The business owners policy (BOP) is the commercial equivalent of the homeowners policy. It provides property and liability protection for small businesses. The BOP offers business property and liability protection for small and medium sized offices, apartments, manufacturing, service and processing businesses. It provides broad coverage on a simplified basis. The BOP contains its own declarations and common conditions form similar to those found in the commercial package policy for larger businesses.
Whether or not a business is eligible for a BOP depends upon the size of the area of the small business. Office buildings may be no more than 6 stories high and contain no more than 100,000 square feet, and apartments and wholesale services may not exceed 25,000 total square feet with less than $3 million in gross annual sales.
Property coverage is provided under one of two available forms:
Standard Property Coverage form
Special Property Coverage form
These coverage forms include a definitions section, as well as conditions and exclusions. Property coverage is subject to a deductible. The standard form provides coverage against the cause of loss, including:
Fire
Lightning
Extended coverages
V&MM
Sprinkler leakage
Sinkhole collapse
Transportation
The Special Form provides open-peril coverage except for those causes of loss that are specifically excluded.
Both forms have available optional coverages for an additional premium. Optional coverages available under the Standard Form include:
Burglary and robbery
Employee dishonesty
Outdoor signs
Glass
Mechanical breakdown of objects
The optional coverages available under the Special form include money and securities in addition to the available coverages of the Standard form.
The BOP is comprised of Section I and Section II coverages. Section I covers the insured’s buildings and business personal property. The business personal property is covered in the covered building, on the covered building or anywhere within 100 feet of the insured premises.
Section II of the BOP provides coverage for commercial liability similar in scope to that provided by the CGL. Coverage is provided for the legal liability of the insured arising out of the ownership of the business premises and the business activities. Products liability, fire legal liability, medical payments and supplementary payments are also provided by the liability section in the same fashion they are provided by CGL coverage. The basic liability limit is $300,000 and can be increased to $500,000 or $1,000,000.
There are several classes of risks that are not eligible for BOP coverage including but not limited to:
Most types of contracting businesses
Any large manufacturer of products
Hospitals
Auto dealerships
Pecuniary institutions (banks and credit unions)
As mentioned previously, only certain types of small businesses are eligible for BOP coverage. The following are examples of eligible risks for BOP coverage:
Small repair shops of any kind
Drugstores
Bake shops
Beauty salons
Small convenience stores
Pizza shops
Under both policy forms, losses, except money and securities, are settled on a replacement cost basis. This includes coverage for the buildings and the business personal property. Deductibles are available starting at $500 (standard and may be increased to reduce the premium (maximum of $2,500).
The property not covered by the BOP is very similar to the excluded property listed in a CGL.
Several endorsements may be attached to a BOP, including:
Spoilage
Hired and non-owned auto
Valuable papers and records
Liquor liability
Civil authority
Pollution cleanup and removal
Spoilage
This endorsement extends to cover damage to perishable stock owned by or in the insured’s care, custody, or control at the insured premises. It includes 3 covered causes of loss including:
Breakdown
Contamination
Power outage
Hired Auto and Non-owned Auto
This endorsement extends liability protection for hired autos and non-owned autos. Hired auto liability covers bodily injury and property damage to others as a result of operating autos that it leases. Non-owned auto coverage protects the small business insured who operates a vehicle owned by another.
Valuable Papers and Records
This endorsement covers loss to valuable papers and records that the insured possesses (except money and securities).
Liquor Liability Coverage
This endorsement will provide liquor liability coverage in limited instances. The insured must list the specific functions at which liquor will be sold. An insured who is engaged in fundraising or social activities may add this endorsement to extend liability coverage.
Pollution Clean-Up and Removal
Provides up to $10,000 coverage for the costs of extracting pollutants from land or water at the insured’s premises as a result of a covered loss.
Civil Authority
Pays loss of income that the insured sustains due to actions of civil authorities that prohibit access to the insured premises because property other than at the insured premises was damaged by an insured peril. Coverage begins 72 hours after the action by the civil authority and is available for up to three consecutive weeks.
Workers Compensation Insurance
Workers Compensation insurance provides protection for employees who are injured as a result of their employment. This type of insurance coverage also protects an employer against legal action that an injured employee (or survivors) may pursue. Workers Compensation law is based on the following principles:
• Negligence is not a factor in determining liability for bodily injuries sustained by an employee
• The injury cannot be intentionally self-inflicted
• Benefits will be paid to an injured employee on a periodic (monthly) basis
• The cost of coverage is paid by the employer (non-contributory)
• The purchase of insurance coverage is required
• Workers Compensation insurance provides coverage for work-related injuries and sickness only. It does not provide benefits to employees who suffer non-work-related injuries.
