Property and Casualty Insurance · Property Insurance · 8 min read
Businessowners Assets and Income
- Identify the qualifying property items, valuation provisions, and automatic limit adjustments found in Section I of the standard Businessowners Policy.
- Explain how business income, extra expense, and civil authority coverages protect earnings and cash flow after a covered direct physical loss.
- Distinguish between key additional coverages, coverage extensions, and optional endorsements available under the Businessowners Policy.
Section I Property Basics: Coverage A and Coverage B
The standard Businessowners Policy, commonly called a BOP, is a prepackaged commercial policy designed for eligible small to mid-sized businesses. The policy is divided into major sections: Section I provides property coverages, while Section II provides business liability and medical expenses coverages. Standard Insurance Services Office (ISO) BOP property coverage is written on an open perils basis, although a named perils endorsement is available. Insurers may use their own forms and endorsements, but standard ISO forms serve as the national benchmark for state licensing exams.
Under Section I, Coverage A applies to buildings and structures described on the declarations page. This includes completed additions, permanently installed fixtures, machinery, and equipment. Coverage A also protects outdoor fixtures and personal property used to maintain or service the buildings, such as fire extinguishing equipment. For example, if you own a retail building, Coverage A covers the physical structure, the permanently mounted heating units, and the fire extinguishers placed throughout the hallways.
Coverage B applies to business personal property owned by the insured and used in the business. To be covered, this property must be located in or on the described buildings or within 100 feet of the described premises. Coverage B also extends to property of others in your care, custody, or control, with payment made for the account of the property's owner. It covers leased personal property that you have a contractual responsibility to insure, as well as tenant improvements and betterments made at your expense that cannot be legally removed. For example, if you lease a retail space and install custom display shelving that must remain with the building, that investment is protected under Coverage B.
Standard ISO Section I forms specifically exclude certain types of property. Generally excluded items include money and securities, aircraft, watercraft, and vehicles subject to motor vehicle registration, subject to policy exceptions and optional coverages. In addition, land, water, growing crops, and lawns are excluded property. Standard Section I applies a base property deductible per occurrence to most direct property losses before insurance payments begin.
| Feature | Coverage A: Buildings | Coverage B: Business Personal Property |
|---|---|---|
| Primary Scope | Buildings and structures described on declarations | Business personal property owned and used in the business |
| Fixtures and Equipment | Permanently installed fixtures, machinery, and equipment | Tenant improvements and betterments; leased personal property |
| Service Items | Property used to maintain or service the buildings | Property of others in the insured's care, custody, or control |
| Location Rule | At the described premises | In or on the buildings, or within 100 feet of the premises |
Common mistakes
- Believing that the business income 72-hour waiting period also applies to extra expense coverage, when extra expense coverage actually begins immediately after the direct physical loss occurs.
- Assuming that the business personal property seasonal increase applies unconditionally, forgetting that the policyholder must carry at least 100 percent of average monthly values for the prior 12 months.
- Thinking that the tear out and replace provision pays to repair the broken plumbing pipe or appliance itself, rather than only paying to tear out and replace the building parts needed to access and fix it.
- Assuming money and securities are automatically covered under standard Section I open perils property coverage without selecting an optional coverage or relying on a specific additional coverage.
Key points
- BOP Section I covers buildings (Coverage A) and business personal property within 100 feet of the premises (Coverage B) on an open perils basis by default.
- Standard property exclusions include land, water, growing crops, lawns, aircraft, watercraft, motor vehicles, and money and securities.
- Replacement cost settlement generally requires the applicable insurance-to-value requirement to be met and the property to be repaired or replaced, subject to the policy's exceptions; the building limit may increase automatically, and a 25 percent seasonal business personal property limit increase applies only when its conditions are met.
- Business income covers net income and continuing expenses (with a 72-hour waiting period), while extra expense begins immediately, both lasting up to 12 months on an actual loss sustained basis.
- Under the standard ISO BOP, civil authority coverage may pay for business income loss when covered damage to property within one mile leads a civil authority to prohibit access to the described premises; business income coverage begins 72 hours after the action and lasts up to four consecutive weeks from then.
- Key extensions and additional coverages include 30 days for newly acquired property and preservation of property, debris removal, tear out coverage, and pollutant cleanup.
- Optional coverages activate protection for outdoor signs, money and securities, employee dishonesty, and equipment breakdown.
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