It is important to note that a package policy and a BOP are not the
same thing. A package policy is a single policy that includes two or
more coverages that are otherwise typically written as separate policies.
Usually, the term refers to policies that provide both property coverage and
general liability coverage. A BOP is a particular type of package policy that
is written on BOP policy forms instead of using the monoline CGL and commercial
property forms.
ISO and AAIS offer these two types of commercial package policies.
- BOPs for small businesses that qualify in terms of size and type
of operations. BOPs are written on special BOP forms and are rated
following special businessowners rules and rates.
- Commercial package or combination policies for businesses that
are not eligible for the BOP program due to size or type of
operations. These policies are written on monoline coverage forms,
and each component is rated in accordance with monoline rules and rates, but
a package policy discount is applied to eligible policies.
ISO also offers a third type of commercial package policy: a
micro-businessowners policy (micro-BOP). The micro-BOP is
designed for very small businesses with no more than four employees and very
limited property loss exposures.
BOP Eligibility
Eligibility for a BOP generally is based on both the type and the size of
the insured's business. For example, current ISO businessowners rules limit
eligibility to firms with no more than $6 million in annual gross sales and no
locations that exceed 35,000 in square footage (excluding basements that are
not open to the public). The types of risks eligible for this program are
summarized below.
- Apartment buildings of any size, including residential condominium
associations
- Contractors subject to several restrictions, such as an annual payroll of
$300,000 or less and doing no work at heights of more than three stories
- Mercantile risks
- Processing and service risks
- Wholesale risks
- Office buildings not over six stories tall or exceeding 100,000 total
square feet
- Motels not more than three stories tall, subject to no square foot
restriction
- Restaurants
- Self-storage facilities
- Convenience food/gasoline store/restaurants with limited cooking and fast
food
- Grocery stores and supermarkets that sell gasoline
Business personal property in eligible apartment buildings, offices, and
mercantile, wholesale, service, or processing operations is also eligible for
BOP coverage. An owner-occupant's building and personal property must be
insured in the same policy.
The following types of businesses currently are ineligible under ISO
businessowners program rules, regardless of their size.
- Manufacturers
- Auto repair or service stations; auto, motor home, mobile home, and
motorcycle dealers; parking lots or garages
- Bars and pubs
- Places of amusement
- Banks and other financial institutions
- Self-storage facilities that provide outdoor storage of motorized
vehicles of any type
Naturally, the eligibility rules for independently filed BOP programs may
vary from insurer to insurer.
BOP Policy Forms
The BOP is a package policy that provides commercial property and CGL
coverage. However, it is written using special businessowners forms and
endorsements, rather than monoline commercial property and CGL forms. For
example, an ISO BOP (BP 00 03) consists of one very long (53-page) policy form
with all the property and general liability coverage provisions plus all the
conditions. About 170 endorsements in the ISO BOP program can be used to tailor
the policy.
BOP Commercial Property Coverage
The commercial property coverage provided by a BOP is typically even broader
than what is provided in an unendorsed standard commercial property policy.
Here are a few key advantages that a BOP may have over a standard commercial
property policy.
- BOPs typically include some additional coverages and coverage
extensions that must be added to a commercial property policy using separate
coverage forms or endorsements. For example, the ISO BOP includes
business income coverage and extra expense coverage as additional coverages.
These important additional coverages in the BOP are not subject to a limit of
insurance unless the policy has been endorsed to impose a limit. In contrast,
business income and extra expense coverage must be added to an ISO commercial
property policy by including the appropriate coverage form. These coverages
are subject to the limits of insurance purchased by the insured.
- For additional coverages and coverage extensions that are
otherwise the same as in a standard commercial property policy, the built-in
limits of insurance in a BOP are generally at least as high as and sometimes
even higher than the built-in limits of a commercial property
policy. For example, the limit for loss to electronic data in the
ISO BOP is $10,000, compared to $2,500 in an ISO commercial property policy.
Another example is the $10,000 of coverage for property in transit provided
in the ISO BOP, compared to the $5,000 of transit coverage that applies under
an ISO commercial property policy that includes the special causes of loss
form.
- BOPs typically include optional coverages that can be activated
by an entry on the BOP policy declarations page but would otherwise have to
be purchased under a separate policy. For example, the ISO BOP
includes an employee dishonesty coverage option that applies if a limit of
insurance for employee dishonesty is shown. In contrast, commercial property
policy insureds usually must purchase a separate commercial crime policy to
get this coverage.
BOP General Liability Coverage
The liability coverage provided by a BOP is usually very similar to what is
provided in an unendorsed standard CGL policy. For example, most of the
provisions in the liability section of the ISO BOP are identical to those of
the ISO CGL form.
However, there are a few differences. One has to do with limit structure.
The liability section of the businessowners coverage form has a single
"liability and medical expense coverage limit," covering personal and
advertising injury liability as well as bodily injury and property damage
liability. The CGL, on the other hand, has a "personal and advertising
injury limit" that is separate from the "each occurrence limit"
applicable to bodily injury and property damage liability and medical
expense.
Both forms have a sublimit applicable to fire legal liability and a separate
medical expense limit that applies per person. Likewise, both have a
products-completed operations aggregate limit and a general aggregate limit
that applies per policy period to all other injuries, damage, or medical
expenses. However, the businessowners coverage form fixes the amounts of the
aggregate limits. Both the products-completed operations aggregate limit and
the general aggregate are two times the "liability and medical expense
coverage limit." The amounts of the CGL form's aggregate limits are
the amounts shown in the declarations.
Another difference is that the ISO BOP form's liability section does not
provide any automatic coverage for newly acquired or formed organizations. In
contrast, the ISO CGL form covers organizations acquired or formed by the
insured during the policy period for up to 90 days. Also, the ISO BOP and the
ISO CGL form differ in how the "products-completed operations hazard"
is defined. However, there are endorsements that you can use to make the two
endorsed policies virtually identical even on these points of difference.
BOP Endorsements
An unendorsed BOP typically provides broad coverage and includes some
coverage options that reduce the need for changes. Nevertheless, the coverage
can be tailored by endorsement to better meet the insured's needs or the
insurer's needs in writing the policy. For example, the ISO BOP program
includes about 170 endorsements! Most of the BOP endorsements are based on
similar endorsements used with monoline ISO CGL and commercial property
programs.
Conclusion
A BOP offers real advantages to those smaller businesses that qualify and
the insurers and agents and brokers who serve them. The basic policy form
typically provides commercial property coverage that is even broader than a
monoline standard commercial property policy, plus general liability insurance
coverage that is very similar to a monoline standard CGL policy. And the basic
forms can be tailored to meet a given business's needs using dozens of
endorsements. All in all, the BOP is an essential tool for serving small
businesses. It is an off-the-shelf product that is designed to meet their needs
as is. Simultaneously, the program offers excellent flexibility for insured and
insurer alike because of the availability of a vast number of standard
endorsements. Everyone wins!