The Businessowners Policy (BOP) Property Provisions
Pollutant Cleanup Addition/Extension
$10,000 annual aggregate
Increased Cost of Construction Addition/Extension
$10,000 per business income from dependent properties
Electronic Data Addition/Extension
$10,000 per policy year, unless the declarations show a higher limit
Interruption of Computer Operations Addition/Extension
$10,000 per policy year, unless the declarations show a higher limit
Building coverage protects the buildings or structures identified in the declarations, including:
*Completed additions to the building *Fixtures (indoor and outdoor) *Permanently installed machinery and equipment *Owned personal property that services and maintains the building and premises *Additions to the building that are under construction, alterations, and repairs, to the building or structure, if they are not covered by other insurance *Materials, equipment, supplies, and temporary structures within 100 feet of the premises that are used to make the additions, alterations, or repairs to the building *Personal property in rented apartments, rooms, and common areas, furnished by the insured landlord
The BOP imposes a deductible of $500 per occurrence. Optional deductions of $250, $1,000, and $2,500 are also available. The policy does not impose a deductible for coverage on:
*business income *civil authority *extra expense *fire department service charge *fire extinguisher systems recharge expense
Promissory Note
A financial instrument used to provide an insurer with financial security necessary to implement a collateralized cash flow program, such as a retrospectively rated insurance plan. Promissory notes provide an insurer with status as a senior creditor rather than a general creditor.
Replacement cost coverage
A property insurance term that refers to one of the two valuation methods for establishing the value of most of the insured property for purposes of determining the amount the insurer will pay in the event of loss. It is usually defined in the policy as the cost to replace the damaged property with materials of like kind and quality, without any deduction for depreciation. See also Actual cash value.
Inflation Guard Provision
A provision that gradually and continuously increases the limit of insurance by a specified percentage over a specified time period (such as 3 percent every 3 months).
Increased Cost of Construction
BOP covers the increased costs incurred to comply with ordinances or laws regulating the construction or repair of buildings or the establishment of zoning or land use requirements. Each damaged building is covered for up to $10,000 on a replacement cost basis. Coverage for the demolition or increased construction costs must be added by endorsement.
Shawn's ice cream parlor gets most of its customers from the health club next door. What coverage, if any, in Shawn's policy would apply if a fire closes the health club?
Business income from dependent properties additional coverage would apply. (Business income from dependent properties coverage applies to loss of business income resulting from damage from a covered cause to property of another business on which the insured depends.)
Money Orders and Counterfeit Money
Coverage of $1,000 is provided for loss resulting from the insured having accepted counterfeit money or money orders.
Limits in the Additions and Extensions of Coverage
Dollar limits for certain coverage extensions and additional coverages are not sublimits; rather, they are additional amounts of insurance for:
Property Loss Conditions
In addition to the general loss conditions that apply to all coverages, the BOP includes conditions that apply specifically to property losses.
Which loss would a businessowners policy NOT cover?
Manufacturing error causing defective product (The BOP does not cover manufacturing errors that result in worthless or defective products. This kind of loss arises from a business risk, not a peril that property insurance covers.)
Personal Effects
Personal effects of the insured, the insured's employees, and the insured's partners and managers are covered, for up to $2,500 at each location. However, loss from theft is not covered. Coverage does not extend to tools and equipment used in the insured's business.
Property in Transit or Off Premises
Property in transit or temporarily away from the insured premises at locations that the insured does not own, lease, or operate is covered for up to $10,000. This extension does not apply to money and securities or valuable papers and records.
Fungus, Wet Rot, Dry Rot, Virus, and Bacteria Exclusion
So fungi, wet rot, or dry rot resulting from water used to extinguish a fire are covered. However, similar growth caused by a plumbing leak is not covered without additional coverage.
Peak Season Coverage
The BOP automatically increases the business personal property limit by 25 percent (unless the declarations show a different percentage) to accommodate seasonal variations in the insured's business.
Preservation of Property
The BOP covers any loss to that property during the move and for up to 30 days at its new location.
Utility Services Exclusion
The BOP does not cover loss resulting from electrical power failure or the failure of other utility services—such as water, Internet cable, telephone lines, satellite networks, cellular telephones, or other services—from a source away from the premises.
Product Errors Exclusion
The BOP does not cover manufacturing errors that result in worthless or defective products. This kind of loss arises from a business risk, not from a peril that property insurance covers.
Lara's businessowners policy has a $500,000 limit on her office building. It includes the 8 percent per year inflation guard. Six months after the policy takes effect, the building is destroyed by fire. What is the most that Lara can recover?
