12. Business Owners' Policy
Which of the following businesses would be covered by a businessowners (BOP) policy? A) State Street Savings Bank. B) Hank's Hot Rods. C) Balderston's Rare Books. D) Johnny's Tavern.
Answer: C The BOP does not cover businesses related to autos, bars, and banks.
Bob buys a bicycle from Paul's bicycle shop. When he gets the bike home and is riding it, the brakes fail and Bob is injured. Bob sues Paul's bicycle shop. Where would Paul find coverage for this loss in his businessowners policy? A) Products and completed operations. B) Premises and operations. C) Advertising and personal injury. D) None of the above.
Answer: A This would be a products loss because the product is off the insured premises. Coverage for products requires that products be in the possession of others and away from the premises.
Ted's shop has a replacement cost of $250,000, and his contents have a replacement cost of $90,000. Ted purchases $100,000 of insurance for building coverage and $75,000 of insurance contents coverage under an unendorsed BOP. Ted sustains a loss by fire that causes $20,000 damage to the building and $5,000 damage to the contents. How much will his policy pay? A) $20,000.00 B) $25,000.00 C) $15,000.00 D) $5,000.00
Answer: C Fire is a covered cause of loss. However, Ted's policy will only pay for half of the building loss, as he did not purchase 80% of the replacement cost to obtain replacement coverage. The coinsurance clause required $200,000 on the building. As Ted only had half that amount, his loss would be limited to 50%, or $10,000. The contents will be covered in full.
The businessowners policy form provides protection to buildings, business personal property, or both on a replacement cost basis provided at least 80% insurance-to-value is maintained. If the limit of insurance is less than 80% of replacement, how will the loss be settled? A) Losses will be paid on an ACV basis. B) Losses will be paid on a proportionate share basis. C) Losses will be paid on either an ACV or proportionate share basis, whichever is greater. D) Losses will still be paid on a replacement cost basis, because that is how a businessowners policy is written.
Answer: C If the limit of insurance is less than 80% of replacement cost, losses will be paid on either an ACV or proportionate share basis, whichever is greater. The coinsurance penalty would apply.
The unendorsed businessowners liability coverage excludes: A) personal and advertising injury liability. B) bodily injury liability. C) auto liability. D) products liability.
Answer: C While the unendorsed businessowners policy excludes coverage for auto liability, coverage for nonowned and hired autos may be added by endorsement.
Ted's TV store goes out of business, and the building becomes vacant for 90 days. Lightning strikes the building and causes a fire, resulting in $60,000 of damage. How much will Ted's policy pay, assuming he has enough insurance? A) $51,000.00 B) $60,000.00 C) $54,000.00 D) Nothing because the building has been vacant for more than 60 days.
Answer: A After a building has been vacant for more than 60 days, losses are reduced by 15%.
Pete owns a building that is covered by a businessowners policy. The store has been vacant for 55 days and sustains vandalism damage in the amount of $5,000. The policy limit is $60,000. How much will the policy pay? A) $0.00 B) $4,250.00 C) $6,000.00 D) $5,000.00
Answer: D After a building has been vacant for more than 60 days, the insurer will not cover any loss caused by vandalism or sprinkler leakage. All other losses are reduced by 15%. The deductible also applies. Because the vacancy was less than 60 days, vandalism damage is covered.
All of the following are optional property coverages under the businessowners policy EXCEPT: A) money and securities. B) outdoor signs. C) mechanical breakdown. D) personal property off premises.
Answer: D Personal property off premises is automatically provided as an extension of coverage under the businessowners policy.
Which of the following statements about the businessowners policy (BOP) is NOT correct? A) The BOP is a self-contained contract. B) The BOP is an open-perils policy. C) The BOP is designed for businesses that represent relatively low hazards. D) An insured selects each coverage provided under the BOP.
Answer: D The Businessowners policy prepackages a group of coverages desirable to small businesses.
The property coverage in the businessowners policy would cover losses due to all of the following perils EXCEPT: A) riot. B) off-site power failure. C) fire. D) vandalism.
Answer: B Property coverage in the unendorsed BOP is provided on an open peril (special form) basis. Loss due to off-site power failure is specifically excluded under the policy.
Which one of the following businesses would be eligible for a businessowners policy? A) Manufacturing facility. B) Motel with two floors. C) Public parking garage. D) Neighborhood bar.
Answer: B The BOP does not cover parking garages, bars, or manufacturing operations. Motels that do not exceed three stories and meet other eligibility requirements may be covered under a BOP.