Workers Compensation insurance is available from commercial insurers. Premium charges are based on the type of business involved (work or job classification), the number of employees, and the total payroll. If an employer is qualified, it may self-insure. If an employer is unable to secure Workers Compensation insurance in the standard market, most states operate an assigned risk pool which allows these employers to obtain Workers Compensation protection.
The Workers Compensation policy consists of several parts.
Part I
Coverage under Part I applies to mandated or statutory benefits. The insurer providing coverage agrees to pay the injured employee all benefits required by the Workers’ Compensation law. The benefits available to an employee who is injured as a result of his/her employment include:
• Medical Expense Benefits
The insurer will cover unlimited reasonable medical expenses related to the occupational injury or sickness.
• Income Benefits
Loss of income benefits are paid to qualified injured or diseased employees. Generally, the injured worker must satisfy a waiting period before income benefits are paid.
• Dependent Funeral Expense Benefit
Benefits will be paid if a worker dies as a result of his/her employment. Two types of benefits are provided: burial expenses and survivor benefits. Reasonable burial or funeral expenses will be covered by the policy. In addition, a survivor or dependent benefit is also available if the worker is fatally injured.
• Restoration Benefits
It not only aids the injured worker to recuperate more quickly but also helps the employer since his/her injured employee will return to work sooner. Covered expenses or services include:
Physical, occupational and speech therapy
Vocational training
Wheelchairs, mechanical appliances and prosthetic devices (artificial limbs)
Transportation and lodging during the rehabilitation period
Part II of the Workers Compensation policy is Employer’s Liability coverage and protects an employer against legal suits filed by an employee. The standard limits of liability presently available for this protection is $100,000 per accident; $100,000 per occupational disease; and a $500,000 aggregate for occupational diseases. An employer may purchase higher limits for an additional premium.
Part III of the Workers Comp policy provides optional “Other States” insurance coverage. Part I and II are mandatory if the policy is purchased. Other States insurance provides Workers Compensation coverage in additional states to which an employee may travel as part of his/her employment duties.
A Workers Compensation policy also includes the following policy sections:
• Part IV duties to be performed by all parties when an injury occurs
• Part V description of premiums
All premiums will be determined by the insurer and will be based upon the type of work in which the employer is involved, the payroll of all workers, and the number of workers employed.
• Part VI conditions of the insured and insurer
Types of disability include:
Permanent Total - Cannot work at all
Permanent Partial - Loss of hand - can work
Temporary Total - Sprained back, out six weeks
Temporary Partial - Broken arm, light duty
Longshoremen and Harbor Workers
Compensation and medical benefits for disabled or deceased employees of maritime employments are provided under federal law. Employments such as longshoring, harbor work and ship repairing fall under federal guidelines. Coverage is furnished by a Workers Compensation policy with an added endorsement. The employee’s death or disability must result during travel upon navigable waters of the U.S.
The Jones Act
The Jones Act, a section of the Merchant Marine Act, allows an injured seaman to elect to sue for damages and to have a jury trial. Insurance is provided under the Employers Liability section, but when the exposure exists, the insurer usually requires the Maritime Coverage Endorsement that actually limits the insurance and adds a few more exclusions.
Federal Employees Compensation Act
Employees of the federal government are provided (civilian employees) benefits administered by the federal government. Private insurance is not involved.
Federal Employers Liability Act
This Act protects interstate railroad workers only. It allows the injured worker (or representative of the deceased worker) to sue the employer for negligence and removes contributory negligence and assumption of risk (two common law defenses).
Lesson Summary
Business Owners Policy (BOP) provides property and liability protection for small businesses. Key points about BOP include:
Offers coverage for small and medium-sized offices, apartments, manufacturing, service, and processing businesses
Includes property coverage under Standard and Special Property Coverage forms that have their own declarations, conditions, and exclusions
Covers various causes of loss like fire, lightning, and more, with optional coverages available for additional premiums
Comprised of Section I for buildings and business personal property and Section II for commercial liability similar to CGL coverage
Provides coverage for liability arising from business ownership and activities with basic liability limits and optional increased coverage amounts
Endorsements that can be added to a BOP include Spoilage, Hired and non-owned auto, and more. Workers Compensation Insurance offers protection for work-related injuries; key points include:
Benefits paid on a periodic basis and cover medical expenses, income loss, and dependent benefits
May cover expenses like therapy, training, and prosthetic devices for injured workers
Includes Employer’s Liability coverage to protect against employee legal suits, with optional coverage for injuries in other states
Other insurance policies related to workers’ compensation include the Longshoremen and Harbor Workers Compensation and the Jones Act for maritime employees’ coverage. Federal Employees Compensation Act provides benefits for federal government employees, while the Federal Employers Liability Act protects interstate railroad workers by allowing negligence claims against the employer.
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