The BOP includes a built-in inflation guard that increases its coverage limit by 8 percent by the end of the policy period. Halfway through the one-year policy term, the limit on the building will be increased by one-half the 8 percent annual increase, which is 4 percent, or $20,000.
Glass Expenses
The policy covers the expense of putting up temporary plates or boarding up openings and the cost of removing or replacing obstructions to repair or replace damaged glass that is part of a building
Power Surges Exclusion
There is no coverage for power surges. However, if a power surge causes a fire, the loss from the fire is covered. Loss or damage to computers from a power surge or interruption, blackout, or brownout is covered if these events are caused by an occurrence within 100 feet of the insured premises.
Coverage Extensions
apply only if the policy already covers the category of property—buildings or business personal property—that is being extended. Each extension provides additional insurance.
Fire Department Service Charges
are covered up to $2,500, unless the declarations show a higher limit.
The Optional Coverage Deductible applies only to these optional coverages:
money and securities employee dishonesty outdoor signs forgery or alteration (2010 ISO edition)
Fire Department Service Charge Addition/Extension
$2,500 per occurrence, unless the declarations show a higher limit
Business personal property coverage protects property in the open or in a vehicle within 100 feet of the building, even if it is beyond 100 feet from the insured premises:
*Owned personal property used in the business *Personal property of others in the insured's care, custody, or control *Leased personal property that the insured is contractually responsible to insure *Tenant's improvements and betterments to the insured's property *Exterior building glass owned by or in the care, custody, or control of an insured tenant
Interruption of Computer Operations
Coverage applies to lost business income and extra expenses incurred from the interruption of computer operations by a covered cause of loss. Covered causes of loss for this additional coverage are the specified causes of loss (fire, lightning, explosion, etc.), collapse, and computer virus. An annual aggregate limit of $10,000 applies unless the declarations indicate a higher limit.
Accounts Receivable
Loss or damage by a covered cause of loss to the insured's accounts receivable records is covered for up to $10,000 per occurrence at the insured location, unless the declarations show a higher limit. This limit is $5,000 at other locations. There is no coverage if the loss arises from falsification of records or other wrongdoing, bookkeeping errors, or only from an audit or inventory computation.
Limits
The limits of insurance on buildings and business personal property are shown on the policy's declarations page. Although the declarations specify dollar limits of insurance, some provisions automatically increase the building limit to account for anticipated inflation. They also increase the business personal property limit to accommodate peak season exposure.
Property insurance policies commonly limit coverage as follows:
There is no coverage for damage by rain, snow, sleet, ice, sand, or dust to building interiors or personal property inside the building unless the damage is caused by thawing of snow or ice on the building or the roof or walls are first damaged by a covered cause. There is no coverage for loss to steam boilers, pipes, engines, and turbines, and loss to hot water boilers or other water heating equipment caused by the equipment. However, the loss is covered if gases or fuel exploded within the furnace, flues, or passages of a fired vessel. There is no coverage for missing property without evidence to show what happened to it. This limitation does not apply to the money and securities optional coverage. Under the false pretenses or voluntary parting exclusion, there is no coverage for property lost because it was willingly transferred to a person or place beyond the insured premises on the basis of unauthorized instructions. There is no coverage for breakage of fragile articles. However, lenses for cameras and scientific instruments, containers of property held for sale, or glass that is part of a building are covered. Theft coverage is limited to $2,500 for furs, jewelry (items worth at least $100), patterns, dies, molds, and forms. Animals are covered if they are the insured's stock (as in a pet store) while indoors or owned by others and boarded by the insured (as in a kennel or animal hospital). Loss or damage to the animal is covered only if the animal is killed or purposely destroyed (such as for public health reasons).
Limited Coverage for Fungi or Bacteria Additional Coverage
This additional coverage applies to loss from fungi, wet or dry rot, or bacteria that results from a specified cause of loss (other than fire and lightning). Subject to a $15,000 annual aggregate limit, it applies to direct physical loss; the cost of removing and replacing property to gain access to the fungi, wet or dry rot, or bacteria; and the cost to test for the presence of these after repairs. Business income and extra expense coverage applies for up to 30 additional days while repairs continue if a covered cause of loss otherthan fungi, rot, or bacteria forced the suspension of business and the fungi, rot, or bacteria prolonged the repairs. However, if the loss is due to fungi, rot, or bacteria, this coverage lasts for up to 30 days.
