PACKAGE POLICIES FOR BUSINESSES

PACKAGE POLICIES FOR BUSINESSES Sandi Kruise Insurance Training Quality Education for Insurance Professionals 1-800-517-7500 www.kruise.com

PACKAGE POLICIES FOR BUSINESSES First Edition Copyright 2000 WRITTEN BY: Sandi Kruise, CPCU, CPIW PUBLISHED BY: Sandi Kruise Insurance Training P O BOX 786 BONITA, CA 91908-0786 1-800-517-7500 www.kruise.com Copyright 2000, All Rights Reserved. No portion of this book may be reproduced in any manner whatsoever without express written permission of the publisher. COPYRIGHT 1998-2015, SANDI KRUISE INSURANCE TRAINING, ALL RIGHTS RESERVED 1

TABLE OF CONTENTS INTRODUCTION TO PACKAGE POLICIES... 1 ISO COMMERCIAL PACKAGE POLICY... 2 COMPONENTS OF A COMMERCIAL PACKAGE POLICY... 3 Common Policy Declarations... 3 Common Policy Conditions... 3 Cancellation... 4 Cancellation Changes Endorsement... 4 Changes... 5 Examination Of Your Books And Records... 5 Inspections and Surveys... 5 Premiums... 5 Transfer Of Rights... 5 Interline Endorsements... 6 Coverage Part... 6 COVERAGES IN THE PROGRAM... 6 BUSINESSOWNERS POLICY... 7 INTRODUCTION... 7 ISO BUSINESSOWNERS POLICY... 7 Policy Modernization... 7 BUSINESSOWNERS POLICY ELIGIBILITY... 8 Buildings... 9 Apartment Buildings... 9 Office Buildings... 9 Mercantile, Wholesaler, Service, or Processing Operations... 9 Eligible Wholesale Operations... 10 Eligible Service and Processing Businesses... 10 Personal Property... 11 Buildings and Personal Property Under Common Ownership... 11 Eligible Restaurants... 12 Convenience stores with gasoline pumps... 13 Eligible Trade Contractors... 13 Ineligible Businesses... 14 COMPONENTS OF A BUSINESSOWNERS POLICY... 16 POLICY DECLARATIONS...16 BUSINESSOWNERS COMMON POLICY CONDITIONS (BP 00 09)...16 Cancellation... 17 Changes... 17 Concealment, misrepresentation, or fraud... 17 Examination of the named insured's books and records... 17 Inspections and surveys... 18 Insurance under two or more coverages... 18 Liberalization... 18 Other insurance... 18 Premiums... 18 COPYRIGHT 1998-2015, SANDI KRUISE INSURANCE TRAINING, ALL RIGHTS RESERVED 2

Premium audit... 18 Transfer of rights of recovery against others to the insurer... 19 Transfer of the named insured's rights and duties... 19 BUSINESSOWNERS PROPERTY COVERAGE FORMS... 20 BUSINESSOWNERS COVERAGE FORMS...20 STANDARD OR SPECIAL PROPERTY COVERAGE FORM...20 COVERAGES PROVIDED...21 Covered Property... 21 Property Not Covered... 22 ADDITIONAL COVERAGES...22 Debris Removal... 23 Preservation of Property - (Removal)... 23 Fire Department Service Charges... 23 Business Income... 23 Extra Expense... 24 Civil Authority... 24 Extract Pollutants... 24 Money Order and Counterfeit Paper Currency... 24 Forgery and Alteration... 24 Ordinance or Law Coverage... 25 Exterior Building Glass... 25 Collapse Of A Building... 25 Water Or Other Liquid, Powder Or Molten Material... 25 COVERAGE EXTENSIONS...26 Personal Property At Newly Acquired Premises... 26 Valuable Papers... 26 Accounts Receivable... 27 Personal Property Off Premises... 27 Outdoor Property... 27 Personal Effects And Property Of Others... 27 LIMITS OF INSURANCE...28 Business Personal Property Limit-Seasonal Increase... 28 Building Limit-Automatic Increase... 29 DEDUCTIBLES...29 COVERED PERILS...30 Covered Causes of Loss - Standard Policy... 30 Exclusions - Standard Policy... 31 Covered Causes of Loss-Special Form... 33 Exclusions - Special Policy... 33 OPTIONAL COVERAGES...36 Businessowners Standard Property Form (BP 00 01)... 36 Businessowners Special Property Form (BP 00 02)... 37 Outdoor Signs... 37 Interior Glass... 37 Mechanical Breakdown... 37 Burglary and Robbery... 38 Money and Securities... 39 Employee Dishonesty... 39 PROPERTY CONDITIONS...40 Loss Conditions... 40 COPYRIGHT 1998-2015, SANDI KRUISE INSURANCE TRAINING, ALL RIGHTS RESERVED 3

Vacancy Provisions... 40 Valuation... 40 Resumption of Operations... 41 Recovery Of Property... 41 Loss Or Damage To Electronic Records... 41 General Conditions... 41 Control Of Property... 41 Mortgage Holders... 41 No Benefit To Bailee... 42 Policy Period... 42 Coverage Territory... 42 BOP PROPERTY DEFINITIONS...43 BUSINESSOWNERS LIABILITY COVERAGE FORM... 45 BUSINESSOWNERS LIABILITY COVERAGE FORM (BP 00 06)...45 LIABILITY COVERAGES...45 Business Liability... 45 Supplementary payments... 46 Medical expenses... 47 LIMITS OF INSURANCE...47 Aggregate Limits... 47 WHO IS AN INSURED...48 Coverage Territory... 48 EXCLUSIONS...49 Professional Liability Exclusion... 51 CONDITIONS...52 Bankruptcy... 52 Occurrence, Claim Or Suit... 52 Financial Responsibility Law... 52 Legal Action Against The Insurer... 53 Separation Of Insureds... 53 LIABILITY DEFINITIONS...53 Advertising Injury... 53 Auto... 53 Bodily Injury... 53 Coverage Territory... 53 Employee... 54 Executive Officer... 54 Impaired Property... 54 Insured Contract... 54 Leased worker... 55 Loading or unloading... 55 Mobile Equipment... 55 Occurrence... 56 Personal Injury... 56 Products-Completed Operations Hazard... 56 Property damage... 57 Suit... 57 Temporary worker... 57 Your Product... 57 Your Work... 58 COPYRIGHT 1998-2015, SANDI KRUISE INSURANCE TRAINING, ALL RIGHTS RESERVED 4

