Businessowners Policy Features Flashcards
Businessowners Policy Features
Unlike the Commercial Package Policy, which was designed to accommodate the needs and exposures of larger businesses, the BOP contains features that are automatically included and better serve the needs and exposures of small to medium-sized businesses. Such features include:
The method of valuation on the building and business personal property is replacement cost, provided that at the time of the loss the limit of insurance on the lost or damaged property is 80% or more of the full replacement cost of the property.
The limit of insurance for the building automatically increases by an annual percentage shown in the Declarations. The increase is the building limit times the percentage of annual increase shown in the Declarations, divided by 365 (the amount of insurance applicable on any given day).
Business Income and Extra Expense coverages are automatically included, and the policy pays the actual loss sustained for up to 12 consecutive months during the “period of restoration” following a covered direct loss. The “period of restoration” begins 72 hours after the time of direct physical loss, and ends when repairs are completed or when business resumes at a new permanent location.
Eligible Risks
The Businessowners policy was designed for small to medium sized businesses that don’t engage in high-risk or highly specialized operations. Businesses that generate sales over $6 million or that occupy more than 35,000 square feet of space are ineligible, unless otherwise noted. Other requirements also apply. Each insurer will have specific eligibility requirements but most conform to certain standards. The types of businesses eligible for a BOP include:
Apartment Buildings – Apartment buildings of any size, including residential condominium associations.
Office Buildings – Office buildings that are occupied primarily for office purposes that do not exceed 6 stories in height or contain more than 100,000 square feet in total area.
Service or Processing – Service and processing businesses such as bakeries, laundromats, dry cleaners, funeral homes, and print shops.
Wholesalers – Buildings and business personal property for businesses operating as wholesalers provided that no more than 25% of annual gross sales are derived from retail operations, and no more than 25% of the total floor area is open to the public.
Contractors – Eligible contractors include, among others, the following as long as the total annual payroll does not exceed $300,000, and no more than 10% of total annual gross sales comes from subcontracted work.
Restaurants – Fast-food restaurants and others with limited cooking.
Motels – Buildings are limited to 3 stories in height; the motel may not be seasonal in its operation, and may not contain a bar or cocktail lounge.
Convenience Food/Gasoline Stores – The total annual gross receipts from the sale of gasoline must not exceed 75% of the total annual gross receipts. Auto service repair, car wash operations, and propane or kerosene tank filling operations are not allowed.
Self-storage Facilities – Buildings are limited to 2 stories in height. Cold storage or storage of industrial materials, chemicals, pollutants, and waste do not qualify.
Condominium Commercial Unit-Owners – Mercantile, wholesale, service or processing, and contracting occupancies.
Ineligible Risks
The following are ineligible risks:
Automobile repair and service stations
Automobile, mobile home, and motorcycle dealers
Parking lots or garages are ineligible, unless these operations are incidental to an otherwise eligible risk
Restaurants, bars, and grills are ineligible (unless they are fast-food restaurant or others with limited cooking)
Places of amusement
Manufacturers
Limits of Insurance
The most the policy will pay for loss or damage, in any one occurrence, is the applicable limit of insurance under Section I – Property, as shown in the Declarations. The most the policy will pay for damage to outdoor signs attached to the building is $1,000 per sign per occurrence.
The limit of insurance for Buildings will automatically increase by 8% unless a different percentage is shown in the Declarations.
An automatic seasonal increase applies to the limit of insurance for business personal property. If no percentage is shown on the declaration, the policy automatically provides a limit increase of 25% for seasonal fluctuations in value. This seasonal increase only applies if the limit shown for business personal property in the Declarations is at least 100% of the insured’s average monthly values during the 12 months immediately preceding the loss.
Deductibles
Once a loss exceeds the deductible shown in the Declarations, the policy pays the amount of the loss or damage in excess of the deductible, up to the applicable limit of insurance shown on the Declarations under Section I – Property. The standard deductible is $500 and the insured may choose a higher or lower deductible. Other special deductibles may apply to Optional Coverages, if any are chosen.
No deductible applies to the following Additional Coverages: Fire Department Service Charge, Business Income, Extra Expense, and Fire Extinguisher Recharge Systems.
Loss and General Conditions
The BOP will make loss payment, at the insurer’s option, in one of the following ways after a property loss:
Payment for the value of the lost or damaged property
Payment for the cost to repair or replace the lost or damaged property
Take all or part of the property at an agreed or appraised value
Repair, rebuild, or replace damaged property with property of like kind and quality
No loss payment will exceed the insured’s financial interest in covered property. Coverage is provided for a party wall, which is a wall that separates adjoining units or buildings owned by different parties. The insured is paid a proportion of the loss based on the insured’s proportion of the wall to the adjoining owner’s proportion of the wall. If the other owner does not repair his proportion of the wall, the insurance will pay for the entire wall and subrogate against the adjoining owner.
