Business Owners Policy
Business Owners Policy. A business owners policy (BOP) is a package policy that combines different types of insurance coverage into one policy for small to medium-sized businesses. It typically includes property insurance, liability insurance, and business interruption insurance.
The property insurance portion covers damages to the business's physical property, such as buildings and equipment. The liability insurance portion covers the business if it is sued for any damages or injuries caused by the business or its employees. The business interruption insurance portion covers financial losses if the business is unable to operate due to an unforeseen event, such as a natural disaster or fire.
A business owners policy is often more cost-effective than purchasing separate policies for each type of coverage.
A business owners policy protects your company from lawsuits with rates as low as $27/mo. Get a fast quote and your certificate of insurance now.
Below are some answers to commonly asked BOP questions:
- What Is Business Owners Policy?
- How Much Does A Business Owners Policy Cost?
- What Types Of Businesses Are Eligible For A BOP?
- How Does The The ISO Businessowners Coverage Form Protect Businesses?
- What Does BOP Section I - Property Cover?
- What Does BOP Section II - Liability Cover?
- What Does BOP Section III - Common Policy Conditions Cover?
- What Endorsements Are Available For A Business Owners Policy?
- What Does A Business Owners Policy Insurance Cover & Pay For?
What Is Business Owners Policy?
A Business Owners Policy (BOP) is a type of insurance package that combines several different types of coverage into one policy for small to medium-sized businesses. It typically includes coverage for property damage, liability, and business interruption.
The policy may also include coverage for additional exposures such as crime, equipment breakdown, and cyber liability. BOPs are designed to provide comprehensive coverage for a wide range of business risks at an affordable cost.
They are often customized to meet the specific needs of the business and can be tailored to include additional coverage options if needed.
How Much Does A Business Owners Policy Cost?
The average price of a standard $1,000,000/$2,000,000 Business Owners Policy for small businesses ranges from $27 to $59 per month based on location, industry payroll, sales and experience.
ISO publishes rate tables in the commercial lines manual. Provisions for credits, increased limits, etc., are made. Individual companies may employ variations by filing their own unique rating schedules.
Charges are made for the property items based upon the construction, occupancy, protection class, and limits for each item. There is no separate charge made for the business income coverage.
The liability rating process is based upon classification of the operation, the limit of insurance selected, and the rating territory of the risk.
No charge is made for other coverages that are part of the BOP, but optional coverages must be purchased. Increased additional coverage or coverage extension limits and some endorsements require additional premium charges, and deductible and reductions in coverages result in premium reductions.
What Types Of Businesses Are Eligible For A BOP?
Many retail or wholesale operations, artisan contractors, or convenience stores, grocery stores and supermarkets with or without gasoline pumps are eligible.
Small to medium-sized apartment risks, condominium properties, offices, non-manufacturing businesses, and a limited number of service and processing risks are also eligible. Restaurants are also eligible. However, many insurance companies file their own deviations to the eligibility criteria and offer numerous options.
It is not unusual for some of them to insure some manufacturing classes and larger retailers under the Businessowners Coverage Form or an enhanced version of it.
How Does The The ISO Businessowners Coverage Form Protect Businesses?
The ISO Businessowners Coverage Form uses the homeowner's policy approach to package insurance coverages for eligible businesses. By selecting an amount of insurance on building and/or business personal property, the insured automatically receives a broad range of additional coverages with a single indivisible package premium. It is designed for the following:
- A wide variety of retail risks, motels, processing, and service risks
- Convenience food stores, grocery stores, and supermarkets with gasoline pumps
- Laundries and self-storage facilities
- Offices and office condominium associations
- Restaurants under 7,500 square feet
- Small specialized or artisan contractors
- Small to medium sized apartment complexes and residential condominium associations
- Wholesale operations
The ISO Businessowners Coverage Form is made up of three major sections:
What Does BOP Section I - Property Cover?
Buildings can be more than just a single building. The insurance company pays for direct physical loss or damage to covered property at premises listed and described on the declarations but only if the loss or damage is caused by or that results from a covered cause of loss:
- Buildings and structures at the premises described in the declarations
- Completed additions
- Permanently installed fixtures
- Machinery and equipment
- Personal property owned by the landlord in apartments or rooms furnished by the insured as landlord, and common areas
- Outdoor fixtures
- Personal property owned by the insured used to maintain or service the buildings and structures on the premises, including fire-extinguishing equipment, outdoor furniture, floor coverings, and appliances used for refrigerating, ventilating, cooking, dishwashing, and laundering.
