The Business Owners Policy

Suppose a company falls within the eligibility rules for a BOP, and the BOP coverage meets most of the basic coverage needs. In that case, a BOP should at least be a consideration when building the risk management program. The exposures not covered by the BOP can then be addressed separately. BOPs are to commercial lines insurance what homeowners policies are to personal lines insurance. Although a homeowners policy covers many individual and family property and liability insurance needs, additional insurance is usually necessary, such as auto insurance and personal umbrella insurance.

Both Insurance Services Office, Inc. (ISO), and the American Association of Insurance Services (AAIS) have BOP programs. Many insurers have their own independently filed BOP forms—either company-specific endorsements used with the standard ISO or AAIS BOP forms or separate company-specific BOP forms used in place of the standard forms.

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.

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.

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.

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.

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.

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.

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!