Ted's TV shop, which is covered by a businessowners policy, sustains a fire loss and $50,000 in builidng and $25,000 in content damages are incurred. In addition, a customer and an employee are also injured in the fire. Medical payments for their injuries amount to $2,000 for the injured customer and $3,000 for the injured worker. Ted's business income is $5,000 per month, but he is unable to conduct any business for 60 days as a result of the fire. Assuming Ted has adequate limits to cover this loss, how much will his policy pay? A) $75,000.00 B) $87,000.00 C) $90,000.00 D) $77,000.00
Answer: B The injured worker is covered by workers' compensation, not the businessowners policy. Assuming that Ted's policy limits are adequate, the calculation is $50,000 (building) + $25,000 (contents) + $10,000 (business income) + $2,000 (injured customer's injuries) = $87,000.
Ted's TV shop employees are installing a TV at Mandy's home. While doing so they drop the TV causing damage to the TV in the amount of $250. They also damage the floor and wall in the amount of $700. What will Ted's BOP policy pay assuming his limits are adequate? A) Nothing. B) $700.00 C) $250.00 D) $950.00
Answer: B The liability section would pay for damage to the floor and wall. The TV would have no coverage as it is in the care, custody and control of Ted's TV employees.
Ted's TV shop has a fire loss and the following losses occur: damage to the building $150,000, business personal property $20,000, debris removal $15,000. How much will his policy pay assuming he has adequate limits? A) $170,000 B) $185,000.00 C) $180,000.00 D) $150,000.00
Answer: C Debris removal is limited to $10,000, and the other losses are covered in full.
All of the following risk exposures are covered by the liability section of the businessowners policy EXCEPT: A) product liability. B) personal and advertising injury. C) employers liability. D) premises liability.
Answer: C The liability section of the businessowners policy excludes coverage for employer's liability, as do almost all general liability coverage forms. This exposure is better covered by a workers compensation policy.
Mary is a customer at Bob's bait shop, which is covered by a businessowners policy. Bob's auto strikes her when she is leaving the store parking lot. Mary has medical payments expenses of $450. Bob will find coverage in: A) Bob's businessowners policy under bodily injury and medical payments. B) under Bob's businessowners policy if he purchased hired and nonowned auto coverage. C) The businessowners policy does not cover this type of loss. D) Bob's businessowners policy under bodily injury.
Answer: C The medical payments section of the businessowners policy does not cover medical expenses arising out of automobile accidents.
John is thinking about buying a new bicycle. While test-driving a 10-speed bicycle at Paul's bike shop, John was thrown from the bike after the front wheel came off. He is awarded $55,000 for bodily injury as the court found Paul's shop negligent in not closing the quick-release lever. Paul has $600 in lost earnings for the 2 days he had to be in court. What would his policy pay assuming he has enough insurance? A) $55,250.00 B) $55,600.00 C) $55,500.00 D) $55,000.00
Answer: C This policy would pay for the bodily injury to John up to policy limit, but there is a $250 per day limitation on loss of earnings. Paul would receive $500 for his loss of earnings.
Recently the local utility company's main power supply depot was damaged by high winds. Ted, who owns a TV store, wants to make sure he has coverage for damage to all the TV components demonstrated in his store if the power goes out. What does Ted need to purchase? A) Utility Service--Time Element Coverage. B) Utility Services Coverage. C) Nothing, as these utility services are covered in all businessowners policies. D) Utility Services--Direct Damage Coverage.
Answer: D Ted should purchase the coverage for property damage to cover loss of or damage to covered property described in the schedule caused by direct physical loss or damage to off-premises properties providing water, communications, and power supply services and overhead transmission and overhead communications lines.
The businessowners policy covers collapse of a building if the collapse is caused by any of the following EXCEPT: A) hidden decay. B) vermin damage. C) weight of rain. D) flood.
Answer: D The businessowners policy covers collapse of a building if the collapse is caused by any of specified causes of loss stated in the policy, hidden decay, hidden insect or vermin damage, weight of people or property, weight of rain, or use of defective materials.
Bill is hurt while he is a customer at Sue's flower shop, which is covered by a businessowners policy. He is awarded $50,000 for bodily injury. He also has incurred $2,000 for medical expenses for the first year after the injury and another $1,000 reported in the second year. How much will Sue's businessowners policy pay assuming she has enough insurance? A) $52,000.00 B) $3,000.00 C) $50,000.00 D) $53,000.00
Answer: A All would be covered except the second year of medical expenses, as they must be incurred and reported to the insurer within one year of the accident.
