Summary: Insurance Services Office ISO) has revised its businessowners forms. Where before there were two property coverage forms—one providing standard, or named perils protection (BP 00 01 01 97), and the other providing special perils protection (BP 00 02 12 99), there is now one form (BP 00 03 07 02). This form incorporates special perils coverage, liability, and the policy conditions (previously BP 00 02 12 99, BP 00 06 01 97, and BP 00 09 01 97 respectively). Coverage may be changed to named perils by attaching endorsement BP 10 09 07 02 named perils. This endorsement is discussed elsewhere; see Businessowners Program Endorsements. The businessowners conditions and liability coverages are also discussed elsewhere in this tab. See Businessowners Program for a discussion of eligibility and the general conditions, and see Businessowners Liability Coverage.
The businessowners property form offers replacement cost coverage or an actual cash value option. Beyond this, much of the coverage under the forms is similar to that available through ISO's commercial property program (see Building and Personal Property Coverage Form).
The following discussion focuses on the property coverages of form BP 00 03 07 02, with any differences from the earlier special form BP 00 02 12 99 indicated. For conditions governing loss payment, limits of insurance, and definitions, see Businessowners Property Coverage, Part II. Remember that not all insurers immediately adopt new ISO forms; many use earlier editions. Therefore, check carefully in making any coverage determinations.
Topics covered:
Eligibility
Insuring agreement
Covered property—buildings
Covered property—business personal property
Property not covered
Covered causes of loss
Limitations
Additional coverages
Additional coverages—business income
Coverage extensions
Exclusions—concurrent language precludes coverage
Exclusions—some ensuing losses covered
Optional coverages
Eligibility
The businessowners program may be used for several classes of business, including apartment buildings (including residential condominium associations), office buildings (including office condominium associations), and some selected wholesale, mercantile, processing and service occupancies. The new manual rules allow as well for some restaurants—those having limited cooking facilities, some fast food operations, and motels and some storage facilities. For an in-depth discussion, see Businessowners Program. Print subscribers will find this on page B.1.
Insuring Agreement
A. Coverage
We will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.
Analysis
The property coverage form insuring agreement promises to pay for direct loss or damage to covered property (buildings, business personal property, and personal property of others in the named insured's care, custody, or control, and tenants' improvements and betterments). Covered causes of loss depend on the form used: special perils in the BP 00 03 07 02, or named perils if the BP 10 09 07 02 is attached. The property must be at the premises described in the Declarations.
1. Covered Property
Covered Property includes Buildings as described under Paragraph a. below, Business Personal Property as described under Paragraph b. below, or both, depending on whether a Limit of Insurance is shown in the Declarations for that type of property. Regardless of whether coverage is shown in the Declarations for Buildings, Business Personal Property, or both, there is no coverage for property described under Paragraph 2. Property Not Covered.
a. Buildings, meaning the buildings and structures at the premises described in the Declarations, including:
(1) Completed additions;
(2) Fixtures, including outdoor fixtures;
(3) Permanently installed:
(a) Machinery; and
(b) Equipment;
(4) Your personal property in apartments, rooms or common areas furnished by you as landlord;
(5) Personal property owned by you that is used to maintain or service the buildings or structures or the premises, including:
(a) Fire extinguishing equipment;
(b) Outdoor furniture;
(c) Floor coverings; and
(d) Appliances used for refrigerating, ventilating, cooking, dishwashing or laundering;
(6) If not covered by other insurance:
(a) Additions under construction, alterations and repairs to the buildings or structures;
(b) Materials, equipment, supplies and temporary structures, on or within 100 feet of the described premises, used for making additions, alterations or repairs to the buildings or structures.
Analysis
The wording of the covered property portion of the businessowners form is similar to that of the covered property portion of the building and personal property coverage form (CP 00 10 04 02). There is a difference, however, in that the BOP covers personal property in apartments, rooms, or common areas furnished by the named insured as a landlord. Coverage for personal property in common areas is a broadening of coverage in the current form. This provision is absent from the CP 00 10 04 02. Remember that the BOP may be used to insure entities such as office buildings with incidental apartment occupancies; the CP 00 10 04 02 is designed for a different class of business.
The building property coverage refers to two types of additions: those that are completed and those under construction. Additions under construction often are covered by the builder's insurance; however, once an addition is completed it is covered as part of the described building. For this reason insurance to value is important. Fixtures refers to items that are attached to the building and that cannot be removed without affecting the structure. Examples are permanently attached blinds or overhead lighting. Outdoor fixtures are items permanently affixed to the realty, such as flag poles. Note, though, that permanently installed equipment or machinery may mean much the same as permanently installed fixtures. Think, for example, of a central vacuum system or telecommunications wiring.