Loss settlement includes property valuation at replacement value for most types of covered property unless the declarations page shows loss settlement is on an actual cash value basis. Although a true coinsurance provision is NOT included in the BOP, an insurance-to-value provision is included. This means that in the event of a partial loss, if property is insured for less than 80% of its replacement value, a penalty will be applied to the loss payment.
Resumption of Operations – If the insured is able to use damaged or undamaged property to resume operations after a covered business income loss—and doesn’t do so—the policy will reduce the amount of the business income loss payment to the extent of the resumption of operations that should have been made.
The vacancy provision of the BOP is the same as that found in the commercial building and personal property coverage form.
If the insured is a tenant, the rented unit is considered vacant if it doesn’t contain enough personal property for the insured to conduct customary operations.
If the insured is a building owner or the general lessee of an entire building, the building is considered vacant if less than 31% of the building’s square footage is not rented to lessees, or used by the building owner, to conduct customary operations.
Buildings under construction or renovation are NOT vacant.
If the building where a loss occurs has been vacant for 60 or more consecutive days before a loss, NO coverage is provided for losses of the following types: vandalism, sprinkler leakage (unless the system was protected against freezing), building glass breakage, water damage, theft, or attempted theft.
Note: The vacant building doesn’t have to be the insured’s building; it can be the building where covered property is located at the time of loss.
If a loss caused by other perils occurs in or to a vacant building, a penalty of 15% will be applied to the loss payment.
Optional Coverages
If shown as applicable by an entry in the Declarations:
Outdoor Signs – This coverage provides insurance for direct physical loss (open perils) of, or damage to, all outdoor signs at the described premises.
Money and Securities – This coverage provides insurance for money and securities used in the insured’s business against theft, disappearance, or destruction while: at a bank or savings institution; within the living quarters of the insured, or the living quarters of partners, managers, or employees of the insured; at the described premises; or in transit between any of these places.
Employee Dishonesty – This coverage provides insurance for Business Personal Property, including money and securities, resulting from dishonest acts committed by any of the insured’s employees acting alone or in collusion with other persons.
Equipment Breakdown – This coverage provides insurance for equipment breakdown to pressure, mechanical, or electrical machinery and equipment owned by the insured or in the insured’s care, custody, or control, and at the described premises.
Section II - Liability Coverages
Business Liability
Section II addresses the liability coverages afforded by the policy. This section provides details of the liability and medical expenses coverages, exclusions, who is an insured, limits of insurance, liability general conditions, and definitions.
Liability coverage is provided for sums for which the insured becomes legally liable to pay as damages for bodily injury, property damage, or personal injury and advertising injury, including liability assumed under an insured contract.
Coverage applies to:
Bodily injury or property damage caused by an occurrence that takes place in the coverage territory during the policy period.
Personal injury and advertising injury caused by an offense arising out of the insured’s business, but only if the offense takes place in the coverage territory during the policy period.
Bodily injury includes damages claimed by any person or organization for care, loss of services, or death resulting at any time from the bodily injury.
The coverage also includes defense.
Coverage Extension – Supplementary Payments.
In addition to the limit of insurance for Section II – Liability, the insurer will pay:
All expenses incurred by the insurer.
Up to $250 for the cost of bail bonds, required because of accidents or traffic violations arising out of the use of any vehicle to which coverage for bodily injury applies.
The cost of bonds to release attachments, but only for bond amounts within the limit of insurance.
All reasonable expenses incurred by the insured, at the request of the insurer, including actual loss of earnings for up to $250 per day for time off work.
All costs taxed against the insured in a suit.
Prejudgment interest awarded against the insured on the part of any judgment.
All interest on the full amount of any judgment that accrues before the judgment is paid.
Medical Expenses
Covers necessary medical expenses for bodily injury, caused by an accident, occurring on the premises the insured owns or rents, or due to the insured’s operations. The accident must take place in the coverage territory and during the policy period.
The expenses must be incurred within 1 year of the date of the accident and payments are made regardless of fault. The insurer will pay reasonable expenses for:
First aid administered at the time of an accident
Necessary medical, surgical, x-ray, and dental services, including prosthetic devices
Exclusions
Exclusions Applicable to Business Liability Coverage:
Expected or Intentional Injury
Contractual Liability
Liquor Liability
Workers’ Compensation and Similar Laws
Employer’s Liability
Pollution
Aircraft, Auto, or Watercraft
Mobile Equipment – Transportation of mobile equipment
War
Professional Services
Damage to Insured’s Property
Damage to Insured’s Product
Damage to Insured’s Work
Damage to Impaired Property or Property Not Physically Injured
Recall of Products, Work, or Impaired Property
Personal and Advertising Injury – Caused by or at the direction of the insured with the knowledge that the act would violate the rights of others and inflict personal and advertising injury; knowledge of oral or written publication of material known to be false; offenses that took place before the beginning of the policy period; losses arising out of breach of contract, failure to conform to advertised quality, or the wrong price. Also excluded are injuries committed by an insured whose business is advertising, broadcasting, publishing, or telecasting.