The following items are also covered as part of the building but only if they are not separately covered by other insurance:
- Additions under construction
- Alterations and repairs
- Materials, equipment, supplies and temporary structures on or within 100 feet of the described premises used for making alterations or repairs
Business Personal Property
Business personal property (BPP) is more than just the contents of a building. The following business personal property is covered when a limit of insurance appears on the declarations and when it is in the described building and within 100 feet of the premises or building while in the open or in or on a vehicle.
The following items are considered business personal property if they are in or on the buildings at the described premises or in the open:
- Property owned by the insured and used in the business
- Property leased by the insured for which the insured has a contractual responsibility to insure
- Property of others in the insured's care, custody, and control but only to the extent of the insured's legal liability plus the insured's cost of labor, materials or services on the property
- Tenant's improvements and betterments
Property Not Covered
A number of types of property are not covered:
- Aircraft, autos, motor trucks, and other vehicles subject to motor vehicle registration
- Bullion (available only through the burglary and robbery optional coverage)
- Money and securities
- Contraband; land, water, growing crops or lawns; outdoor fences; radio or television antennas, including satellites
- Detached signs (except as provided for under coverage extensions); trees, shrubs, plants (except as provided for under coverage extensions)
- Watercraft (including motors and accessories) while afloat
Additional Coverages Provided
There are 18 additional coverages in the BOP. Most of the coverages are similar to additional coverages in the commercial property forms such as debris removal, preservation of property, fire department service charge, collapse, pollutant coverage, increased cost of construction, glass expense, fire-extinguishing recharge, and tear out to stop water damage. Most of these coverages have a dollar limitation or other explanations that are also similar to the commercial property coverage.
Two crime coverages are also automatically provided. Money orders and counterfeit money coverage and forgery coverage are provided for fairly low limits.
The two most important additional coverages are business income and extra expense. These are included without dollar limits; instead, coverage is limited to the actual loss sustained for up to 12 months.
These two coverages can mean the difference between an insured business being able to re-open following a loss or being forced to close permanently. Coverage is also provided for business income from dependent properties and loss of business income due to civil authority actions.
Coverage Extensions Provided
The coverage extensions are similar to those in the commercial property forms. They are newly acquired or constructed property, business personal property off-premises, outdoor property, personal effects, valuable papers and records, accounts receivables, and business personal property in portable storage units.
All are subject to small limits, but the limits can be increased on the declarations page.
Optional Coverages Available
There are four optional coverages built into the BOP. A limit must be entered on the declarations page for the particular coverage to be activated. The coverages are: outdoor signs, money and securities, employee dishonesty, and mechanical breakdown.
What Does BOP Section II - Liability Cover?
The insuring agreement requires the insurance company to pay amounts an insured becomes legally obligated to pay as damages because of bodily injury, property damage, or personal and advertising injury as long as this insurance provides coverage.
Damages include care, loss of services, and death. This obligation includes a duty on the insurance company's part to defend any suit that seeks damages. The duty exists only if the loss is or may be covered and ends only when loss payments use up the limits of insurance.
The coverage form identifies situations that are covered as well as those that are excluded. It also specifically states that coverage applies to only incidents that are not carryovers from prior policies or prior policy periods.
Business Liability Limits
The declarations page does not list all of the applicable limits. It lists only three limits. The general aggregate and products-completed operations aggregate limits are not shown but they still exist. This is an important warning—just because an aggregate is not shown does not mean that an aggregate doesn't apply. The applicable limits are:
Liability and Medical Expenses Limit: is the most paid for a single bodily injury, property damage, or medical event on a single personal and advertising offense. Insures bodily injury and property damage liability and the legal obligations that arise from an occurrence. It also covers lawsuits and their associated costs. The limits of insurance selected should be high enough to handle serious claims.
Medical Expense Limit: is a sublimit within the liability and medical expenses limit that caps medical expense payments to any one person. Medical expenses coverage applies to medical expenses of individuals injured on your premises or due to your operations, without regard to fault.
Damage to Premises Rented to You Limit: is the most that is paid for fire or explosion to any premises rented or temporarily occupied by the insured. This is NOT a sublimit and is NOT subject to the general aggregate.
General Aggregate: is not listed on the declarations. It is twice the liability and medical expenses per-occurrence limit. This does not apply to the products-completed operations hazard.
