The Business Owners Policy (BOP) is a hybrid product created for small to mid-size businesses. Its policy forms are broken down into two sections: Property and Liability. The coverage in each section is nearly identical to the Commercial Property Policy and Commercial General Liability.
There are some additional coverage details thrown in which make the products more robust in terms of coverage.
Additional coverage in the BOP often includes: Crime, Peak Season Coverage Increases, Outdoor Signs, Accounts Receivables (cost to recover) and Valuable Papers and Records (cost to recover).
According to a report by the Insurance Information Institute, the average jury awarded $1.145M in liability lawsuits in 2015. This type of loss, if uninsured, could devastate most businesses. The value proposition of business insurance makes this a compelling reason.
General Liability policies exclude coverage for contractual liability, except when it arises from an “insured contract” as defined in the policy. Before you sign any indemnification agreements or contracts, consult with your lawyer to understand your legal exposures, but also consult with your insurance agent to determine how much of that exposure is insurable. Sometimes, it can be made insurable by simple endorsements to the insurance policy.
The definition of an “employee” includes “leased workers” and this creates a potential gap in coverage if worker is injured on the job. Under workers compensation statute, the leased worker falls under the employee leasing firm if they are injured while working for you.
However, the leased worker may select to claim damages against you for negligence, but the unendorsed CGL policy will not respond due to the “employee” and “workers compensation” exclusions.
BEST SOLUTION: Ask the leasing firm to name you as an “alternate employer” on their Work Comp and Employers Liability policy and show you proof of such.
Damage to Property
Property damage to any premises you occupy is not covered, except as outlined under Damage to Premises Rented to You.
Property damage arising out of electronic data is excluded. This is another part of the importance of Cyber insurance, discussed later.
Coverage A excludes pollution, but with a number of exceptions, most notably if caused by smoke, fumes, vapor or soot from an HVAC system, water heater or heat, smoke or fumes from a “hostile fire”. Another exception is for contractors and the owner or lessee was named as additional insured to your policy.
Many insurance policies contain “Total Pollution Exclusions” and thus, wiping out these exceptions. Many businesses do have some pollution exposure, especially contractors, so be sure to review your insurance coverage if you have this exposure and look for safe ways to control these environmental risks.
If you are “in the business of selling, distributing, or serving alcohol” then “bodily injury” or “property damage” is excluded. If you are hosting a party and provide alcohol to your guests for free, this is considered “host liquor” informally and is generally considered to be covered by the CGL policy.
There can be gray areas here if you are hosting a party where you charge for tickets, like fundraisers. Be aware of possible exposures and always hire 3rd party bartenders who carry adequate General Liability and Liquor Liability policies and name you as additional insured.
It is also advised that your attorneys draft a Hold Harmless and Indemnification agreement in your favor for the bartenders (and caterers) to sign.
Courts have not agreed in all jurisdictions on whether mental anguish or emotional distress is considered “bodily injury”. In some jurisdictions, there is clear precedent that is covered under the definition, but in some it is not.
Most cases settle outside of court anyway and the plaintiff takes a sum from the insurance company, but if your jurisdiction does not allow mental distress as bodily injury, this may be a legitimate coverage concern. If all else is equal, a policy that specifically includes mental anguish is preferable.
If you operate a business that sells products, this can be a potentially large exposure which is almost always excluded from General Liability policies. This coverage can sometimes be purchased as an endorsement to the insurance policy.
Ordinance or Law
Many property policies contain restrictions on coverage for the increased costs of construction and demolition of buildings, in order to comply with required building ordinances following a loss. Coverage is available for this exposure, called Ordinance & Law, is usually available for additional premium, but is worth the cost if you have an older building.
As discussed above, this can cause you to get “shorted” during if you are deemed to be under-insured at time of loss. Coinsurance clauses require you to insure your property to within a certain percentage of the full value. For example, an 80% coinsurance clause obligates you to insure your property up to 80% of value (whether if be replacement cost or actual cash value). The challenge is estimating an accurate value on the front-end. Note that insurers do NOT use market value. Whenever possible, ask for a property policy with Agreed Value (i.e. waive Coinsurance) to avoid these potential coverage gaps.
Cleanup and removal of pollutants is usually very limited in a commercial property policy (e.g. $10,000 and restricted to pollutants “caused by a covered loss”). Additional coverage may be purchased and is recommended if you own an older building with possible exposure to mold, asbestos, etc.
If your property is vacant for more than 60 consecutive days, then certain coverage restrictions may apply (e.g. exclusions for vandalism, glass breakage and theft). Most insurers consider a property vacant if it’s less than 30% occupied. It’s wise to request a vacancy permit in order to purchase back the excluded coverage, especially theft, whenever possible.
Commercial property policies contain very little coverage for restoration of electronic data, yet this is becoming a common exposure within businesses. Cyber insurance was created to address this exposure for damage to your own software, including costs for notification, lost revenue and PR, but also for third party liabilities which may arise due to breach of sensitive customer data.
If any portion of your business depends on electronic or mechanical equipment, then we recommend considering additional coverage for Equipment Breakdown (historically referred to Boiler & Machinery coverage). Any type of major mechanical failure or electrical arcing which may damage your equipment, is not covered by the commercial property policy unless endorsed to include such exposures.
Flood & Earthquake
Commercial property policies most often exclude coverage for flood or earthquake. If your property is located in areas with potential to these hazards, then we recommend endorsing the property policy or purchasing separate flood insurance coverage. Flood coverage is typically offered by insurance carriers through independent agents, but is actually underwritten with rates set by FEMA.
Utility Services: Direct Damage and Time Element
Commercial property policies usually do not cover loss from utility services disruption. Direct damage to your property can be caused by utility disruptions, but even more important is the possibility of lost revenue. If you are a retail business, this is even more imperative.
Business Owners Policies (BOPs), as broad as they are, don’t protect you from every type of exposure your business may face. As a result, there are other types of insurance designed to meet your entire needs.
Here are a few:
- Professional Liability
- Employment Practices Liability
- Directors & Officers Liability
- Fiduciary Liability
- Business Auto Liability
- Workers Compensation
- Cyber Insurance
- Flood Insurance
- Commercial Umbrella
- Surety Bonds
>> LEARN ABOUT OTHER COMMERCIAL INSURANCE SOLUTIONS
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Most people don’t understand their unique risks or their insurance and are therefore buying the wrong coverage and paying too much. If you work with our insurance agency, we will implement our simple 3-step process to identify your key exposures, improve insurance coverage and reduce rates.