What Is a Business Owners Policy?
A business owners policy (BOP) is a package policy designed for small businesses. It includes both commercial property and general liability coverages. Many insurers that cater to small businesses offer a BOP. Some issue policies on standard Insurance Services Office (ISO) forms while others utilize their proprietary forms. Most proprietary BOPs are variations of the standard ISO policy.
Advantages and Disadvantages
The standard ISO BOP consists of a declarations page, a BOP form, the common conditions section, and one or more endorsements. The policy offers two key advantages to small businesses: coverage and price. A BOP affords broad coverage for a relatively low premium. The property section includes coverages like business income that aren't automatically included under a standard commercial property policy. The liability section affords the same types of coverages as the standard ISO commercial general liability form (CGL).
While a BOP can be altered or expanded by the addition of endorsements, it isn't as flexible as a standard package policy. The ISO BOP includes only property and general liability coverages. A standard package may include commercial property, general liability, commercial auto, inland marine, crime, and professional liability coverages. Many more endorsements are available for modifying a standard package than a BOP.
Some insurers will add professional liability or employment practices liability to a BOP. If you are shopping for a BOP and need these coverages, look for an insurer that will include them in the policy.
Small businesses must meet certain requirements to qualify for coverage under a BOP, and these vary somewhat from one insurer to another. Many types of businesses are eligible for a BOP. Examples are hotels and motels, barber shops, print shops, retail stores, laundries, and meat wholesalers. Fast food restaurants, cafes, sandwich shops, and other small food establishments are generally eligible if they do a minimal amount of cooking. Small contractors that engage in residential construction, carpentry, drywall, or landscape work are also eligible for a BOP.
A BOP may be used to insure apartments, residential condominiums, office buildings, and other buildings used for retail, wholesale, service, or processing purposes. However, buildings cannot exceed certain size restrictions. For instance, office buildings cannot be larger than six stories or 100,000 square feet. Likewise, buildings used for mercantile, wholesale, processing, or service operations cannot exceed 35,000 square feet.
Some businesses are not eligible for a BOP due to their size or the nature of their operations. Examples are high-rise buildings, manufacturers, auto dealers, auto repair shops, tree trimmers, banks, bars, parking garages, and theaters.
Commercial Property Coverage
The property section of the standard BOP policy is very similar to the ISO commercial property policy. It covers the following types of property:
- Buildings located at premises described in the declarations, including machinery and equipment that is permanently installed
- Business personal property located in covered buildings
- Tenants improvements and betterments
- Property that belongs to other people
- Building glass owned by you or in your custody if you are a tenant
A BOP covers loss or damage by any peril that is not specifically listed in the exclusions section of the policy. The exclusions in a BOP are similar to those found in an "all-risk" property policy.
One advantage of a BOP is that it automatically includes a number of coverages that are typically added by an endorsement under a standard property policy. Some examples are listed below. Most of these coverages are included at a relatively low limit. Two exceptions are business income and extra expense. No specific limits apply to these coverages. The policy covers a loss of income sustained and/or extra expenses incurred within 12 consecutive months after the date of the physical loss.
General Liability Coverage
Like the ISO CGL, a BOP includes two third-party liability coverages: Bodily Injury and Property Damage Liability and Personal and Advertising Injury Liability. The BOP provides both coverages under a single insuring agreement. The liability exclusions in the BOP are essentially the same as those found in the CGL. Like the CGL, the BOP provides certain coverages via exceptions to exclusions. Examples are contractual liability, host liquor liability, and damage to rented premises.
A BOP includes Medical Payments Coverage, which pays for medical expenses incurred by individuals who have been injured as a result of your business activities. Medical Payments Coverage makes payments to injured parties in the absence of a lawsuit.
Some businesses may need higher liability limits than those afforded by a BOP. Fortunately, many insurers offer a commercial umbrella that can be written in conjunction with a BOP.