ISO BUSINESSOWNERS ENDORSEMENTS... 59 CATEGORY 03 - DEDUCTIBLE ENDORSEMENTS...59 Windstorm or Hail Percentage Deductibles (BP 03 12)... 59 CATEGORY 04 - ADDITIONAL COVERAGES...59 Comprehensive Business Liability Exclusion (BP 04 01)... 60 Additional Insured Managers or Lessors of Premises (BP 04 02)... 60 Accounts Receivable Coverage (BP 04 03) (Withdrawn 1/97)... 60 Hired Auto and Nonowned Auto Liability (BP 04 04)... 61 Valuable Papers and Records (BP 04 05) (Withdrawn 1/97)... 62 Additional Insured Controlling Interest (BP 04 06)... 63 Additional Insured State or Political Subdivisions Permits Relating to Premises (BP 04 07). 63 Additional Insured Townhouse Associations (BP 04 08)... 63 Additional Insured Mortgagee, Assignee, or Receiver (BP 04 09)... 63 Additional Insured Owners or Other Interests from Whom Land Has Been Leased (BP 04 10)... 64 Additional Insured Co-Owner of Insured Premises (BP 04 11)... 64 Limitation of Coverage to Designated Premises or Project (BP 04 12)... 64 Additional Insured Engineers, Architects, or Surveyors (BP 04 13)... 64 Spoilage Coverage (BP 04 15)... 64 Additional Insured Lessor of Leased Equipment (BP 04 16)... 66 Employment-Related Practices Exclusion (BP 04 17)... 66 Amendment Liquor Liability Exclusion (BP 04 18)... 66 Amendment Liquor Liability Exclusion Exception for Scheduled Activities (BP 04 19)... 67 Businessowners Standard Form Computer Coverage (BP 04 33)... 67 Businessowners Special Form Computer Coverage (BP 04 34)... 68 Exclusion Personal and Advertising Injury (BP 04 37)... 69 Medical Expenses Exclusion (BP 04 38)... 70 Abuse or Molestation Exclusion (BP 04 39)... 70 Coverage for Injury to Leased Workers (BP 04 40)... 70 Ordinance or Law Coverage (BP 04 46)... 71 Additional Insured Vendors (BP 04 47)... 72 Additional Insured Designated Person or Organization (BP 04 48)... 72 Additional Insured Engineers, Architects or Surveyors Not Engaged by the Named Insured (BP 04 49)... 73 Additional Insured Owners, Lessees or Contractors (BP 04 50)... 73 Additional Insured Owners, Lessees or Contractors with Additional Insured Requirement in Construction Contract (BP 04 51)... 73 Additional Insured State or Political Subdivisions Permits (BP 04 52)... 74 Newly Acquired Organizations (BP 04 54)... 74 Business Liability Coverage Tenants Liability (BP 04 55)... 75 Utility Services Direct Damage (BP 04 56)... 75 Utility Services Time Element (BP 04 57)... 75 Business Income and Extra Expense Coverage for Year 2000 Computer-Related and Other Electronic Problems (BP 04 58)... 76 Year 2000 Computer-Related and Other Electronic Problems Limited Coverage Options (BP 04 64)... 76 CATEGORY 07 - CONTRACTORS ENDORSEMENTS...76 Amendment of Policy Provisions Contractors (BP 07 01)... 77 Amendment Aggregate Limits of Insurance (Per Project) (BP 07 02)... 77 COPYRIGHT 1998-2015, SANDI KRUISE INSURANCE TRAINING, ALL RIGHTS RESERVED 5

