Insured has 48 hours to notify insurer of problems with protective devices
Ordinance or Law Endorsement: indemnifies for extra expense of bringing damaged property up to current building and safety codes
Utility Services-Direct Damage and Utility Time Element Endorsements
Utility Services-Direct Damage Endorsement: covers losses caused by an interruption in utility services if provider is damaged
Utility Time Element Endorsement: covers lost business income and extra expenses due to loss of utilities
Hired Auto & Non-owned Auto Liability Endorsements
Hired Auto Liability Endorsement:
- Adds coverage for rented, leased, and borrowed vehicles
- Covers liability for accidents happening while on business
Non-owned Auto Liability Endorsement:
- Adds coverage for unowned vehicles when used for business
- Example: pizza delivery driver who uses his own car
