Form BP 21 01: Micro-Businessowners Abuse or Molestation Exclusion
1. What the form is
The BP 21 01, titled "Micro-Businessowners Abuse or Molestation Exclusion," is an endorsement to the Micro-Businessowners Coverage Form (BP 00 04). Its primary purpose is to explicitly exclude coverage for liability claims arising from actual or alleged abusive or molestful acts. This means that if the insured business is sued for bodily injury, property damage, or personal and advertising injury stemming from an incident of abuse or molestation, this endorsement would prevent the policy from covering the legal defense costs and any settlements or judgments. The exclusion typically applies regardless of whether the act was committed by an employee, volunteer, or any other person for whom the insured may be legally responsible. It also often extends to exclude claims related to negligent hiring, supervision, investigation, reporting (or failure to report), or retention of an individual who committed such acts.
2. Classes of business it applies to
This endorsement is specifically designed for "micro-businesses" as defined by ISO, generally those with up to four employees (including the owner) and sales not exceeding $500,000. The Micro-Businessowners program (Micro-BOP) itself is tailored for various service and retail risks. While the exclusion is broad, it is particularly relevant for micro-businesses that have interaction with vulnerable populations, even on a small scale. Examples include:
- Home-based daycares or childcare services: Even if very small, any business involving the care of children presents a potential abuse or molestation exposure.
- Tutoring or music instruction services: Businesses where individuals work closely with minors.
- Small cleaning services or home healthcare aides: Situations where employees enter private homes and may interact with children, the elderly, or disabled individuals.
- Micro-retail shops or kiosks: While perhaps a lower exposure, any business with public interaction could theoretically face such allegations.
It's important to note that the Micro-Businessowners Professional Liability endorsement (BP 22 02) also lists abuse and molestation as an exclusion, reinforcing the intent to remove this coverage from the Micro-BOP.
3. Special considerations
The BP 21 01 is considered a standard exclusion on most policies providing general liability coverage, including the Micro-BOP. This means it's typically added by default rather than by specific request, reflecting the insurance industry's general stance on the uninsurability of intentional abusive acts and the significant moral hazard associated with them.
- Coverage Gaps: The most significant consideration is the coverage gap this creates. Businesses facing abuse or molestation claims will likely have to bear the full cost of defense and any resulting settlements or judgments out-of-pocket.
- Risk Management is Crucial: For businesses with even a remote exposure (especially those involving children or vulnerable adults), implementing robust risk management practices is paramount. This includes thorough background checks for employees and volunteers, clear policies and procedures regarding conduct and supervision, and training on identifying and reporting suspected abuse.
- Limited Buy-Back Options (Rare for Micro-Businesses): While some larger commercial policies may offer limited "buy-back" endorsements for abuse and molestation coverage (often with sub-limits and specific conditions), these are generally not a standard feature or readily available for micro-business policies due to the nature and scale of these enterprises and the typically lower premiums associated with Micro-BOPs.
- Impact on Defense: Some abuse or molestation exclusions may also specifically state that the insurer has no duty to defend against such claims.
Real-world example: A home-based tutoring service run by a sole proprietor is insured under a Micro-Businessowners policy with the BP 21 01 attached. If a parent alleges that the tutor molested their child during a session, the insurance policy would likely not provide coverage for the tutor's legal defense or any subsequent settlement, due to this exclusion.
4. Key information for agents and underwriters
- Pricing: The attachment of this exclusion is generally assumed in the base pricing of the Micro-Businessowners policy. Since it removes coverage for a significant and volatile exposure, its presence helps keep the overall premium for the Micro-BOP more affordable.
- Risk Assessment: For underwriters, the presence of this mandatory exclusion simplifies one aspect of risk assessment, as they are not evaluating the abuse and molestation exposure for coverage purposes. However, the underlying nature of the micro-business still needs to be understood. If the business operations inherently involve significant interaction with children or vulnerable adults (e.g., a one-person in-home daycare), the underwriter might still scrutinize the risk more closely for overall acceptability, even with the exclusion in place, due to reputational risks for the insurer or the potential for claims to be brought in a way that attempts to circumvent the exclusion.
- Coverage Gaps and Client Communication: Agents have a critical role in explaining the implications of this exclusion to their micro-business clients. It's essential that clients understand this significant coverage limitation, especially if their business operations involve any level of interaction with children or other vulnerable groups. Agents should advise clients on the importance of implementing their own risk management procedures to prevent such incidents.
- Underwriting Guidelines: Underwriters will typically mandate this endorsement for all Micro-BOPs. There is generally no option to remove it for this specific program. The focus of underwriting for the Micro-BOP is on ensuring the business fits the eligibility criteria (size, sales, type of operation) for the streamlined coverage provided by the BP 00 04 form.
- No Defense Obligation: It's crucial to note that this exclusion often extends to the duty to defend. This means the insurer will not pay for legal costs associated with defending against an abuse or molestation claim, which can be substantial even if the allegations are ultimately proven false.
In essence, the BP 21 01 reinforces that the Micro-Businessowners policy is not intended to cover the profound and often intentional acts of abuse or molestation. This places a strong emphasis on the business owner's responsibility to prevent such incidents through proactive measures.