Business Liability Coverage Property Damage Liability Deductible (Per Claim Basis) (BP 07 03)... 77 Business Liability Coverage Property Damage Liability Deductible (Per Occurrence Basis) (BP 07 04)... 78 Contractors' Installation Coverage (BP 07 05)... 78 Contractors' Tools and Equipment Coverage (BP 07 06)... 79 Business Liability Coverage Amendment of Liability and Medical Expenses Limits of Insurance (BP 07 07)... 81 Pesticide or Herbicide Applicator Coverage (BP 07 08)... 81 CATEGORY 08 - PROFESSIONAL LIABILITY ENDORSEMENTS...81 Barbers and Beauticians Professional Liability (BP 08 01)... 81 Funeral Directors Professional Liability (BP 08 02)... 82 Optical And Hearing Aid Establishments (BP 08 03)... 83 Printers Errors and Omissions Liability (BP 08 04)... 83 Veterinarians Professional Liability (BP 08 05)... 83 CATEGORY 10 - CAUSES OF LOSS...84 Earthquake (BP 10 03)... 84 Exclusion of Certain Computer-Related Losses (BP 10 04)... 85 Exclusion Year 2000 Computer-Related and Other Electronic Problems (BP 10 05)... 86 Exclusion Year 2000 Computer-Related and Other Electronic Problems (Products-Completed Operations Hazard (BP 10 06)... 86 Exclusion Year 2000 Computer-Related and Other Electronic Problems With Exception for Bodily Injury on Your Premises (BP 10 07)... 86 Year 2000 Computer-Related and Other Electronic Problems Exclusion of Specified Coverages for Designated Locations, Operations, Products or Services (BP 10 08)... 87 CATEGORY 12 - GENERAL ENDORSEMENTS...87 Businessowner Policy Changes (BP 12 01)... 87 Fire Department Service Contract (BP 12 02)... 88 Loss Payable Provisions (BP 12 03)... 88 Businessowner Supplemental Declarations (BP 12 05)... 88 CATEGORY 17 - CONDOMINIUM COVERAGE...89 Condominium Association Coverage (BP 17 01)... 89 Condominium Commercial Unit-Owners Coverage (BP 17 02)... 89 Condominium Commercial Unit-Owners Optional Coverages (BP 17 03)... 90 INDEPENDENTLY DEVELOPED POLICIES... 91 ELIGIBILITY...91 ADDITIONAL COVERAGES...91 HIGHER SUBLIMITS...92 CONDITIONS OR LIMITS MORE OR LESS RESTRICTIVE THAN ISO...92 REPLACING COVERAGES...92 SPECIAL EXPOSURE IDENTIFICATION...93 Transportation Exposures... 93 Crime Exposures... 93 Boiler and Machinery Exposures... 93 Signs Off Premises Exposures... 93 Automobile Exposures... 94 Excess and Umbrella Liability Exposures... 94 UNDERWRITING... 95 WHAT THE UNDERWRITER NEEDS TO KNOW...95 COPYRIGHT 1998-2015, SANDI KRUISE INSURANCE TRAINING, ALL RIGHTS RESERVED 6

Name (First Named Insured)... 95 Description of Operations/Occupancy... 96 Location and Property... 96 Specialty Programs... 96 Rating... 96 BUSINESSOWNERS FORMS VERSUS COMMERCIAL PACKAGE FORMS... 97 Businessowners Versus Interline Common Policy Conditions Forms... 97 Replacement Cost Coverage... 99 Improvements and Betterments... 100 BUSINESSOWNERS PROPERTY COVERAGE VERSUS COMMERCIAL PROPERTY COVERAGE... 100 Coinsurance... 100 Time Element Coverage... 100 Valuation... 100 Covered Property... 100 Additional Coverages and Coverage Extensions... 101 Perils... 102 Coverage Options... 102 Coinsurance... 102 Time Element Coverage... 102 Valuation... 103 Covered Property... 103 Additional Coverages/Coverage Extensions... 103 Perils... 105 Limits... 105 Coverage Options... 105 Businessowners Liability Form Versus Commercial General Liability Form... 106 BUSINESSOWNERS LIABILITY AND CGL FORM DIFFERENCES... 106 Organization and Headings... 106 Professional Liability Exclusion... 106 Nuclear Energy Liability Exclusion... 107 New Organizations Coverage... 107 Financial Responsibility Laws Coverage... 107 Limits... 107 Products-Completed Operations Hazard Definition... 108 APPENDIX... 109 INDEX OF ISO BUSINESSOWNERS FORMS... 109 BP 00 01 01 97 BUSINESSOWNERS STANDARD PROPERTY COVERAGE FORM... 112 BP 00 02 12 99 BUSINESSOWNERS SPECIAL PROPERTY COVERAGE FORM... 139 BP 00 06 01 97 BUSINESSOWNERS LIABILITY COVERAGE FORM... 165 BP 00 09 01 97 BUSINESSOWNERS COMMON POLICY CONDITIONS... 181 INDEX... 185 COPYRIGHT 1998-2015, SANDI KRUISE INSURANCE TRAINING, ALL RIGHTS RESERVED 7

PACKAGE POLICIES FOR BUSINESSES INTRODUCTION TO PACKAGE POLICIES A package policy is a single policy that includes two or more coverages that are otherwise typically written as separate policies. The term usually refers to policies that provide both property coverage and general liability coverage. The Insurance Services Office, Inc. (ISO) offers the following two types of commercial package policies. Commercial package or combination policies, for businesses that are not eligible for the businessowners program due to size or type of operations. These policies are written on monoline coverage forms, and each component is rated in accordance with monoline rules and rates, but a package policy discount is applied to eligible policies. This textbook provides an overview of the Commercial Package Policy. Businessowners policies, for small businesses that qualify in terms of size and type of operations. Businessowners policies are written on special businessowners policy forms and are rated in accordance with special businessowners rules and rates. This textbook provides detailed treatments of the ISO businessowners policy forms and endorsements. Specimen copies of key ISO forms are also provided, along with a complete list of all of the ISO businessowners forms and endorsements. Many insurers offer their own versions of businessowners and package policies. Since they are often based on the ISO or forms and programs, a review of these programs will be helpful to those dealing with insurer package policies. A discussion of independently developed policies follows the discussion of ISO forms. The last section provides an analysis of the main differences between coverage under the CPP and the BOP programs. COPYRIGHT 1998-2015, SANDI KRUISE INSURANCE TRAINING, ALL RIGHTS RESERVED 1