Although not explicitly stated in the coverage for buildings, exterior and interior building glass are now considered covered property. Accordingly, the limitation on glass and optional coverage for interior glass have been deleted from the BP 00 03 07 02.
b. Business Personal Property located in or on the buildings at the described premises or in the open (or in a vehicle) within 100 feet of the described premises, including:
(1) Property you own that is used in your business;
(2) Property of others that is in your care, custody or control, except as otherwise provided in Loss Payment Property Loss Condition E.6.d.(3)(b);
(3) Tenant's improvements and betterments. Improvements and betterments are fixtures, alterations, installations or additions:
(a) Made a part of the building or structure you occupy but do not own; and
(b) You acquired or made at your expense but cannot legally remove; and
(4) Leased personal property for which you have a contractual responsibility to insure, unless otherwise provided for under Paragraph 1.b.(2).
(5) Exterior building glass, if you are a tenant and no Limit of Insurance is shown in the Declarations for Building property. The glass must be owned by you or in your care, custody or control.
Analysis
As noted earlier, the current BOP includes coverage for exterior building glass within the limit for the building. But if the named insured is a tenant, and therefore no limit is shown for the building, then the glass may be covered as business personal property. As will be discussed later, an additional coverage has been added for certain expenses related to glass.
The BOP form covers property of others in the insured's care (b.(2); this refers to the form's use for such establishments as dry cleaners or jewelry repair. Loss payment for this property is valued at actual cash value unless the item is subject to a written contract governing the insured's liability. (There is an additional limit, discussed below, for theft of property such as jewelry and furs.)
Tenants' improvements and betterments are included as business personal property. Included might be such items as built-in shelving or partitions. There is no requirement that the tenant insured actually install the improvements and betterments. The insured might decide to rent a space because the improvements and betterments that are included save him the expense of installation. Such improvements and betterments have been acquired through the rent being paid and are therefore covered. They must be a part of the building as required by policy language. For example, cabinets or shelving attached to the walls become part of the building while desks and chairs do not.
However, in United Fire Insurance Co. v. Martin, 282 S.E. 2d 2 (Vir. 1981), the court ruled that air conditioning compressors were not “acquired” at the tenant's expense because the tenant had not spent money in the original installation.
Note that in the BP 00 03 if the insured business is a tenant and thus no limit for buildings is indicated on the declarations, exterior building glass will be covered as business personal property. The insured must either own the glass, or it must be in the insured's care, custody, or control.
Personal property the insured has leased and has a contractual responsibility to insure is covered as business personal property. For example, it is common to lease sophisticated copying equipment. If the terms of the lease require the insured to insure the equipment and a covered loss occurs, the insured's businessowners policy will respond.
2. Property Not Covered
Covered Property does not include:
a. Aircraft, automobiles, motortrucks and other vehicles subject to motor vehicle registration;
b. ”Money” or “securities” except as provided in the:
(1) Money and Securities Optional Coverage; or
(2) Employee Dishonesty Optional Coverage;
c. Contraband, or property in the course of illegal transportation or trade;
d. Land (including land on which the property is located), water, growing crops or lawns;
e. Outdoor fences, radio or television antennas (including satellite dishes) and their lead-in wiring, masts or towers, signs (other than signs attached to buildings), trees, shrubs or plants, all except as provided in the:
(1) Outdoor Property Coverage Extension; or
(2) Outdoor Signs Optional Coverage;
f. Watercraft (including motors, equipment and accessories) while afloat.
g. Accounts, bills, food stamps, other evidences of debt, accounts receivable or “valuable papers and records”; except as otherwise provided in this policy.
h. ”Computer(s)” which are permanently installed or designed to be permanently installed in any aircraft, watercraft, motortruck or other vehicle subject to motor vehicle registration. This paragraph does not apply to “computer(s)” while held as “stock”.
Analysis
Unlike the earlier BP 00 01 01 97, the BP 00 03 07 02 covers bullion but limits coverage. (If named perils endorsement BP 10 09 07 02 is attached then bullion is covered only as provided in the burglary and robbery optional coverage.) Money or securities are covered only when the optional coverage for this type of property or for employee dishonesty are selected (see below).
Outdoor signs (other than those attached to buildings, which are covered as building property) are covered under the outdoor property coverage extension and/or the optional coverage for outdoor signs. Outdoor property such as fences, television antennas, or trees are covered under the outdoor property coverage extension.