Outdoor Property
Up to $2,500 covers outdoor property such as trees, shrubs, plants, detached signs, fences, and antennas. A sublimit applies to individual trees, shrubs, and plants. Fire, lightning, explosion, riot and civil commotion, and aircraft are the only covered perils. Vandalism and windstorm, to which outdoor property can be especially susceptible, are not covered.
Vacancy
Vacancy for more than 60 consecutive days voids coverage for losses from vandalism, sprinkler leakage (unless the system has been protected against freezing), building glass breakage, theft, and attempted theft. Recovery for any other covered cause of loss is reduced by 15 percent.
Damage from Water, Liquids, Powder, or Molten Material
When a covered loss results from water, other liquids, powder, or molten material, the policy pays the cost to remove and replace part of the building to repair the system from which the substance escaped.
The businessowners policy that insures the apartment building Laurie owns includes building coverage but not business personal property coverage. Therefore, she does NOT have coverage for loss or damage to:
a tenant's furniture (The BOP's building coverage includes coverage for owned personal property used to maintain the premises and for personal property in common areas, but it does not include personal property owned by tenants.)
Business Income from Dependent Properties
coverage protects against lost business income arising from a covered cause of loss that damages another's business on which the insured depends. Its $5,000 can be increased in the declarations. If the only damage at the dependent property is to electronic data, no coverage applies. If both electronic data and other property are damaged, coverage ends when the other property is repaired or replaced.
Pollutant Cleanup and Removal
covered up to $10,000 if the pollution is caused by a covered cause of loss. Testing the land or water while removing pollutants is also covered. However, tests to determine the existence, concentration, or effects of the pollutants are not covered.
Alex's Diner is insured by an unendorsed businessowners policy. The policy's declarations page specifies limits for the building coverage and for the business personal property coverage. What kind of perils coverage does Alex have?
open perils coverage on both the building and personal property (Unless modified by endorsement, the property section of the ISO BOP provides open perils coverage on the buildings and business personal property.)
The property section of the BOP:
provides "all risks" coverage, covering all causes of loss except those that it specifically excludes.
Newly Acquired Property
provides temporary coverage of up to $250,000 per building for buildings under construction and newly acquired buildings. Temporary coverage of up to $100,000 per building. Coverage expires 30 days after a building is acquired or after construction begins on a building, when values are reported, or when the policy expires, whichever occurs first.
Limitations
reduce or restrict coverage in certain situations or with respect to certain kinds of covered property.
Forgery and Alteration
up to $2,500 from loss arising from forgery or alteration of a check, draft, promissory note, etc., issued by the insured or the insured's agent or by someone impersonating the insured or the insured's agent. A higher limit can be purchased.
The BOP does not cover:
*Money and securities *Illegal goods or goods illegally transported or traded *Aircraft, automobiles, and vehicles subject to motor vehicle registration *Watercraft while afloat *Computers that are permanently installed or designed to be permanently installed in aircraft, watercraft, or vehicles, unless held by the insured as stock *Land, water, growing crops, and lawns *Outdoor fences, antennas, detached signs, trees, shrubs, and plants (unless insured under coverage extensions and options) *Valuable papers and records and accounts receivable records (unless insured under coverage extensions) *Electronic data (unless insured by the electronic data additional coverage and the interruption of computer operations additional coverage) *Animals (except for those that the insured boards for others, or those that the insured holds as stock—in which case coverage applies if the animals are killed or must be destroyed)
The BOP valuation provision requires the limit of insurance to be at least 80 percent of the replacement cost of the covered property for the insured to recover the full replacement value of the property. If the limit of insurance is less than 80 percent, the insurer will pay the greater of:
*The actual cash value of the property or *A portion of the replacement cost equal to the ratio of the limit of insurance to 80 percent of the cost of repair or replacement
The BOP has four conditions that apply only to property coverage and are typically found in other property insurance forms:
*control of property *mortgage holders *no benefit to bailee *policy period and *coverage territory
The unendorsed BOP has four optional coverages that would otherwise be obtained by buying separate policies or endorsements:
*outdoor signs *mechanical breakdown ("equipment breakdown protection coverage" in the 2010 edition) *employee dishonesty *money and securities
Business Income and Extra Expense Coverage in the BOP
It covers the income lost from the slowing down or stopping of the insured's business activities, or from the uninhabitable conditions of any part of the described premises during the period of restoration. This additional coverage has no dollar limit and no coinsurance requirement. However, lost income is recovered for up to 12 months, and ordinary payroll coverage is limited to 60 days. The 60-day limit can be increased in the declarations. Coverage also applies to loss suffered for up to 30 days after repairs to all property—except finished stock—are complete. This period can be increased in the declarations. A 72-hour deductible applies.