ISO COMMERCIAL PACKAGE POLICY An Insurance Services Office, Inc. (ISO), commercial package policy is a single policy that includes two or more of the following coverage parts. Commercial Property Boiler and Machinery Inland Marine Crime Commercial General Liability Products and Completed Operations Liability Liquor Liability Pollution Liability Commercial Automobile Farm The major advantage of a package policy over monoline policies is the package discount that is applied to eligible policies. To be eligible for the package discount, the policy must include the following. A commercial coverage part that provides building or business personal property coverage, written at 80 percent coinsurance (90 percent if limits are blanket). The building and personal property coverage form (CP 00 10), the condominium association coverage form (CP 00 17), the condominium unit-owners coverage form (CP 00 18), or the builders risk coverage form (CP 00 20), or the tobacco sales warehouse coverage form (CP 00 80) would qualify. By specific exception in the Commercial Lines Manual (CLM), the physicians and surgeons equipment coverage form (CM 00 26) also meets this requirement. A coverage part that provides bodily injury and property damage liability coverage for the premises and operations hazard at locations where property insurance is provided. Either of the commercial general liability forms (the occurrence form, CG 00 01, or the claims made form, CG 00 02), the garage coverage form (CA 00 05), or the farm liability coverage form would qualify. Rating for each coverage component is in accordance with ISO rules and rates. The amount of the package discount varies depending on a number of factors, such as the nature of the insured's COPYRIGHT 1998-2015, SANDI KRUISE INSURANCE TRAINING, ALL RIGHTS RESERVED 2

operations and the state in which the insured business is located. Different percentage discounts may also apply to different coverage parts. COMPONENTS OF A COMMERCIAL PACKAGE POLICY The following elements are the key components of every commercial package policy: Common policy declarations Common policy conditions Interline endorsements (as needed) One or more coverage parts The Common Policy Declarations and the Common Policy Conditions are a part of every CPP and are also included in any mono-line policy that is issued using CPP forms. Common Policy Declarations The Common Policy Declarations contains information about who is insured, when he or she is insured and for what lines he or she is insured. It includes: Policy number Identity of insurer and producer The name and mailing address of the named insured The policy period, including the time and date coverage begins and ends Description of insured business The coverage parts purchased and their premiums Total policy premium List of all forms included Countersignature and date of signature Common Policy Conditions The Common Policy Conditions constitute some of the terms on which the policy is issued that are common to the various coverage parts that can be added to the CPP. There are six common policy conditions that apply to all coverage parts of a policy: COPYRIGHT 1998-2015, SANDI KRUISE INSURANCE TRAINING, ALL RIGHTS RESERVED 3

Cancellation The Cancellation condition sets forth the circumstances under which the policy may be canceled. The "first named insured" shown in the declarations may cancel at any time by giving advance written notice to the insurer. There may be several insureds listed in the Declarations, but only the first named insured may cancel the policy. The Conditions section makes it clear that it is the first named insured who is responsible for certain obligations, and it is to the first named insured that the insurance company owes certain obligations. If the insurer cancels, it must give written notice to the first named insured at least 10 days in advance if the reason is nonpayment of premium, and at least 30 days in advance if cancelling for any other reason. A cancellation notice may be mailed to the first named insured's last mailing address known to the insurer, or it may be delivered. If mailed, proof of mailing is considered proof that notice was given. Every notice of cancellation must state the cancellation date. When cancellation occurs, the first named insured is entitled to a refund of any unearned premium. The refund will be pro rata (a proportional return premium to reflect the unused policy period) if the insurer cancels, but a slight penalty is charged (a return less than pro rata) if the insured cancels. While this is the Cancellation condition that appears in the standard contract, some states may enact laws requiring unique cancellation provisions for policies issued in those states. Cancellation Changes Endorsement A "Cancellation Changes" endorsement must be attached to every commercial property coverage part, unless it is in conflict with state law or is replaced by a special state endorsement that affects the cancellation clause of the common policy conditions. For property coverages only, this endorsement changes the Cancellation condition contained in the Common Policy Conditions. It says that the company is only required to give the first named insured five days' written notice of cancellation (rather than 30) if any of the following conditions exist: The building has been vacant or unoccupied for 60 or more consecutive days. (This does not apply to seasonal unoccupancy, buildings in the course of construction or renovation or those buildings to which a special vacancy permit applies). After damage by a covered loss, permanent repairs have not started or been contracted for within 30 days of the initial payment of loss. The building has been declared unsafe by a government authority. The building has an outstanding order to be vacated or demolished. Fixed or salvageable items have been or are being removed from the building and are not being replaced. There has been a failure to furnish necessary heat, water, sewer service, or electricity for 30 days, except during periods of seasonal unoccupancy. COPYRIGHT 1998-2015, SANDI KRUISE INSURANCE TRAINING, ALL RIGHTS RESERVED 4

There has been a failure to pay property taxes owed for more than one year, unless there is a legitimate dispute over these taxes. If the insurer cancels for any of these reasons, the entire coverage part is canceled, not just the building coverage. Some states have implemented special cancellation provisions, which alter the standard ISO conditions. In those jurisdictions, a special state endorsement would be attached instead of the standard cancellation changes endorsement. Changes All agreements between the parties to the contract are contained in the policy. The Changes condition states that only the first named insured is authorized to make changes in the terms of the policy with the consent of the insurance company. Terms can be amended or waived only by an endorsement issued by the insurer that is made a part of the policy. Examination Of Your Books And Records The Examination Of Your Books And Records condition states that the company may examine and audit the insured's books and records at any time during the policy period, and for up to three years after the end of the policy period. Inspections and Surveys The Inspections and Surveys condition gives the company the right to make inspections or surveys of the insured business at any time. The company may choose to report on the conditions it finds and recommend changes. These inspections are related to insurability and premiums only and are not considered safety inspections. The insurer will not warrant that conditions are safe or healthful or that they comply with regulations or standards. Premiums The Premiums condition states that it is the first named insured, shown in the declarations, is responsible for the payment of all premiums and will be the recipient of any return premiums due. Transfer Of Rights The final condition prohibits a transfer of rights under the policy without the insurer's consent, except in the case of death of a named insured. In earlier policies this provision was known as an "assignment clause." If the named insured dies, his or her rights are transferred to the deceased's legal representative, but only while he or she is acting within the scope of the duties of the legal representative. Until a legal representative is appointed, anyone having proper temporary custody of the property will have the insured's rights and duties as they relate to the property. COPYRIGHT 1998-2015, SANDI KRUISE INSURANCE TRAINING, ALL RIGHTS RESERVED 5