Products-Completed Operations Hazard Aggregate: is not listed on the declarations. It is twice the liability and medical expenses per-occurrence limit.
Business Liability Exclusions
The business liability exclusions are very similar to the commercial general liability form.
What Does BOP Section III - Common Policy Conditions Cover?
These conditions apply to both liability and property:
- Cancellation: The first named insured can cancel at any time by telling the insurance company that it plans to do so. The insurance company can cancel under only certain circumstances and with the advance number of days notice the circumstances permit, such as ten days advance notice for non-payment of premium or 30 days advance notice for any other reason. Notice periods vary, depending on the state where the named insured's business is located.
- Changes: Changes to terms in the coverage form can be made only by endorsements the insurance company issues.
- Concealment, Misrepresentation, or Fraud: Any of these acts by the named insured at any time with respect to a material fact that relates to the coverage provided voids coverage.
- Examination of Your Books and Records: The insurance company has the right to examine the named insured's books and records that relate to this coverage form at any reasonable time and as often as necessary during the policy period and for up to three years after coverage ends.
- Inspections and Surveys: The insurance company can conduct inspections and surveys at any time and they are for its benefit, with no expressed or implied warranties to other parties. The insurance company also has the right to not make inspections or surveys if it so chooses.
- Insurance Under Two or More Coverages: The most paid if a covered loss occurs is the actual value of the loss, regardless of the number of coverages that apply to it.
- Liberalization: Revisions to the coverage form that broaden coverage without an additional premium charge automatically apply if they become effective during the policy term or within 45 days before its inception date.
- Other Insurance does the following:
- Clarifies that this insurance pays only the portion of a loss that exceeds the amount due from the other insurance, whether collectible or not, but not more than the limit of insurance that applies
- States that business liability insurance is excess over any other insurance that insures for direct physical loss or damage, any other primary insurance available, and any coverage that applies where the named insured is an additional insured on another coverage form or policy
- Removes the insurance company's duty to defend in cases where this insurance is excess and where the primary insurance has the duty to defend. It also states that the insurance company has the option to assume the defense if no other carrier does so.
- Premiums: The first named insured pays the premium and receives all returns. Policies issued on a continuous basis are not continued if the premium is not paid prior to the anniversary date. Premiums can be adjusted because of changes to the named insured's operations during the policy year.
- Premium Audit: The policy is subject to audit after expiration. The final premium is based on the actual exposures during the policy term if the premium on the declarations is an advance or deposit premium. It details the conditions that apply to the audit and the requirements and responsibilities of each party.
- Transfer of Rights of Recovery Against Others to Us: The insurance company receives the rights to recover from other parties that may have caused a loss it paid. The named insured can exclude certain entities from being subject to recovery efforts if it does so in writing before a loss occurs.
- Transfer of Your Rights and Duties Under This Policy: The named insured's rights and duties cannot be transferred without the insurance company's written consent. A specific exception and condition applies if an individual named insured dies that involves appointing a proper legal representative.
What Endorsements Are Available For A Business Owners Policy?
A number of endorsements are available to tailor the BOP to meet the needs of the individual insured. These endorsements are much more limited than those available under the commercial property and commercial general liability coverage parts. However, the following types of endorsements and more are available for some customizing:
- Food contamination
- Ordinance or law
- Functional valuation
- Condominium endorsements
- Windstorm/hail percentage deductible endorsement
- Various additional insureds
- Hired and non-owned auto liability
- Liquor liability coverage
- Employee benefits
- Professional liability for specific professionals such as: funeral directors, owners of hearing aid stores, opticians, beauticians, barbers, printers, pharmacists, and small-animal veterinarians.
What Does A Business Owners Policy Pay For?
A Business Owners Policy (BOP) is an insurance package designed for small and medium-sized businesses that combines property, liability, and business interruption coverage. Here are some examples of claims that can be covered by a BOP:
- Property damage: A BOP can cover damages to your business property, such as a fire or vandalism, or damage caused by a natural disaster like a hurricane or earthquake.
- Liability claims: A BOP can help cover legal costs and damages associated with a third-party injury or property damage that occurs on your business premises. For example, if a customer slips and falls in your store, a BOP can help pay for their medical expenses and any legal fees associated with the incident.