Exclusions Applicable to Medical Expenses Coverage:
To any insured, except volunteer workers
To a person hired to do work for, or on behalf of, any insured or tenant of any insured
To any person, if benefits for the bodily injury are payable, or if benefits must be provided under Workers’ Compensation
To a person injured on that part of the premises the insured owns or rents and that the person normally occupies
To a person injured while taking part in athletics
To bodily injury incurred within the products/completed operations hazard
To bodily injury excluded under Business Liability Coverage
Due to war, including civil war, insurrection, rebellion, or revolution
Who is an Insured
Those that are designated in the Declarations as:
A sole proprietorship or Individual – Named insured and his/her spouse.
A partnership or joint venture – The named insured, members, partners, and their spouses.
A limited liability company – Named insured, members, and managers.
An organization other than a partnership, joint venture, or limited liability company. The named insured, executive officers and directors, and stockholders.
A trust – Named insured and its trustees with respect to trustee duties.
Each of the following is also an insured:
Volunteer workers, while performing duties related to the conduct of the insured’s business, and employees of the named insured.
Any person or organization, while acting as the named insured’s real estate manager.
Any person or organization having temporary custody of the named insured’s property, until a legal representative is appointed if the named insured dies.
The insured’s legal representative if the named insured dies. A party is an insured only with respect to the conduct of the insured business.
Liability and Medical Expenses Limits of Insurance
The Limits of Insurance shown in the Declarations, is the most the insurer will pay regardless of the number of insureds, claims made or suits brought, or persons or organizations making claims or bringing suits.
The Liability and Medical Expenses limit shown in the Declarations applies per occurrence for bodily injury, property damage, and medical expenses, and per person or organization for personal injury and advertising injury. The Medical Expenses limit shown in the Declarations is the most the insurer will pay for all medical expenses sustained by any one person.
The Damage to Premises Rented to You limit shown in the Declarations applies to damage arising out of any one fire or explosion for property damage caused to premises rented to the insured or temporarily occupied by the insured with the permission of the owner.
Two aggregate limits apply:
Products-completed operations aggregate – All claims for bodily injury, and property damage that occur during the policy period and fall within the products completed operations hazard; aggregate limit is twice the Liability and Medical Expenses limit shown in the Declarations.
General aggregate – All losses, except those that fall within the products-completed operations hazard, including medical expenses personal injury and advertising injury offenses committed; aggregate limit is twice the Liability and Medical Expenses limit shown in the Declarations.
The aggregate limits do not apply to losses that involve Damages to Premises Rented to You.
Liability and Medical Expenses General Conditions
Bankruptcy – Bankruptcy or insolvency of the insured does not relieve the insurer of its responsibilities under the policy.
Duties in the Event of Occurrence, Offense, Claim, or Suit – The insurer must be notified, as soon as practical, of an occurrence or an offense that may result in a claim.
Financial Responsibility Laws – When the policy is certified as proof of financial responsibility for the future under the provisions of any motor vehicle financial responsibility law, the insurance provided by the policy will comply with that law.
Legal Action Against the Insurer – No person or organization has a right under the policy to sue the insurer unless all terms of the policy have been fully complied with.
Separation of Insureds – Insurance applies as if each named insured were the only named insured, and separately to each insured against whom claim is made or suit is brought.
Liability and Medical Expenses Definitions
Section II – Liability of the Businessowners Coverage Form contains a list of definitions that clarify policy language. The definitions in this section are similar to those found in the CGL and CPP. It’s important to remember that the definition of “your product” includes:
Warranties and representations relating to the fitness of the product
Warnings and instructions for safe use of the product
Containers for the product
Section III – Common Policy Conditions
Cancellation
The First Named Insured shown in the Declarations may cancel this policy by mailing or delivering to the insurer advance written notice of cancellation. The insurer may cancel the policy by mailing or delivering to the first Named Insured written notice of cancellation at least:
5 days before the effective date of cancellation if any of the following conditions exists.
The building has been vacant or unoccupied 60 or more consecutive days.
After damage by a covered cause of loss, if permanent repairs to the building:
Have not started, and
Have not been contracted for within 30 days of initial payment of loss.
10 days before the date of cancellation if the insurer cancels for non-payment of premium.