Any illegal or prohibited goods are not covered, nor is land, water, growing crops, or lawns. Aircraft and motor vehicles subject to registration are not covered. Watercraft while afloat is not covered, so if the insured was working on a boat in dry-dock or in a building the boat would be covered.
The BP 00 03 07 02 has added two new classes of property not covered: 2.g. and 2.h. Valuable papers and records and accounts receivable are covered in the coverage extensions (discussed later), but certain items such as food stamps are not covered. Computers which are permanently installed, or are designed to be permanently installed, in aircraft, watercraft, motortrucks or other vehicles subject to motor vehicle registration are covered only if they are held as stock (a definition added in the BP 00 03 07 02; see Businessowners Property Coverage, Part II). As discussed later, the BP 00 03 covers computers the insured uses in business, as well as those held as stock.
3. Covered Causes Of Loss
Risks of direct physical loss unless the loss is:
a. Excluded in Paragraph B. Exclusions in Section I; or
b. Limited in Paragraph 4. Limitations in Section I.
Analysis
The BP 00 03 07 02, as noted earlier, provides special perils coverage. If the insured wishes coverage on a named perils basis, endorsement BP 10 09 07 02 named perils may be attached. Coverage for loss in the BP 00 03 07 02 is otherwise restricted through limitations or exclusions.
4. Limitations
a. We will not pay for loss of or damage to:
(1) Steam boilers, steam pipes, steam engines or steam turbines caused by or resulting from any condition or event inside such equipment. But we will pay for loss of or damage to such equipment caused by or resulting from an explosion of gases or fuel within the furnace of any fired vessel or within the flues or passages through which the gases of combustion pass.
(2) Hot water boilers or other water heating equipment caused by or resulting from any condition or event inside such boilers or equipment, other than an explosion.
(3) Property that is missing, where the only evidence of the loss or damage is a shortage disclosed on taking inventory, or other instances where there is no physical evidence to show what happened to the property. This limitation does not apply to the Optional Coverage for Money and Securities.
(4) Property that has been transferred to a person or to a place outside the described premises on the basis of unauthorized instructions.
(5) The interior of any building or structure caused by or resulting from rain, snow, sleet, ice, sand or dust, whether driven by wind or not, unless:
(a) The building or structure first sustains damage by a Covered Cause of Loss to the roof or walls through which the rain, snow, sleet, ice, sand or dust enters; or
(b) The loss or damage is caused by or results from thawing of snow, sleet or ice on the building or structure.
b. We will not pay for loss of or damage to fragile articles such as glassware, statuary, marbles, chinaware and porcelains, if broken, unless caused by the “specified causes of loss” or building glass breakage. This restriction does not apply to:
(1) Glass that is part of the exterior or interior of a building or structure;
(2) Containers of property held for sale; or
(3) Photographic or scientific instrument lenses.
c. For loss or damage by theft, the following types of property are covered only up to the limits shown:
(1) $2,500 for furs, fur garments and garments trimmed with fur.
(2) $2,500 for jewelry, watches, watch movements, jewels, pearls, precious and semi-precious stones, bullion, gold, silver, platinum and other precious alloys or metals. This limit does not apply to jewelry and watches work $100 or less per item.
(3) $2,500 for patterns, dies, molds and forms.
Analysis
Excluded is damage to steam boilers and similar objects when the damage is caused by a condition inside the equipment. But damage to such equipment resulting from explosion of gases or fuel within the furnace or flues is covered. (The insured may purchase the optional coverage of mechanical breakdown, which provides coverage for loss caused by an accident to a boiler or machinery. This coverage is discussed below.) Similarly, damage to hot water boilers or heaters is excluded if caused by a condition other than explosion inside the objects.
There is no coverage for missing property when there is no physical evidence to show what happened to it. Physical evidence is open to interpretation. For example, if the insured enters the premises in the morning to find all desks have been stolen, the “physical evidence” is that in the evening they were seen to be there, but not in the morning. An inventory in this case would be unnecessary. However, if the insured, upon taking year-end inventory, found he was missing a case of instruments, then there is no coverage. The wording of this limitation has been changed in the BP 00 03 07 02 to convey that there is no coverage when the only evidence of loss is the discrepancy between inventory and an actual count of items.
An addition to the current form is limitation a.(5), which is similar to that in the CP 10 30 04 02 (C.c.(1) and (2)). There is no coverage for the interior of a building or structure caused by rain, snow, sleet, ice, sand or dust unless the building or structure first sustains damage from a covered cause of loss. The limitation does not apply to damage to the interior of the building or structure caused by thawing snow, sleet, or ice on the building or structure. This change limits coverage, since there was no such requirement in the BP 00 02 12 99.
