The Businessowners Policy (BOP) packages property and liability coverage for eligible small and medium-sized businesses in one simplified form. This guide covers the property side (Section I) of ISO's Businessowners Coverage Form BP 00 03 07 13; see the businessowners liability guide for Section II. Insurers use their own eligibility rules and may file their own BOP forms, and states amend some conditions.

Structure and eligibility

• Section I Property, Section II Liability, Section III Common Policy Conditions (cancellation, concealment or fraud, examination of books, inspections, liberalization with a 45-day window, premium audit, transfer of rights). The first named insured pays premiums, receives return premiums and gets cancellation notices.
• Eligibility targets smaller, lower-hazard risks such as small retail stores, offices and apartment buildings within size limits set by the insurer. Large or heavy-hazard risks, such as a large manufacturing plant, use a commercial package policy instead.
• Compared with separate monoline policies, the package gives broad coverage with fewer gaps, usually at lower cost.

Covered property

• Buildings: the building, completed additions, fixtures, permanently installed machinery and equipment, and outdoor fixtures.
• Business personal property: property the insured owns and uses in the business, its use interest in tenant improvements and betterments, and property of others in its care, custody or control.
• Coverage applies at the described premises, with limited extensions off premises.
• Covered causes of loss: open perils (risks of direct physical loss) unless excluded or limited.

Limits and valuation

• No coinsurance clause. Instead, buildings are paid at replacement cost if the limit is at least 80% of full replacement cost at the time of loss; below that, a proportional payment applies (the same 80% approach as homeowners).
• Automatic building increase: the building limit rises 8% a year (prorated) unless the declarations show another percentage.
• Seasonal increase: the business personal property limit automatically increases by 25% for seasonal variations, but only if the limit equals at least 100% of average monthly values over the prior 12 months (or the time the business has been open).
• Deductible: applies per occurrence to direct property losses; it does not apply to fire department service charge, business income, extra expense, civil authority, and fire extinguisher recharge.

Business income and extra expense (built in)

• Pays the actual loss sustained during the period of restoration occurring within 12 consecutive months after the direct physical loss, with no dollar limit and no coinsurance.
• Ordinary payroll is covered for 60 days unless more is shown.
• Business income starts after a 72-hour waiting period; extra expense starts immediately.
• Extended business income: up to 60 consecutive days after operations resume.
• Civil authority: begins 72 hours after the order, for up to 4 consecutive weeks, when the damaged property is within one mile.

Additional coverages and extensions (selected)

Exclusions worth knowing

Standard property exclusions (earth movement, flood and water, ordinance or law, governmental action, war, nuclear, utility failure) plus: dishonest acts of employees (employee theft is covered only through the employee dishonesty option), mechanical breakdown, electrical apparatus and steam apparatus (covered only through equipment breakdown), wear and tear and similar maintenance losses.

Conditions

• Vacancy: a building is vacant unless at least 31% of its square footage is rented and used, or used by the owner, for customary operations; after more than 60 consecutive days of vacancy there is no coverage for vandalism, sprinkler leakage (unless protected against freezing), building glass breakage, water damage, theft or attempted theft, and other covered losses are reduced (by 15%, as in the commercial property form).
• Mortgageholders: protected despite the insured's acts if the mortgageholder pays premium due, files proof of loss when asked and reports known changes in risk.

Optional coverages (shown in the declarations)

• Outdoor signs.
• Money and securities: theft, disappearance or destruction, with separate limits inside the premises or bank and outside while in transit.
• Employee dishonesty.
• Equipment breakdown protection: direct damage from mechanical breakdown or electrical failure of pressure, mechanical or electrical equipment. It removes the electrical apparatus, steam apparatus and mechanical breakdown exclusions for this coverage. Adjustment, alignment, calibration, cleaning or modification is not a breakdown. The insurer may suspend the coverage on equipment found in a dangerous condition by written notice.

Useful endorsements

• Protective Safeguards (BP 04 30): maintaining listed systems such as sprinklers or alarms is a condition of coverage.
• Utility Services - Direct Damage (BP 04 56) and Utility Services - Time Element (BP 04 57): physical damage and lost income from an interruption of utility service caused by a covered peril.
• A restaurant that wants coverage for food spoiled when its cooler breaks needs equipment breakdown or a spoilage endorsement, because mechanical breakdown is excluded.

Common traps

• The BOP has no coinsurance clause but uses an 80% replacement cost rule for buildings.
• Business income is included automatically for up to 12 months of actual loss sustained, with no dollar limit.
• Employee theft and equipment breakdown are optional, not automatic.
• Seasonal increase of 25% requires the limit to be at least 100% of average monthly values.
• Liberalization in the BOP uses 45 days; the homeowners form uses 60.