- Product liability: If your business sells products that cause harm to a customer, a BOP can help cover the costs associated with a lawsuit. For example, if a product you sell causes an allergic reaction or injury to a customer, a BOP can help pay for any damages awarded in a lawsuit.
- Business interruption: If your business is unable to operate due to a covered event, such as a fire or natural disaster, a BOP can help cover lost income and expenses during the interruption.
- Employee theft: If an employee steals from your business, a BOP can help cover the financial losses incurred.
In terms of lawsuits, here's an example of how a BOP can help: Let's say a customer slips and falls in your store and sues your business for medical expenses and damages. If you have a BOP, your insurance provider can help cover the cost of defending your business in court and any damages awarded to the customer, up to the policy limit.
Without insurance, you would be responsible for paying these costs out of pocket, which could be financially devastating for a small business.
Avoiding Myths When Purchasing A BOP Policy For Your Business
If you've been teetering on the fence and unsure if a BOP policy is right for you, then dispelling some of the myths surrounding these policies is a good move. Let's look at some common misnomers about business owners insurance policy policies.
Myth: BOP policies are for big businesses; my business is too small for a BOP policy.
This is an absolutely untrue statement. This type of policy is actually not an option for big businesses; it's tailor made for small and mid-sized businesses.
Myth: General liability covers property loss and business interruption costs.
This is also untrue. General liability insurance will not protect your business from either of these inherent risks. General liability insurance is only for acts that occur due to your actions or that occur on the premises of your business.
Myth: An umbrella policy is sufficient for covering business equipment losses.
Again, untrue. This type of policy covers personal liability, not business liability. It does sometimes extend to cover business equipment under a specific set of circumstances, but the coverage is limited.
Myth: Your business is safe since it is an incorporated business with just one location or operating from the owner's home.
Although the incorporation of your business does make it its own entity legally, any attorney worth his salt can easily finagle his way around the corporate "veil" to find a business owner personally responsible. With a business owners insurance policy policy, the liability portion of the policy protects your personal interests.
Myth: You're safe because you're incorporated, only have one location, or are home-based.
While incorporating will make your business a separate legal entity, any knowledgeable lawyer can find a way to remove that corporate protection and make you personally responsible, putting both your business and personal assets at risk. Incorporating offers zero protection against “tort” wrongs, which are judgments related to negligence, malpractice, car accidents and even slips and falls on your property. Luckily, the liability portion of a business owners insurance policy protects you against these risks.
Moreover, if you work from your home and rely on a conventional homeowner's policy to guard against business liability, you may find yourself sorely discouraged when your policy specifically rules out business operation in its terms. A better practice is to buy a separate policy so that your insurer understands that business and home are separated, and liability in one doesn't translate to liability in another.
Myth: Your work is conducted at your client's location, so a BOP policy is useless.
A BOP policy is essential if you are conducting business on site. Electricians, caterers, and others who work in people's homes put themselves out there as far as liability goes, and an accident at a client's home or damage to a client's property can leave you holding the bag without an effective BOP policy in place.
Myth: A BOP policy is not essential because the client doesn't require it.
A BOP policy isn't really about protecting the client. At its core, it protects your business. Even if the clients has no opinion about your insurance coverage, protecting yourself from litigation, claims, and loss means having the right coverage in place at all times. Moreover, buying a BOP policy for a short time and then dropping coverage can make your policy cost more in the long run.
Myth: Your contract with your client protects you from liability.
Think again. While having a strong contract in place is always a good idea, the truth is that lawyers can always find an angle to sue, despite the contract's language. Even if the claim has no merit, the cost of defending yourself in court can be astronomical and leave a dent in your business' financial health.
Myth: BOP policies are too expensive for my business.
The opposite is true. business owners insurance policy policies are affordable, and the risk they mitigate is priceless. Most people spend just a few hundred dollars per year for a basic BOP policy. This is a small price to pay for peace of mind in knowing that your business is protected. An independent agent can compare rates with multiple insurers to help you find the right coverage for your budget.
Business Owners Policy - The Bottom Line
The type of business you own, the number of people who work for you, and your sales into how much you pay for bar insurance. The location of your business, your claims history, and other important factors also play a part. Work with your licensed commercial agent to find a mix of quotes from insurance companies. This can make it easy to get the right policy for your specific needs.
