A business owner’s policy (BOP) is a business insurance policy that combines other policies in it for convenience and to eliminate gaps in coverage. Most commonly, the BOP combines general liability with commercial property and can have several endorsements added to make it even more comprehensive. Let’s take a closer look at what you will find in a business owner’s policy and what exclusions there are as well.
Common Business Insurance Coverages
The following are the most common business insurance coverages that you’ll find with a business owner’s policy. That means most BOPs will maintain some coverage for each of the following without needing an additional endorsement.
Business Personal Property
Business personal property is the stuff that your business owns. This may include your furniture, computer equipment, supplies, and tools. It covers anything owned by your company that is stored or used at the place of business. It does not cover tools that are in transit to a job location or left at a job site. For that, you need inland marine insurance. Business personal property covers losses such as fire, theft, or vandalism.
Building Coverage
Your business insurance through a BOP will cover any premises rented to you. This coverage is optional if you are the building owner. For example, assume you rent 600 square feet of office space. If there is a fire, your business owner’s policy will pay to repair the building itself up to coverage limits. Many landlords require this coverage and will be asked to be named as an Additional Insured on the policy.
Plate Glass
Many retail locations have large plate glass windows that are used to display products. If these windows are broken, your business insurance policy will pay to have them replaced. For example, if a vandal throws a rock through the window, breaking it, your policy will pay for the initial shuttering and then for the replacement glass once it is ordered and delivered.
Loss of Income
When a business owners policy (BOP) includes loss of income, you don’t need to get a separate policy in addition for such coverage. Loss of income coverage pays you your estimated revenues that get lost during a covered claim. For example, if you generate $10,000 per day in revenues and are closed due to a fire, your insurance will pay the $10,000 so that you can maintain your overhead expenses. This is a powerful coverage that helps business owners get through significant claims that dramatically affect their ability to generate revenues.
Equipment Breakdown
Equipment breakdown within your insurance coverage eliminates the need to buy equipment breakdown directly from the manufacturer. This is a business insurance coverage that pays to repair or replace key equipment used in the manufacturing of your products. It protects against damages caused by internal forces such as power surges, electrical shorts, mechanical breakdowns, motor burnout, or operator error. It can cover computers but won’t cover the software loaded onto them.
Outdoor Signs
Most businesses have some type of sign located outside the building, either directly affixed to the building or on a marquee of some sort. These signs can cost thousands of dollars, especially with things like lighted lettering. Should the sign become damaged, outdoor sign coverage pays to fix or replace it. For example, assume a tree branch takes out the marquee. With a BOP with business insurance coverage for outdoor signs, this loss is covered.
General Liability
This is one of the most important coverages found in a business owner’s policy. It is business insurance that pays third-party claims of injury or property damage. General liability is often referred to as “slip-and-fall coverage” because it pays for those types of claims where someone slips on premises, falls, and gets hurt. It covers losses resulting from business operations but doesn’t cover professional services. That would need professional liability insurance.
Most Common Endorsements Added to Business Insurance BOP
There are three common endorsements that you will find added to a business insurance BOP. These endorsements make minor modifications to the policy to add coverage or enhance how the policy works.
Additional Insured
An additional insured endorsement names another party who benefits from the insurance. As in the case of building coverage, this endorsement adds the landlord to the policy. Being added to the policy means that they share in the claims proceeds to ensure the building is repaired to its original state. If you work as a contractor, you may also have an additional insured who is the client who wants to be named to cover general liability claims that may arise due to your business operations. When you have an additional insured, you can request a certificate of insurance (COI) to show the additional insured that coverage exists and that they are named as the additional insured.
Waiver of Subrogation
A waiver of subrogation is a business insurance endorsement that prevents the insurance carrier from recovering money paid for on a claim by a negligent third party. For example, if you are a subcontractor and your insurance pays a loss during a job, your insurance carrier can not recover funds if it is found that another subcontractor was responsible for the claim. This is a very common endorsement with contractor policies.
Primary and Noncontributory
When you have a primary and noncontributory endorsement, your policy is the first in line for coverage. This means it provides benefits before other applicable policies. The non-contributory section stops the primary party’s insurance carrier from seeking contributions from any other entity’s policy when paying a claim.
Most Common Business Insurance Exclusions
While a BOP is a powerful policy, it doesn’t cover everything. There are several common exclusions that policy owners must be aware of. These exclusions include the following.
Business Insurance for Earthquake
Your business insurance policy needs to specifically state that it covers earthquake damage for there to be coverage. Most business owner’s policies don’t automatically cover this. In fact, you need a specialized earthquake insurance policy to provide coverage. These specialized policies cover the damages resulting from the shaking involved in an earthquake. This could be damage to the building or items within.
Business Insurance for Flood
While a business owner’s policy will cover water damage that happens from something like a burst pipe, it specifically excludes losses due to floods. Floods are any rise in water that penetrates the building or premises. To have flood coverage, you must obtain a flood insurance policy that protects against a rise in water. Business owners can get a flood insurance policy from a private carrier or directly from the National Flood Insurance Program (NFIP) run by FEMA.
Injury to Employee
A business owner’s policy covers third-party claims of injury not first-party. First-party claims would be injuries to employees and workers. This isn’t covered by the BOP but instead must be covered by workers’ compensation insurance. Workers’ compensation insurance is required by law in most states for businesses with at least one employee.
Optional Business Insurance Coverages
There are some optional coverages that you may elect to get with a business owner’s insurance policy.
Hired and Non-Owned Auto
This is an added coverage that pays for claims when your employee drives a rented, leased, or borrowed car for work purposes. Should there be an at-fault accident, the third-party claim is protected.
Terrorism Coverage
Depending on the carrier, this is often optional coverage. It pays for losses that result from terrorist activities. For example, if a terrorist succeeds in bombing a building, the damage to the business with terrorism coverage would be covered. Without this coverage, the insurance company will not pay the claim.
