BuSInESSownERS PoLICY (BoP)

A businessowners policy (BOP) is a package policy specifically designed for small- to

medium-sized retail stores, office buildings, apartment buildings, and similar firms.
There are different BOP policies on the market today. In this section, we discuss the
BOP designed by the Insurance Services Office.18 The ISO form provides both
property and liability insurance in one policy. The following section discusses only
the property insurance coverages; the liability insurance coverages are discussed in the
following chapter.19
Eligible Business Firms
A BOP can be written to cover buildings and/or business personal property of the
owners of apartments and residential condominium associations; office and office
condominium associations; retail establishments; and eligible mercantile, service, or
processing firms such as appliance firms, beauty parlors, and photocopy services.
Businessowners policy coverage is also available for certain contractors,
“limitedcooking” restaurants, and convenience stores.20
Some business firms are ineligible for a BOP because the loss exposures are outside
those contemplated for the average small- to medium-sized firm. They include auto or
service stations; auto, motorcycle, or mobile home dealers; parking lots; certain bars;
places of amusement such as a bowling alley; and banks and financial institutions.
BOP Coverages
The current ISO version of the BOP is a special form that insures property on an open-
perils basis. The policy pays for direct physical loss or damage to covered property;
losses are covered except those losses specifically excluded. However, if desired,
named-perils coverage is available by an endorsement to the policy; then only those
perils named in the policy are covered.
The present BOP form is a self-contained policy that incorporates the property
coverages, liability coverages, and policy conditions into one contract. The following
discussion summarizes the basic characteristics of the property coverages in the ISO
form.
1. Buildings. The BOP covers the buildings that are described in the declarations,
including completed additions, fixtures and outdoor fixtures, and permanently
installed machinery and equipment. The building coverage also includes personal
property in apartments or rooms furnished by the named insured as a landlord, and
personal property owned by the named insured to maintain or service the premises,
such as fire-extinguishing equipment and refrigerating and dishwashing appliances.
The limit of insurance on the building is automatically increased each year by a stated
percentage shown in the declaration, in an attempt to keep pace with inflation.
2. Business personal property. Business personal property is also covered. It includes
property owned by the named insured used in the business; property of others in the
insured’s care, custody, and control; tenant’s improvements and betterments; and
leased personal property which the named insured has a contractual responsibility to
insure. The coverage extends to personal property located within 100 feet of the
premises or building, whichever is greater. Business personal property also includes
exterior building glass if the named insured is a tenant, and no limit of insurance is
shown in the declarations. The glass must be owned by the named insured or in the
insured’s care, custody, and control. A peak season provision provides for a temporary
increase of 25 percent of the amount of insurance when inventory values are at their
peak. In addition, business personal property at newly acquired locations is covered
for a maximum of $100,000 for 30 days at each premises. This provision provides
automatic protection until the BOP can be endorsed to cover the new location.
Business personal property in transit or temporarily away from the insured location is
covered up to a maximum of $10,000. 3. Covered causes of loss. The latest edition of
the BOP insures property against direct physical loss, which means that direct
physical losses are covered unless specifically excluded or limited in the form. The
BOP can also be issued on a named-perils basis by an endorsement. Covered causes of
loss include fire, lightning, explosion, windstorm or hail, smoke, aircraft or vehicles,
riot or civil commotion, vandalism, sprinkler leakage, sinkhole collapse, volcanic
action, and certain transportation perils. The named-perils endorsement also includes
an optional coverage for burglary and robbery. 4. Additional coverages. The BOP
includes several additional coverages that might be needed by the typical
businessowner:
■ Debris removal—up to $25,000
■ Preservation of covered property after a loss occurs
■ Fire department service charge—up to $2,500
■ Abrupt collapse ■ Water damage, other liquids, powder, or molten material damage
■ Business income, extended business income, and extra expense
■ Pollutant clean-up and removal—up to $10,000
■ Loss of business income and extra expense because of action by a civil authority
■ Money orders and counterfeit money ($1,000 maximum)
■ Forgery and alteration losses ($2,500 maximum)
■ Increased cost of construction because of an ordinance or law ($10,000 maximum
for each described building insured on a replacement cost basis)
■ Business income from dependent properties ($5,000 maximum)
■ Glass expenses incurred to put up temporary plates or board up openings if repair or
replacement of damaged glass is delayed
■ Fire extinguisher systems recharge expense ($5,000 maximum for any one
occurrence)
■ Replacing or restoring electronic data destroyed or corrupted by a covered cause of
loss ($10,000 maximum)
■ Interruption of computer operations ($10,000 maximum)
■ Limited coverage for “fungi,” and wet or dry rot ($15,000 maximum)
5. Optional coverages. The BOP provides several optional coverages to meet the
specialized needs of businessowners by payment of an additional premium:
■ Outdoor signs
■ Money and securities
■ Employee dishonesty
■ Equipment breakdown
6. Deductible. A standard deductible of $500 per occurrence applies to all property
coverages. Optional deductibles of $250, $1,000, and $2,500 are also available. The
deductible does not apply, however, to the fire department service charge, business
income losses, extra expenses, action by a civil authority, and the recharge expense for
a fire extinguisher system.
7. Business liability insurance. The businessowners policy also has business liability
coverage similar to the commercial general liability policy (CGL). The businessowner
is insured for bodily injury and property damage liability, and advertising and
personal injury liability. Medical expense insurance is also provided. Commercial
general liability insurance is discussed in Chapter 26.
Kimberly owns and operates a tennis shop in a resort area. The business is seasonal. A
large part of the annual revenues are due to sales in June, July, and August. Kimberly
keeps the shop open during the remaining months of the year, but the inventory
carried during those months is reduced. During the summer months, the amount of
inventory on hand is substantially increased. Kimberly has the business insured under
the special form businessowners policy (BOP) with no endorsements attached.
a. Assume you are a risk management consultant. Identify the major loss exposures
that Kimberly faces.
b. Assume that a covered loss occurs in July, which damages part of the inventory.
Does the BOP provide any protection for the increase in inventory during the summer
months? Explain your answer.
c. Kimberly plans to hire an additional employee during the summer months when
sales are increasing. She is concerned about possible employee theft and dishonesty.
Explain to Kimberly how this loss exposure can be handled under the BOP.
d. A fire damaged the building. As a result, Kimberly incurred a business income loss
because the business was closed for 3 months. Is this loss covered by the BOP?
Explain your answer.
e. Vandals broke an exterior glass window of the business, which caused substantial
damage to the building. Is this loss covered by the BOP? Explain your answer.