'Real Life' Court Cases Involving BOP Policies:
Seaport Park Condo. v. Greater New York Mut. Ins. Co
The pipes of the rooftop cooling system of Seaport Park Condominium (Seaport) burst on January 12, 2004, allegedly due to freezing temperatures. Seaport had purchased a Businessowners Policy effective September 30, 2013, from Greater New York Mutual Insurance Company (GNY) providing coverage on the seven-story condominium apartment building.
A claim was submitted to GNY. Expert adjusters were retained to inspect the damage and determine the cause of loss. The burst pipes were believed to be in the interior of the unit and a conclusion could not be reached. At a meeting of all interested parties, it was agreed that Matco, Seaport's contractor, would remove the old tower and install a new one and would store the old tower for further inspection. Matco, however, destroyed the tower.
GNY denied the claim based upon a condition of the policy that required Seaport to preserve the damaged property for inspection. Seaport commenced an action against GNY. The motion court cited the absence of documentation stating that further inspection of the tower was needed and any obligation to store the cooling system once it was removed from the building when it ruled in favor of Seaport. GNY appealed.
The decision was reversed because the insurance contract was between Seaport and GNY and it required that damaged property be available for inspection. Agreements between Matco and Seaport and the error on Matco's part did not relieve Seaport of that responsibility.
(Seaport Park Condo. v. Greater New York Mut. Ins. Co., 39 A.D.3d 51, 828 N.Y.S.2d 381 (2007))
Phillips v. Parmelee
Daniel G. Parmelee or Aquila Group LLC (Seller) signed a conditional real estate report indicating that it was not aware of the existence of asbestos on the premises of an apartment building it was selling. Phillips (Buyer) acquired the property. Asbestos was discovered in the building by their contractor when it cut asbestos-wrapped ducts which dispersed asbestos throughout the building. Buyer sought action against Seller.
Seller insured the apartment building under a businessowners policy from American Family Mutual Insurance Company (American) at the time of the sale and so requested that American respond to the action. American denied coverage based upon the asbestos exclusion and filed for summary judgment. The circuit court concluded that American had no duty to defend because the exclusion precluded coverage.
The decision was appealed by Buyer, which alleged breach of warranty and negligence in the failure to report asbestos in the structure. The asbestos exclusion read [in part], "This insurance does not apply to ... "property damage" ... with respect to:
Any loss arising out of, resulting from, caused by, or contributed to in whole or in part by asbestos, exposure to asbestos, or the use of asbestos. "Property damage" also includes any claim for reduction in value of real estate or personal property due to its contamination with asbestos in any form at any time.
Buyer contended that the exclusion did not specifically state that it applied to the "dispersal" or "presence" of asbestos. Both the Appellate court and the Supreme Court of Wisconsin affirmed the decision based upon the wording “any loss” within the exclusion.
(Phillips v. Parmelee, 2013 WI 105, 351 Wis. 2d 758, 840 N.W.2d 713)
Additional Resources For Small Business Insurance
Protect your company and employees with the right commercial insurance policies. Read informative articles on small business insurance coverages - and how they can help shield your company from legal liabilities.
- Small Business
- Business General Liability
- Business Interruption
- Business Liability
- Business Owners Policy (BOP)
- Certificate of Insurance
- Commercial Auto
- Commercial Crime
- Commercial Package Policy
- Commercial Property
- Commercial Umbrella
- Comprehensive General Liability
- Cyber Liability
- Directors and Officers Liability
- Employment Practices Liability
- Event Cancellation
- Fiduciary Liability
- General Liability
- Home Based Business
- Independent Contractor
- Liability Insurance Certificate
- Liability Insurance
- Ocean Marine
- Professional Liability
- Specialty Directors And Officers Liability
- Specialty Errors And Omissions
- Specialty Excess
Businesses need commercial insurance to protect their assets, employees, and customers. It helps to cover the costs of potential accidents, lawsuits, and other unforeseen events that can result in financial loss.
For example, if a customer slips and falls on a wet floor in a store, the business could be held liable for their injuries. Commercial insurance can help cover the costs of medical bills and legal fees associated with the incident.
Additionally, businesses often have valuable equipment and inventory that need to be protected from theft or damage. Commercial insurance can provide coverage for these items in the event of a disaster, such as a fire or natural disaster.
Furthermore, businesses often have employees that can be injured on the job. Workers compensation insurance can provide coverage for medical bills and lost wages for injured employees.
Overall, commercial insurance is a necessary tool for businesses to protect their assets, employees, and customers. Without it, businesses could face significant financial loss in the event of an unexpected occurrence.