Eligibility—occupancies

Ineligible classes of business

Businessowners section III policy conditions

Eligibility—Occupancies

Eligibility requirements are contained in the businessowners subdivision of the Insurance Services Office (ISO) Commercial Lines Manual (CLM). Unless otherwise noted, eligible risks cannot exceed 35,000 square feet in total floor area or exceed $6,000,000 in annual gross sales at each location. Incidental storage buildings not exceeding 35,000 square feet and occupied by the insured may be included. Additional qualifications may be set out in state exception pages.

Apartment buildings of any size, including residential condominium associations, are eligible for coverage as well as building owners' business personal property in eligible apartment buildings. Eligible incidental occupancies are (1) offices; (2) eligible wholesaler, mercantile, service or processing occupancies, and contractors, which in total do not exceed 35,000 square feet; and (3) contractors that do not occupy more than 7,500 square feet or more than 15 percent of the total area. (Contractors exceeding this limit are classified separately.)

Commercial Unit-owners Condominiums used for eligible wholesaler, mercantile, service, processing, contractor, or office occupancies are eligible.

Contractors are subject to the following eligibility requirements: annual payroll may not exceed $300,000; may not work at a height over three stories; total cost of subcontracted work may not exceed 10 percent of total annual gross sales; equipment may not be leased or rented to others; and sales not related to installation, repair, or service cannot exceed 25 percent of annual gross sales. The only eligible types of contractors are listed in the Businessowners Classification Table found in the Commercial Lines Manual.

Mercantile risks listed in the Businessowners Classification Table section of the Commercial Lines Manual are eligible.

Processing and service risks listed in the Businessowners Classification Table section of the Commercial Lines Manual are eligible. Businesses with more than 25 percent of sales from off-premises operations are not eligible.

Wholesale risks listed in the Businessowners Classification Table section of the Commercial Lines Manual are eligible. Businesses with more than 25 percent of annual gross sales from retail operations or more than 25 percent of total floor area open to the public are not eligible. Operations of manufacturers' representatives or contractors are also not eligible.

Office buildings, including office condominium associations occupied principally for office purposes, are eligible. Buildings cannot exceed six stories in height or 100,000 square feet in total floor area. Eligible incidental occupancies are (1) apartments; (2) eligible wholesaler, mercantile, service, or processing occupancies and contractors that in total do not exceed 35,000 square feet; and (3) contractors that do not occupy more than 7,500 square feet or more than 15 percent of the total area.

Buildings occupied principally for eligible wholesaler, mercantile, service, or processing purposes and contractors that do not exceed 25,000 square feet in total floor area are eligible. Storage buildings occupied by the insured, which are incidental to an eligible wholesaler, mercantile, service, or processing risk and do not exceed 25,000 square feet, may be included.

Motels not exceeding three stories may be insured. There is no floor area restriction. Motels with eligible restaurant operations are eligible. Seasonal operations—those that are closed more than thirty consecutive days—or motels with bars or cocktail lounges are not eligible.

Restaurants listed in the Businessowners Classification Table section of the Commercial Lines Manual are eligible. If the restaurants are limited cooking—food is prepared cold or cooked with appliances that do not emit smoke or grease-laden vapors requiring an exhaust system—casual dining, fast food, or fine dining restaurants, they may be eligible. All must have no more than 7,500 square feet in total floor area. Limited cooking restaurants can have only the maximum of seventy-five seats, while fast food, casual dining, and fine dining restaurants can have seating capacity of no more than 150.

Convenience food stores/gasoline stores/grocery stores/supermarkets are eligible if the store has no auto service or repair operations, no car wash operations, or no propane or kerosene tank filling operations. The store must have a minimum of 3,000 square feet in total floor area if the store or restaurant sells gasoline.

Restaurants—limited cooking , fast food, casual dining, and fine dining only—are eligible if they are less than 7,500 square feet with a seating capacity no greater than 150 (75 for limited cooking). Other restrictions are outlined in the ISO Commercial Lines Manual.

 Self-storage facilities not exceeding two stories in height are eligible except for those permitting cold storage or storage of industrial materials, pollutants, chemicals, or waste.

 Ineligible Classes of Business

There are many classes that are not eligible for the businessowners program. Businesses connected with the auto business, such as repair or service stations, dealerships, or parking lots or garages are not eligible unless one of these is incidental to an eligible business. Bars and pubs are ineligible for coverage as well.