Interline Endorsements Interline endorsements are those that may apply to some or all coverage parts of a package policy. They were prepared to eliminate redundancy and to minimize the number of endorsements in the program. Interline endorsements must be used with a monoline policy whenever an applicable endorsement applies to the coverage being written. Coverage Part A coverage part consists of all the coverage forms, endorsements, and other attachments applicable to a single line of insurance. Although the common declarations provide information about the entire policy, each coverage part will also have its own declarations with additional information specific to that section. A policy with a single coverage part is monoline, while a policy with two or more coverage parts is a package policy. COVERAGES IN THE PROGRAM The commercial lines program permits any of the following coverages to be written as a monoline policy or as part of a commercial package policy: Commercial Property Commercial General Liability Commercial Automobile Insurance Commercial Crime Commercial Inland Marine Boiler And Machinery Insurance Farm Coverages (Property & Liability) Note: Each of these are discussed in detail in separate CE courses. COPYRIGHT 1998-2015, SANDI KRUISE INSURANCE TRAINING, ALL RIGHTS RESERVED 6

BUSINESSOWNERS POLICY INTRODUCTION The majority of small businesses have similar insurance needs. Most qualify for the ISO commercial package policy (CPP). However, some of the coverage forms in this package may not provide the best coverage for every commercial insured and the minimum premiums charged on the CPP are sometimes more than many small businesses can afford. Because of this, insurers have developed the businessowners policy (BOP), a standardized, easyto-read, package policy that combines broad protection, a limited number of optional coverages, and a simplified rating procedure along with lower minimum premiums. A businessowners policy (BOP) provides a broad package of coverages for small and medium sized apartment buildings, office buildings, retail stores, certain wholesale risks, and service and processing risks. A businessowners policy is a self-contained, complete package policy. This section will discuss the Insurance Services Office (ISO) BOP forms. Insurers with independent filings are discussed later in the text. ISO BUSINESSOWNERS POLICY The Insurance Services Office, Inc. (ISO), businessowners policy is a package policy designed to provide both property and general liability coverage for eligible small businesses. It is written on special businessowners policy forms and rated in accordance with special businessowner policy rates and rules. A significantly revised ISO businessowner policy program became available for use as of January 1, 1997, in a majority of jurisdictions. The businessowner policy revisions have expanded the program's eligibility rules to include over 60 previously ineligible types of businesses. At the same time, 10 businessowners coverage forms have been revised, and 23 new endorsements have been added to the businessowners forms portfolio. The discussion that follows addresses the key features of the ISO businessowners policy program. Policy Modernization Businessowners policies were included in the commercial lines modernization and simplification program implemented by the Insurance Services Office (ISO) during the 1980s. Businessowners COPYRIGHT 1998-2015, SANDI KRUISE INSURANCE TRAINING, ALL RIGHTS RESERVED 7

policy forms were first modernized in 1987, and coverage changes were incorporated into 1989, 1992 and 1997 revisions of the policy forms. The current businessowners policy forms are modeled after the monoline coverage components of the commercial package policy program. The same wording, organization of coverages, and design are followed. Businessowners coverage parts are attached to the policy declarations and a businessowners common conditions form. There has been an expansion of the eligibility requirements in recent years. New types of risks, larger buildings and risks occupying larger areas of floor space are now eligible for businessowners coverage. BUSINESSOWNERS POLICY ELIGIBILITY The eligibility rules for the BOP are more stringent than those for the CPP, which can be used to cover almost any commercial risk. Specific rules of eligibility that deal with the size of buildings, the specific type of business involved, and in some cases, the amount of gross sales, determine what risks are eligible to be covered under a Business owners policy. The ideal BOP prospect is the small, well-managed, one-location business with easily predicted coverage needs. One of the most important 1997 changes to the businessowners program is the expansion of the program's eligibility rules. While the new eligibility rules make businessowners policy coverage available to many more types of businesses than were previously eligible, they are also much more lengthy and detailed than in the past. Following is a summary of businessowner policy eligibility under the 1997 rules, however, for definitive information about businessowner policy eligibility, please refer to Rule 19 in Division 9 (Multiple Line) of the ISO Commercial Lines Manual (CLM). To determine whether a particular type of small business is eligible to be covered under a businessowners policy, agents should check the CLM's classification table. If the business type is eligible, a "BP" class code, rate number, and rate group will be entered opposite the type of business, under the "Multiple Line" heading. If the business is not eligible, there will be no "BP" class code, and an "NA" will appear where the rate number and rate group would otherwise appear. The types of risks which are eligible for a businessowners policy include the following. To be eligible for coverage under a businessowners policy, the insured's buildings, personal property, and operations must meet all of the following criteria: COPYRIGHT 1998-2015, SANDI KRUISE INSURANCE TRAINING, ALL RIGHTS RESERVED 8