The limitation (4.b.) of $500 per loss, $100 per pane that applied to interior glass or an outdoor sign in special form BP 00 02 12 99 has been eliminated from the BP 00 03 07 02, since glass is now treated as covered property.
Loss or damage to fragile articles such as glassware is excluded unless covered by a “specified cause of loss,” a term that is defined at the end of the form. For example, cracking is an excluded cause of loss, but fire is not. So if the fragile articles broke as a result of fire there is coverage.
Note also the limits placed on certain types of valuable property such as jewelry and furs. Jewelry or watches worth $100 or less are not limited as to theft coverage.
The following additional coverages are not in the order in which they appear in the form itself. The reason is that many of the additional coverages pertain to business income, and for convenience these are grouped together. Following are the nonbusiness income additional coverages.
5. Additional Coverages
a. Debris Removal
(1) Subject to Paragraphs (3) and (4), we will pay your expense to remove debris of Covered Property caused by or resulting from a Covered Cause of Loss that occurs during the policy period. The expenses will be paid only if they are reported to us in writing within 180 days of the date of direct physical loss or damage.
(2) Debris Removal does not apply to costs to:
(a) Extract “pollutants” from land or water; or
(b) Remove, restore or replace polluted land or water.
(3) Subject to the exceptions in Paragraph (4), the following provisions apply:
(a) The most that we will pay for the total of direct physical loss or damage plus debris removal expense is the Limit of Insurance applicable Covered Property that has sustained loss or damage.
(b) Subject to Paragraph (a) above, the amount we will pay for debris removal expense is limited to 25 percent of the sum of the deductible plus the amount that we pay for direct physical loss or damage to the Covered Property that has sustained loss or damage.
(4) We will pay up to an additional $10,000 for debris removal expense, for each location, in any one occurrence of physical loss or damage to covered Property, if one or both of the following circumstances apply:
(a) The total of the actual debris removal expense plus the amount we pay for direct physical loss or damage exceeds the Limit of Insurance on the Covered Property that has sustained loss or damage.
(b) The actual debris removal expense exceeds 25 percent of the sum of the deductible plus the amount that we pay for direct physical loss or damage to the Covered Property that has sustained loss or damage.
Therefore, if Paragraphs (4)(a) and/or (4)(b) apply, our total payment for direct physical loss or damage and debris removal expense may reach but will never exceed the Limit of Insurance on the covered Property that has sustained loss or damage, plus $10,000.
(5) Examples
Example #1
Limit of Insurance $90,000
Amount of Deductible $ 500
Amount of Loss $50,000
Amount of Loss Payable $49,500
($50,000 – $500)
Debris Removal Expense $10,000
Debris Removal Expense Payable $10,000
($10,000 is 20 percent of $50,000)
The debris removal expense is less than 25 percent of the sum of the loss payable plus the deductible. The sum of the loss payable and the debris removal expense ($49,500 + $10,000 = $59,500) is less than the Limit of Insurance. Therefore the full amount of debris removal expense is payable in accordance with the terms of Paragraph (3).
Example #2
Limit of Insurance $90,000
Amount of Deductible $ 500
Amount of Loss $80,000
Amount of Loss Payable $79,500
($80,000 – $500)
Debris Removal Expense $30,000
Debris Removal Expense Payable
Basic Amount $10,500
Additional Amount $10,000
The basic amount payable for debris removal expense under the terms of Paragraph (3) is calculated as follows: $80,000 ($79,500 + $500) x .25 = $20,000; capped at $10,500). The cap applies because the sum of the loss payable $79,500 and the basic amount payable for debris removal expense ($10,500) cannot exceed the Limit of Insurance $90,000).
The additional amount payable for debris removal expense is provided in accordance with the terms of Paragraph (4), because the debris removal expense ($30,000) exceeds 25 percent of the loss payable plus the deductible ($30,000 is 37.5 percent of $80,000), and because the sum of the loss payable and debris removal expense ($79,500 + $30,000 = $109,500) would exceed the Limit of Insurance ($90,000). The additional amount of covered debris removal expense is $10,000, the maximum payable under Paragraph (4). Thus the total payable for debris removal expense in this example is $20,000; $9,500 of the debris removal expense is not covered.
Analysis
ISO has amended the debris removal additional coverage to include examples as to how the percentage and additional $10,000 are to be applied. The expenses must be reported in writing to the insurer within 180 days of the date of loss in order to be paid.
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