Condominium associations other than office, commercial, or residential condos are not eligible. Places of amusement, banks, building and savings and loans, credit unions, stockbrokers, and similar financial institutions may not be insured. Self storage facilities that provide outdoor storage to motorized vehicles or campers and recreational vehicles may not be insured.

Buildings used for manufacturing or insureds whose business operations involve one or more locations for manufacturing are ineligible.

Household personal property or one or two family dwellings, unless of the type where multiple units are grouped together and under one ownership, management, or control, are also not eligible. Many types of contractors, listed in the Commercial Lines Manual, are not eligible. 

 Businessowners Section III Policy Conditions

As stated earlier, there is no longer a requirement to attach BP 00 09 01 97 to each businessowners policy. The twelve conditions that apply to all the policy's coverages are now section III of the BP 00 03. Many of these common policy conditions are restatements of conditions found in the commercial property program and are described more fully in that discussion; see Building and Personal Property Coverage Form.

 A.     Cancellation

1.The first Named Insured shown in the Declarations may cancel this policy by mailing or delivering to us advance written notice of cancellation.

2. We may cancel this policy by mailing or delivering to the first Named Insured written notice of cancellation at least:

a.Five days before the effective date of cancellation if any one of the following conditions exists at any building that is Covered Property in this policy:

(1)The building has been vacant or unoccupied sixty or more consecutive days. This does not apply to:

(a)Seasonal unoccupancy; or

(b)Buildings in the course of construction, renovation or addition.

     Buildings with 65 percent or more of the rental units or floor area vacant or unoccupied are considered unoccupied under this provision.

(2)After damage by a Covered Cause of Loss, permanent repairs to the building:

(a)Have not started, and

(b)Have not been contracted for,

within thirty days of initial payment of loss.

(3)The building has:

(a)An outstanding order to vacate;

(b)An outstanding demolition order; or

(c)Been declared unsafe by governmental authority.

(4)Fixed and salvageable items have been or are being removed from the building and are not being replaced. This does not apply to such removal that is necessary or incidental to any renovation or remodeling.

(5)Failure to:

(a)Furnish necessary heat, water, sewer service or electricity for thirty consecutive days or more, except during a period of seasonal unoccupancy; or

(b)Pay property taxes that are owing and have been outstanding for more than one year following the date due, except that this provision will not apply where you are in a bona fide dispute with the taxing authority regarding payment of such taxes.

b.ten days before the effective date of cancellation if we cancel for nonpayment of premium.

c.thirty days before the effective date of cancellation if we cancel for any other reason.

3.We will mail or deliver our notice to the first Named Insured's last mailing address known to us.

4.Notice of cancellation will state the effective date of cancellation. The policy period will end on that date.

5.If this policy is cancelled, we will send the first Named Insured any premium refund due. If we cancel, the refund will be pro rata. If the first Named Insured cancels, the refund may be less than pro rata. The cancellation will be effective even if we have not made or offered a refund.

6.If notice is mailed, proof of mailing will be sufficient proof of notice.

 Analysis:

The first named insured may cancel the policy by providing advance written notice of cancellation, by mail, or by other delivery.

The insuring contract allows the insurer to cancel the policy with varying notice requirements (five, ten, or thirty days) for a variety of reasons. Because vacant or unoccupied buildings are susceptible to vandalism or arson, they pose a significant exposure. So, if a building has been vacant or unoccupied for sixty consecutive days, the insurer can cancel with five days notice. The policy meaning of unoccupied includes buildings with 65 percent of rental units or floor area vacant. Before this clarification, a few articles of furniture could be left in a unit and render a basically unused building occupied. This wording allows cancellation in instances when, for example, the bottom floor is in use, but the floors above are unrented or unused. The sixty-day requirement does not apply to seasonal unoccupancy or buildings undergoing construction or renovation.

Similarly, buildings where repairs have not commenced or been contracted for within thirty days of initial payment of loss present an unusual exposure and cancellation is permitted. The assumption would be that the money has been pocketed. If a building is under an order to vacate or has been declared unsafe by governmental authorities, cancellation may be issued. This does not mean that if a covered loss results in a premises being declared unsafe or put under order of vacancy the insurer can cancel and avoid payment for the loss. The intent here is to preclude continuing on a risk insurers would have no wish to insure.

Other signs of increased exposure and thus uninsurability are when salvageable fixtures have been removed and not replaced—for example, the furnace—or when the insured fails to provide heat or utility service to the building for thirty days (except in a period of seasonal unoccupancy) or fails to pay outstanding property taxes for more than one year (other than where there is a genuine dispute with the authorities over the payment of taxes).