30 days before the date of cancellation if the insurer cancels for any other reason.
Notice must be mailed to the last known mailing address. All requirements of notice as contained in the policy may be superseded by state law.
Section III – Common Policy Conditions (continued)
Changes – The First Named Insured shown in the Declarations is authorized to make policy changes with the insurer’s consent and only by written endorsement issued by the insurer.
Concealment, Misrepresentation and Fraud – Policy is void in any case of fraud by the insured as it relates to the policy.
Examination of Your Books and Records – Insurer may examine and audit the books and records as they relate to the policy during the policy period and up to 3 years afterward.
Inspection and Surveys – The insurer has the right, but is not obligated, to make inspections and surveys at any time. Inspections and surveys don’t warrant that conditions are safe or comply with law.
Insurance under Two or More Coverages – If two or more insurance policies apply to the same loss or damage, the policy will not pay more than the actual amount of loss.
Liberalization – If the insurer adopts any revision that would broaden coverage under the policy without additional premium within 45 days prior to, or during, the policy period, the broadened coverage will immediately apply to the policy.
Other Insurance
If there is other insurance in place to cover the same loss or damage, the insurer will only pay for the amount of covered loss or damage in excess of the amount due from that other insurance.
Business Liability Coverage is excess over any other insurance that insures for direct physical loss or damage.
Premiums – The first Named Insured shown in the Declarations:
Is responsible for the payment of all premiums; and
Will be the payee for any return premiums insurer pays.
Transfer of Rights of Recovery Against Others to Us – If any person or organization for whom the insurer makes payment under the policy has rights to recover damages from another, those rights are transferred to insurer to the extent of insurer’s payment.
Transfer of Your Rights and Duties under this Policy – Insured’s rights and duties under this policy may not be transferred without insurer’s written consent, except in the case of death of an individual Named Insured.
Property Endorsements
Earthquake Endorsement (BP 10 03)
This endorsement, when added to the policy, extends coverage to include earthquake and volcanic eruption losses. The coverage continues for up to 168 hours after policy expiration if an earthquake or volcanic eruption began before the policy expired.
Protective Safeguards Endorsement (BP 04 03)
This endorsement specifies that the insured is required to maintain the protective safeguards listed in this endorsement (i.e. automatic sprinkler systems, automatic fire alarms, and/or security services). The policy will not pay for loss or damage caused by fire if the insured had prior knowledge that the safeguards were suspended or impaired and failed to notify the insurer, or failed to maintain any protective device in working order. The insured must notify the insurer if the automatic sprinkler system is off for more than 48 hours.
Named Perils Endorsement (BP 10 09)
This endorsement provides named perils coverage in lieu of the open perils coverage that is provided automatically by the Businessowners Coverage Form. The endorsement limits coverage to 12 listed causes of loss.
Hired Auto and Non-Owned Auto Liability Endorsement (BP 04 04)
The Hired and Non-owned Auto Liability endorsement is added to the BOP to provide business auto coverage when the insured business doesn’t own autos. This endorsement extends the BOP’s business liability coverage for bodily injury and property damage for:
The maintenance or use of a hired auto by the insured, or its employees, in the insured’s business, and the use of any non-owned auto in the insured’s business by any person.
The endorsement amends certain exclusions in the BOP with respect to liability. Specifically, it removes some exclusions and replaces them with others. Essentially, this endorsement adds business auto coverage to the BOP, but only for vehicles the insured hires, leases, rents, borrows, and doesn’t own.
Hired auto liability coverage applies to autos leased, hired, or borrowed by the named insured, such as the rental of a vehicle while traveling on company business.
Non-owned auto liability coverage applies only to those non-owned autos used by persons other than the named insured in the course of the named insured’s business. An example of a non-owned auto is an employee using their personal car to go pick up the mail or office supplies on behalf of the named insured’s business.
The Utility Services – Direct Damage Endorsement (BP 04 56)
This provides coverage at the limits of liability shown on the endorsement if the interruption of water, communication, or power supply services causes a direct loss to covered property. Of course, damage must be caused by a covered peril. No coverage is provided under this endorsement for loss to electronic data.
The Utility Services – Time Element Endorsement (BP 04 57)
This provides coverage at the limits of liability shown on the endorsement for loss of Business Income or Extra Expenses if the interruption of water supply services, communication, or power causes a direct loss to covered property. Of course, damage must be caused by a covered peril. No coverage is provided under this endorsement for loss to electronic data.
Medical expenses for bodily injury caused by an accident on the insured’s premises or due to the insured’s operations must be incurred within one year of the date of the accident.
Medical expenses incurred and reported to the insurer within 1 year of the date of the accident are covered, regardless of fault, by the BOP.