Buildings Apartment Buildings Apartment buildings, including residential condominium associations (incidental wholesale, mercantile, contractor, service or processing occupancies which do not exceed 25,000 square feet, and incidental offices are permitted) Office Buildings Office buildings, including office condominium associations, which do not exceed six stories in height and do not exceed 100,000 square feet in total area (incidental wholesale, mercantile, contractor, service or processing occupancies which do not exceed 25,000 square feet, and apartments within the office building are permitted). Mercantile, Wholesaler, Service, or Processing Operations Buildings occupied principally for mercantile wholesaler, service, or processing purposes are eligible if the total floor area of the building does not exceed 25,000 square feet and annual gross sales are not in excess of $3 million. Incidental storage buildings occupied by the insured that do not exceed 25,000 square feet may also be included. Certain processing and service risks (identified in the CLM) are eligible for the ISO BOP program, only if no more than 25 percent of gross sales is derived from retail operations. COPYRIGHT 1998-2015, SANDI KRUISE INSURANCE TRAINING, ALL RIGHTS RESERVED 9

Eligible Wholesale Operations Appliance and home furnishings distributors Automobile parts and supplies distributors Baked goods wholesalers (no baking on premises) Barber or beauty shop supplies distributors (no repackaging or relabeling for "own-brand" retail sales) Bookbinding and printers supplies distributors Clothing or wearing apparel distributors Coin, stamp, or rare books distributors Drug distributors (no repackaging or relabeling for "own-brand" retail sales) Fabric distributors Floor covering distributors Florists wholesalers Fruit or vegetable distributors Gardening and light farming supply distributors Grocery distributors Hardware and tool distributors Hearing aid distributors Heating or combined heating and air conditioning equipment distributors Hobby, model maker, or artists supplies Janitorial supplies distributors Jewelry distributors Meat, fish, poultry, or seafood distributors Office machines or appliances (no repair) Optical goods distributors Plumbing supplies and fixtures distributors Refrigeration equipment distributors Stationary or paper products distributors Tobacco products distributors Toy distributors Service or processing risks which do not exceed 25,000 square feet and do not have annual gross sales in excess of $3 million, provided that no more than 25% of their gross sales is derived from off premises operations. Only processing and service risks specifically listed in ISO manual are eligible Eligible Service and Processing Businesses Appliance installation, servicing and repair Bakeries Barber and beauty shops Photocopying and duplicating Carpet, rug and upholstery cleaning Dental laboratories Engraving and photoengraving Funeral homes COPYRIGHT 1998-2015, SANDI KRUISE INSURANCE TRAINING, ALL RIGHTS RESERVED 10

Hair care, cutting and styling Laundries and dry cleaners Locksmiths Mailing or addressing services Photographers Printing and lithography Shoe repair Tailoring or dressmaking services Taxidermists TV, radio, VCR, and stereo installation and repair Watch, clock and jewelry repair Personal Property Personal property eligible for BOP coverage includes the following: Building owners' personal property in eligible apartment buildings. Personal property in offices that do not occupy more than 25,000 square feet in any one building. Personal property in mercantile wholesaler, service, or processing operations that do not exceed 25,000 square feet and $3 million in annual gross sales at any insured location, including incidental storage facilities not exceeding 25,000 square feet. The ISO rules effective January 1, 1997 make convenience stores with gasoline pumping eligible provided gasoline sales do not exceed 50 percent of total gross sales. No automobile service or repair operation, car-wash operation, propane or kerosene tank filling operation, or restaurant occupancy is permitted. Personal property that is owned by owners of commercial condominium units and is used for eligible mercantile wholesaler, service, or processing. Buildings and Personal Property Under Common Ownership Building owners and business operators who are tenants are eligible. Most BOP policyholders are either landlords or tenants, but some own and occupy the building in which they conduct operations. When both building and personal property are under one ownership, they must both be covered by the businessowners policy. COPYRIGHT 1998-2015, SANDI KRUISE INSURANCE TRAINING, ALL RIGHTS RESERVED 11

Eligible Restaurants Limited cooking restaurants are those where food preparation does not emit enough smoke or grease-laden vapors to require installation of exhaust systems and dry-chemical extinguishing systems. Examples of permitted limited-cooking appliances are electric sandwich grills, toasters, warming ovens, infrared snack warmers, microwave ovens, domestic ranges, domestic ovens, and pizza ovens. Limited-cooking restaurants may include table service but are subject to the following additional eligibility requirements: no more than $3 million in annual gross sales no more than 7,500 square feet in total floor area seating capacity no greater than seventy-five sales of beer or wine only; sales of beer and wine no greater than 25 percent of total sales; no other sales of alcoholic beverages no bar or cocktail lounge catering service (that is, service involving serving of food away from the insured's premises) not exceeding 10 percent of total sales no seasonal operations (businesses that are closed for more than thirty consecutive days) Fast food restaurants may have grilling, enclosed broiling, deep-fat frying, roasting, or barbecuing in addition to appliances acceptable for limited cooking. Open broiling and solid fuel cooking are not permitted. Fast-food restaurants have the following requirements: no more than $3 million in annual gross sales no more than 7,500 sq. ft. total floor area, seating capacity of no more than 150 no table service no bar or cocktail lounge no liquor sales other than beer and wine, beer and wine sales COPYRIGHT 1998-2015, SANDI KRUISE INSURANCE TRAINING, ALL RIGHTS RESERVED 12

no more than 25 percent of total sales, and catering sales no more than 10 percent of total sales. seasonal restaurants that are closed for more than 30 consecutive days are ineligible. installation and maintenance of an automatic extinguishing system for cooking equipment Convenience stores with gasoline pumps Convenience stores with gasoline pumps, provided that total sales of gasoline are less than 50% of total annual gross receipts, and no automobile service, repair or car wash operations are conducted, no propane or kerosene tank filling operations, and no restaurant. Eligible Trade Contractors The 1997 ISO expanded BOP eligibility includes certain special "trade contractors." This program is intended for contractors whose work is in primarily one specialty, such as plumbing. As a rule, more hazardous types of operations are not eligible. Only the thirty-nine classes listed currently in the manual are eligible. Listed below are the eligible trade contractors, which are identified in the ISO CLM by class description and class group. Contractors engaged in these specifically eligible trades must also meet the following criteria: total annual gross receipts of no more than $3 million; total annual payroll of no more than $300,000; total cost of subcontracted work no more than 10 percent of total annual gross receipts; no equipment rented to others; no work at heights of over 3 stories; no cranes used in operations. General contractors are ineligible, as are contractors who currently are or previously were engaged in specified types of work. COPYRIGHT 1998-2015, SANDI KRUISE INSURANCE TRAINING, ALL RIGHTS RESERVED 13