Business Income and Extra Expense Exclusions
The BOP does not cover lost business income or extra expenses caused by a strike or "other persons." The other persons includes picketers or protesters who oppose the type of business that will be conducted in the building after it is repaired. The policy also does not cover losses resulting from the suspension or cancellation of a contract, lease, or license unless it is caused by a suspension of operations during the period of restoration.
Collapse Coverage
The BOP generally excludes coverage for the collapse of a building. However, a loss is covered under the policy's collapse additional coverage when a covered peril (such as fire) causes a loss from the collapse. This coverage also covers an abrupt collapse caused by one of the policy's specified perils.
Electronic Data
The BOP pays for the cost of replacing or restoring electronic data that has been destroyed or corrupted by a covered cause of loss, including a computer virus. An annual aggregate limit of $10,000 applies, unless the declarations show a higher limit. Electronic data integrated into a building to operate or control its operations (e.g., elevators, lighting, heating, and ventilation) is covered property.
Inflation Guard
The BOP's inflation guard provision automatically increases the building coverage limits by 8 percent annually unless the declarations specify a different percentage. It increases the limit by 1/365 of the applicable dollar amount every day.
Keri's business is protected by an unendorsed businessowners policy. A computer system controls access to the premises. The control system malfunctions, and burglars enter the building. How does the BOP respond?
The computers and data exclusion precludes coverage. (If electronic locks fail to prevent burglars from entering the premises, the loss from theft is not covered due to the computers and data exclusion. Theft is not a specified cause of loss in the BOP.)
Fire Extinguishing Systems Recharge Expense
The cost of recharging or replacing discharged fire extinguishing equipment is covered for up to $5,000, even if the discharge was accidental. This limit also applies to covered property destroyed or damaged by the accidental discharge. Loss from discharge during installation or testing is not covered.
Extra Expenses
This additional coverage pays the extra expenses incurred from damage that a covered cause inflicts upon property at the insured premises. The coverage avoids or minimizes the need to suspend operations. The coverage period is the time required for repairs, up to 12 months. Extra expense coverage is not subject to a limit.
Debris Removal
This coverage is limited to 25 percent of the direct damage loss, plus the deductible. If the property damage and debris removal loss together exhaust the limit of insurance, an additional $25,000 of debris removal coverage applies.
Business Personal Property Coverage
This coverage protects a business with customers' property on its premises for processing or service. Leased personal property that the insured is obligated to insure, such as a photocopy machine, is also covered. Despite the name of this coverage, some of the property it protects is not literally personal property.
Exclusions
eliminate coverage for almost any loss arising from the excluded cause or peril.
The BOP's specified causes of loss are:
fire, lightning, explosion, windstorm or hail, smoke, aircraft or vehicles, riot or civil commotion, vandalism, sprinkler leakage, sinkhole collapse, volcanic action, falling objects, weight of snow, ice or sleet, and water damage.
The BOP does not cover losses to certain computers and certain types of electronic data. However, it covers damage to these from a specified cause of loss:
fire, lightning, explosion, windstorm, or hail smoke aircraft or vehicles riot or civil commotion, vandalism sprinkler leakage sinkhole collapse, volcanic action, falling objects weight of snow, ice, or sleet water damage
Valuable Papers and Records
including the cost to research and restore information they contained when damaged by a covered cause of loss. Valuable papers and records stored away from the described premises are not covered. The coverage limit on valuable papers and records at the insured premises is $10,000, unless the declarations show a higher limit. The limit at other locations is $5,000.
Party Walls
is a shared wall that divides two adjoining buildings owned by different parties. Insurance issues arise when a party wall is damaged but only one of the building owners is able or willing to pay for its repair. The BOP provides that the insurer of the party who wants to repair the wall will pay the cost of doing so. The insurer may then subrogate its claim against the other owner or insurer
Collapse Exclusion
it covers collapse caused by building glass breakage, weight of rain on a roof, weight of people or personal property, or one of the usual specified causes of loss.
Order of Civil Authority
loss of business income and extra expenses incurred when access to the insured's premises is prohibited because of damage to property that is not on the insured's premises but is caused by a covered peril. A 72-hour deductible applies to lost income but not to extra expenses.
The declarations of the ISO BOP name two deductibles
the "Deductible" and the "Optional Coverage Deductible." The Deductible is the overall property coverage deductible.
