The business owners policy (BOP) is the commercial equivalent of a homeowners policy. It combines property and liability protection for many small businesses, offering broad coverage in a simplified package. The BOP has its own declarations and a common conditions form, similar to what you’ll see in a commercial package policy (CPP) used for larger businesses.

A BOP is designed for certain types of small and medium-sized risks, such as offices, apartments, and some manufacturing, service, and processing businesses.

Eligibility

Whether a business is eligible for a BOP depends largely on the size and type of the risk.

• Office buildings may be no more than 6 stories high and contain no more than 100,000 square feet.
• Apartments and wholesale services may not exceed 25,000 total square feet and must have less than $3 million in gross annual sales.

Property coverage forms

Property coverage is provided under one of two available forms:

1. Standard Property Coverage form
2. Special Property Coverage form

These coverage forms include a definitions section, along with conditions and exclusions. Property coverage is subject to a deductible.

Standard Property Coverage form

The standard form provides coverage against specified causes of loss, including:

• Fire
• Lightning
• Extended coverages
• V&MM
• Sprinkler leakage
• Sinkhole collapse
• Transportation

Special Property Coverage form

The Special Form provides open-peril coverage, except for causes of loss that are specifically excluded.

Optional coverages

Both forms offer 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 optional coverages available under the Standard form.

BOP sections and what they cover

The BOP is comprised of Section I and Section II coverages.

Section I (property)

Section I covers the insured’s buildings and business personal property.

Business personal property is covered:

• in the covered building,
• on the covered building, or
• anywhere within 100 feet of the insured premises.

Section II (liability)

Section II provides commercial liability coverage similar in scope to coverage provided by the CGL.

Coverage applies to the insured’s legal liability arising out of:

• ownership of the business premises, and
• the business activities.

Products liability, fire legal liability, medical payments, and supplementary payments are also provided 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.

Ineligible and eligible risks

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)

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

Loss settlement and deductibles

Under both policy forms, losses (except money and securities) are settled on a replacement cost basis. This includes coverage for buildings and business personal property.

Deductibles are available starting at $500 (standard) and may be increased to reduce the premium (maximum of $2,500).

Sidenote

Know this...

An important feature of a BOP is that it offers replacement cost and no coinsurance coverage to small and medium-sized businesses.

The property not covered by the BOP is very similar to the excluded property listed in a CGL.

Endorsements

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 coverage to damage to perishable stock owned by the insured, or in the insured’s care, custody, or control, at the insured premises.

It includes 3 covered causes of loss:

1. Breakdown
2. Contamination
3. 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 resulting from operating autos the business leases.
• Non-owned auto coverage protects the small business insured when operating 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 provides liquor liability coverage in limited instances. The insured must list the specific functions at which liquor will be sold.

An insured 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.

Sidenote

Know this...

Unless at least 31% of a building’s total square footage is rented or used to conduct customary operations, the building owner would have no coverage for Vandalism, sprinkler leakage, water damage, glass breakage, or theft. Other perils, such as fire, are still covered.

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.

Chapter Vocabulary

Definitions

Business Owners Policy (BOP)

Business insurance is typically for property, liability, and business interruption coverage.

Commercial Package Policy

Provides a broad package of property and liability coverages for commercial ventures other than those provided insurance through a business owners policy.

Commercial Property

Property insurance coverage sold to commercial ventures.

Independent Contractor

An individual who is not employed by a company but instead works for themselves, providing goods or services to clients for a fee.

Liquor Liability

Coverage for the liability of an entity involved in the retail or wholesale sales of alcoholic beverages or the serving of alcoholic beverages to persons who have incurred bodily injury or property damage arising from an intoxicated person.

Package Policy

Two or more distinct policies combined into a single contract.