Air conditioning, heating or combined systems or equipment installation, service, or repair (no liquefied petroleum gas equipment work) Appliances and accessories installation, service, or repair Carpentry, both interior and residential property construction Carpet, rug, furniture, or upholstery cleaning on customer's premises Metal ceiling or wall installation Metal door, window, or assembled millwork installation Decorative or artistic metal work installation Concrete construction Driveway, parking area, or sidewalk paving or repaving Drywall or wallboard installation Electrical work within buildings Fence erection Floor covering installation Tile, stone, marble, mosaic, or terrazzo work Glass dealers and glaziers installation Furniture or fixtures installation Interior decorators Lawn sprinkler installation Landscape gardening (no tree removal or excavation) Masonry Painting, paper hanging, plastering, or stucco work Sign painting inside buildings (no spray painting) Plumbing Refrigeration systems or equipment installation, servicing, or repair Roofing Septic tank systems cleaning Siding installation Window cleaning To adapt the BOP to better serve contractors, the following endorsements can be added: Amendment of the aggregate to apply on a per project basis Property damage deductible Higher aggregate limit for products-completed operations Ineligible Businesses COPYRIGHT 1998-2015, SANDI KRUISE INSURANCE TRAINING, ALL RIGHTS RESERVED 14

The businessowners program is designed to provide coverage for a variety of landlords and business operators who have moderate insurance exposures. For this reason, eligibility is defined to exclude certain risks, which do not fit the intended exposure pattern. The following types of businesses are ineligible for coverage under a businessowners policy even if they would otherwise qualify. Automobile repair shops Auto, motor home, mobile home, and motorcycle dealers Businesses located in buildings with ineligible manufacturing or processing occupancies Restaurants and bars not specifically identified as eligible Contractors not specifically identified as eligible Parking lots and garages (except incidental to eligible categories) Bars, grills, and restaurants, other than eligible limited-cooking and fast-food restaurants Condominium associations, other than office or residential condominiums Business operations involving one or more locations used for manufacturing, processing, or service unless they are among the classes specifically designated as eligible classes and they meet all the other eligibility criteria Household personal property One- or two-family dwellings, other than multiple-unit garden apartment groupings within a single area and under common ownership, management, and control Wholesalers, except those specifically designated as eligible. Financial institutions, including banks, savings and loans, credit unions, and stockbrokers Places of amusement, such as theaters and arcades COPYRIGHT 1998-2015, SANDI KRUISE INSURANCE TRAINING, ALL RIGHTS RESERVED 15

COMPONENTS OF A BUSINESSOWNERS POLICY Each businessowners policy is a complete contract and must include the following parts: The Businessowners Policy Declarations The Businessowners Common Policy Conditions A Standard Or Special Property Coverage Form (One Or The Other) The Businessowners Liability Coverage Form Endorsements As Required Samples of these Businessowners Forms are included in the Appendix Section of this text. POLICY DECLARATIONS The ISO BOP follows the format of the ISO commercial package policy (CPP). The policy declarations will show the policy number, name of insurer, name of producer, name and address of the named insured, and the policy period, a description of the business, the form of business, locations of described premises, and name and address of any mortgage holder, as well as limits of insurance will be shown for buildings and for business personal property. Also included are limits of insurance for optional coverages, which apply only if the appropriate boxes are checked indicating that optional coverages are included. BUSINESSOWNERS COMMON POLICY CONDITIONS (BP 00 09) A common policy conditions form containing 12 common policy conditions that are attached to every businessowners policy. The provisions of this form are drawn from the common policy conditions form used with the CPP programs. The common policy conditions in the BOP form deal with the following: Cancellation* Changes Concealment, Misrepresentation, and Fraud Audits Inspections COPYRIGHT 1998-2015, SANDI KRUISE INSURANCE TRAINING, ALL RIGHTS RESERVED 16

Insurance under Two or More Coverages Liberalization Other Insurance* Premiums* Premium Audit* Transfer of Recovery Rights (Subrogation)* Assignment of the Policy *Indicates differences in content between that provision in businessowners forms and the same provision in the applicable interline, commercial property, or commercial general liability form. Cancellation Cancellation - The "first named insured" shown in the declarations may cancel at any time by giving advance written notice to the insurer. If the insurer cancels, it must give written notice to the first named insured at least five days in advance if special circumstances apply, or 10 days in advance if the reason is nonpayment of premium, and at least 30 days in advance if cancelling for any other reason. Provisions allowing for only five days notice in special circumstances are built in to the businessowners form (these are attached to other commercial property coverages by endorsement). The shorter notice time is permitted if the building has been vacant or unoccupied for 60 or more consecutive days, or if repairs for insured damages have not been started or contracted for within 30 days after payment for a loss, or if the building has been declared unsafe or has an outstanding order to be vacated or demolished. Reduced notice is also allowed when property taxes are more than one year overdue (unless the taxes are in dispute), or if certain items are being removed, or if heat, water, sewer service or electricity have not been furnished for 30 days. These cancellation provisions may be amended by endorsement in certain states to satisfy state regulations. Changes Changes - All agreements between the parties to the contract are contained in the policy. The first named insured shown in the declarations is authorized to make changes in the policy terms only with the insurer's consent. Terms can be changed or waived only by endorsement issued by the insurer and attached to the policy. Concealment, misrepresentation, or fraud Concealment, misrepresentation and fraud - The policy will be void in the case of fraud by the named insured. It will also be void if any insured intentionally conceals or misrepresents a material fact concerning the policy, the covered property, insurable interest in the covered property, or a claim under the policy. Examination of the named insured's books and records Audits - The insurer has the right to audit the insured's records, to the extent that it relates to the insurance, and to examine the books and records of the named insured, during the policy period and up to three years afterward. COPYRIGHT 1998-2015, SANDI KRUISE INSURANCE TRAINING, ALL RIGHTS RESERVED 17