Which one of the following is an optional coverage under the businessowners policy? A) Employee dishonesty. B) Personal effects. C) Valuable papers. D) Business income.
Answer: A Business income is automatically included in the businessowners policy. Personal effects and valuable papers are both automatically included in the extensions of coverage. Employee dishonesty is available only as an optional coverage.
Helene owns an exclusive dress shop catering to wealthy clients. Helene observes a shopper walking out of the store with a dress that had not been paid for. She stops the customer and calls the police. The customer claims that she was only taking the dress out to the sidewalk to show her husband. The customer sues Helene for personal injury. Helene's businessowners policy will: A) defend Helene and pay any judgments against her. B) defend Helene and pay any judgments against her if she has added the personal injury endorsement to her businessowners policy. C) deny coverage because of the intentional injury exclusion. D) deny coverage because false arrest is not covered under personal and advertising Injury.
Answer: A Businessowners liability coverage includes coverage for personal and advertising injury. False arrest is included in the policy's definition of personal and advertising injury.
The property coverage in the unendorsed Businessowners policy is written on a (an): A) open peril basis. B) named peril basis. C) limited liability basis. D) valued basis.
Answer: A Property coverage in the unendorsed BOP is provided on an open peril (special form) basis. An endorsement can be added so coverage is provided on a named peril basis.
What is the maximum amount that the businessowners policy will pay for property damage to an outdoor sign attached to a building? A) $2,500.00 B) Policy limit. C) $1,000.00 D) $500.00
Answer: C A $1,000 per occurrence limit applies to outdoor signs attached to buildings.
Ted's TV shop sustains a fire loss and has the following losses: damage to the building $15,000, damage to contents $7,000, debris removal $5,000, and damage to valuable papers and records $15,000. What will his policy pay assuming his limits are adequate?
Answer: A All losses are covered in full except valuable papers and records, which has a limitation of $10,000 in a single occurrence.
Mary and Sue are customers in Paul's bicycle shop. Mary and Sue are both injured when a stack of bicycles fall on them because they were trying to get a bike off the top shelf. What coverage would Paul have under his standard businessowners policy? A) Mary and Sue would receive payments from the businessowners policy for bodily injury up to policy limits. B) Paul would have protection for any bodily injury occurring to Mary and Sue and property damage occurring to the bicycles. Medical payments would not apply as there would be payment under bodily injury coverage. C) Mary and Sue would receive payments from the businessowners policy for bodily injury and medical payments up to policy limits. The bicycles would be covered under property damage. D) Mary and Sue would receive payments from personal injury and medical payments up to the policy limits.
Answer: A Paul's businessowners policy would provide liability protection when the insured becomes legally obligated to pay for damages due to bodily injury, property damage, personal injury, or advertising injury caused by an occurrence to which the insurance applies. The policy would also pay for reasonable medical expenses incurred by any person who requires medical services because of any accident arising out of business operations.
Which of the following types of business would be better covered by a CGL than a BOP? A) An oil refinery. B) An accountant's office. C) A 12-unit apartment building. D) A greeting card store.
Answer: A The businessowners policy is designed to meet the insurance requirements of small businesses, such as offices, stores, or apartment buildings.
Ted, the owner of a TV store, is covered by an unendorsed businessowners policy. He detains Bill, a customer, for shoplifting. The police come, and Bill is not charged with any crime. Bill is very upset with Ted and sues Ted's TV store for damages. Where might Ted find coverage for this loss? A) This coverage is included in the businessowners policy under personal injury. B) Ted's businessowners policy does not provide coverage as he did not buy a separate endorsement. C) Ted's businessowners policy will cover this loss under bodily injury. D) This coverage is not covered in businessowners policy and cannot be purchased in the standard market.
Answer: A The businessowners policy would provide liability protection if the insured becomes legally obligated to pay damages because of bodily injury, property damage, personal injury, or advertising injury caused by an occurrence to which the insurance applies.
Bob, the owner of a hardware store covered by a businessowners policy with the protective safeguards endorsement, discovers that the sprinkler system at his store is not operational. Which of the following actions must Bob take? A) Bob is covered and is not required to take any action. B) Bob must notify the insurance company within 48 hours of any impairment. C) Bob must notify his agent and insurance company within 48 hours of any impairment. D) Bob must notify the insurance company within 72 hours of any impairment.