Inspections and surveys Inspections - The insurer and rating organizations have the right, but not the obligation, to make inspections, to report on findings, and make recommendations for the purpose of establishing insurability and determining premium charges. These inspections and any resulting recommendations relate only to insurability and are not a guarantee of safety or compliance with any laws or codes. Insurance under two or more coverages Insurance under two or more coverages - If two or more coverages of the policy apply to the same loss or damage, the insurer will not pay more than the actual loss or damage. Liberalization Liberalization - the insurer will automatically and immediately add to the policy any revisions made during the policy period or within 45 days prior to the effective date if those revisions broaden the coverage without additional premium. Other insurance Other insurance - In the event of other insurance covering the same loss or damage as this policy, the insurer will only pay the amount of covered loss or damage in excess of the amount due from the other insurer, whether collectible or not. Liability coverage will always be excess over any coverage that insures for direct loss or damage. When the insurance is excess, the insurer has no duty to defend any claim or suit that any other insurer has a duty to defend, but will undertake to do so if no other insurer defends. Premiums Premiums - A condition on premiums specifies that the first named insured shown in the declarations is responsible for all premium payments, and will be paid any return premiums. The premium shown in the declarations is based on rates in effect and exposures known at the time the policy was issued. If there are midterm changes in the insured's operations and exposures, an additional premium may be due. The policy may be continued, rather than reissued, as of its expiration, and the forms, rates, and rules in effect as of the anniversary date (rather than the expiring forms, rules, and rates) will apply. Premium audit Premium audit - If a premium is shown on the declarations page as an advance premium, the policy is subject to premium audit. In that case, the advance premium is a deposit premium only; the actual COPYRIGHT 1998-2015, SANDI KRUISE INSURANCE TRAINING, ALL RIGHTS RESERVED 18

premium will be calculated at the close of each audit period based on the insured's actual exposures during that period. Once the audited premium is calculated, the first named insured must pay any additional premium due. If the audited premium is less than the advance premium, the excess premium paid will be refunded to the first named insured. The first named insured is required to keep records of the information needed for premium computation and must provide the insured with copies on request. Transfer of rights of recovery against others to the insurer Transfer of rights of recovery (subrogation) - liability coverage All rights of recovery against others with respect to payments made under the policy are transferred to the insurer. The insured must not do anything after the loss to impair the insurer's recovery rights, and must assist the insurer in enforcing them or bringing suit. Transfer of rights of recovery (subrogation) - property coverage To the extent of loss payment made by the insurer, the insured's rights of recovery against others for that loss are transferred to the insurer. However, the insured may waive these rights in writing prior to loss. The insured may also waive these rights against another insured, a tenant, or a related business entity, in writing after loss. Transfer of the named insured's rights and duties Transfer of rights The transfer of rights under the policy, without the insurer's consent, is prohibited except in the case of death of a named insured. In earlier policies this provision was known as an "assignment clause." If a named insured dies, the insured's rights and duties under the policy are automatically transferred to his or her legal representative, or to anyone having temporary custody of the insured's property until a legal representative is appointed. COPYRIGHT 1998-2015, SANDI KRUISE INSURANCE TRAINING, ALL RIGHTS RESERVED 19

BUSINESSOWNERS PROPERTY COVERAGE FORMS A businessowners policy consists of the businessowners common policy conditions form, the businessowners liability coverage form, and one of the two businessowners property coverage forms (plus declarations and any applicable businessowners endorsements). The Businessowner coverage forms are as follows: BUSINESSOWNERS COVERAGE FORMS There are three basic businessowners coverage forms, listed below. Businessowners Standard Property Coverage Form (BP 00 01) Businessowners Special Property Coverage Form (BP 00 02) Businessowners Liability Coverage Form (BP 00 06) These forms and endorsements are similar but not identical to ISO CPP counterparts. What follows is, a discussion of the provisions of the key businessowners forms. A discussion of the differences between businessowners forms and their CPP counterparts appears later in the text. STANDARD OR SPECIAL PROPERTY COVERAGE FORM There are two businessowners property coverage forms from which to choose. ISO rules specifically forbid the use of both forms within a single businessowners policy to provide different coverage on different types of property. Businessowners Standard Property Coverage Form (BP 00 01) Businessowners Special Property Coverage Form (BP 00 02) The two versions differ only with respect to covered causes of loss and the type of optional money and securities coverage available. Most of the coverages provided by the two forms are identical. The standard" coverage is similar to "basic" coverage provided by other commercial forms, while "special" coverage means the same "all risk" type coverage provided by the special causes of loss form. Each version insures buildings and personal property as well as business income and extra expense. In addition, each version contains optional coverages for outdoor signs, interior glass, employee COPYRIGHT 1998-2015, SANDI KRUISE INSURANCE TRAINING, ALL RIGHTS RESERVED 20