Answer: B The insured must notify the company within 48 hours of any impairment to protective safeguards, such as a building sprinkler system. Failure to do so will result in a suspension of coverage.
Abby's beauty parlor suffers a loss caused by lightning. Her parlor sustains $10,000 of building damage and $5,000 personal property loss. Her fire department also charged her $1,000. To meet current building codes, her cost to repair her building was an additional $2,000. What will her BOP pay, assuming that her limits are adequate? A) $17,000.00 B) $18,000.00 C) $15,000.00 D) $16,000.00
Answer: B The policy will pay for all of the damage to the building and contents. It also will pay for the fire department service charge, because that limit is $1,000. The limit for increased cost of construction is $10,000, so that is also all covered.
Businessowners liability coverage will cover losses due to which of the following occurrences? A) A fire that damaged the owner's exterior sign. B) A suit brought by a competitor for libel. C) An accident in which the owner's car was involved. D) Theft of the owner's weekly receipts.
Answer: B Under businessowners liability, the insurer pays on the insured's behalf all sums that the insured becomes legally obligated to pay as damages because of bodily injury, property damage, or personal or advertising injury caused by an occurrence to which the insurance applies.
Paul purchased Utility Services--Time Element coverage for his bicycle shop. With this endorsement, time element coverage may be extended to cover loss at the described premises resulting from which of the following? A) This coverage is an exposure that is uninsurable in the standard market. B) Failure of utility property located outside the covered building, regardless of whether the property is located on or off the insured premises. C) Physical loss or damage to off-premises properties providing water, communications, and power supply services and overhead transmission and overhead communications lines if located on the premises. D) Failure of utility property located outside the covered building, regardless of whether the property is located on the insured premises.
Answer: B Utility Services--Time Element endorsement extends coverage resulting from failure of utility property located outside the covered building, regardless of whether the property is located on or off the insured premises.
Which one of the following businesses may be covered under a businessowners policy (BOP)? A) Larry's Tavern. B) West Richfield Bank and Trust. C) Circle C Convenience Store. D) Ziegfeld and Son's Foreign Auto Repair.
Answer: C The BOP is a package policy providing most of the property (both direct and indirect), crime, and liability coverages that small and medium-sized businesses require. The BOP does not cover businesses related to autos, bars, and banks.
Paul's bicycle shop is covered by a businessowners policy. Pete, a customer, is injured when he slips on the wet floor. Where would Paul find coverage in his policy? A) Personal injury. B) Bodily injury. C) Medical payments and bodily injury. D) Personal injury and medical payments.
Answer: C The BOP pays the medical expenses a person incurs as a result of an accident arising out of the insured's business operations. Bodily injury coverage would apply if the slip and fall were determined to be due to Paul's negligence.
Paul has personal property valued at $10,000 located at a nonowned premises. While at that location this personal property is destroyed by a tornado. What will Paul's BOP policy pay in regards to this loss? A) $7,500.00 B) Nothing as this is a loss that occurred off-premises. C) $10,000.00 D) $5,000.00
Answer: C The BOP provides "Personal Property Off Premises" coverage for covered property (other than money and securities, valuable papers and records or accounts receivable), while it is in the course of transit or at a premises you do not own, lease or operate. The most the BOP will pay for loss or damage under this Extension is $10,000.
All of the following coverages can be found in the businessowners policy EXCEPT A) liability. B) extra expense. C) workers compensation. D) business income.
Answer: C The businessowners policy contains coverages needed by all businesses. All businesses have exposures to loss of business income, liability, and extra expense, but not all businesses have an exposure to workers compensation. In fact, many small businesses that employ fewer than three workers may be exempt from state workers compensation laws.
Paul purchases a bicycle shop and wants to buy insurance to cover his business exposures. Which of the following contracts would provide Paul with the best protection? A) Professional liability policy. B) Business liability coverage policy. C) Businessowners policy. D) Commercial property policy.
Answer: C The businessowners policy would provide the best coverage for property and liability damages for a business of this size.
Under the protective safeguards endorsement, the insured must notify the insurer within how many hours of any impairment to protective safeguards to prevent suspension of coverage? A) 60 B) 72 C) 48 D) 24
Answer: C The insured must notify the company within 48 hours of any impairment to protective safeguards (such as a building sprinkler system); failure to notify will result in a suspension of coverage.
