Education ProgramS r Do You Know? The BOP is great but... sponsored by
Do You Know The BOP is Great. but with Irene Morrill, CPCU, CIC, ARM, CRM, CRIS, LIA, CPIW Vice President of Technical Affairs Massachusetts Association of Insurance Agents This program is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. With special thanks to the Insurance Services Office, Inc. for advance information, continued support, and permission to use their forms and information. A look at some BOP policy limitations A look at some important enhancements/endorsements and the reasons for them 1
Hired Auto and Auto Non-ownership coverage ALL risks have an auto exposure whether it owns an auto or not. 1) Owned auto.obvious 2) Rented/borrowed auto 3) Vicarious liability Hired Auto and Auto Non-ownership coverage If there IS an owned auto purchase through the BAP 2
Hired Auto and Auto Non-ownership coverage If no owned auto.could still purchase through the BAP An auto non-ownership/hired auto policy CAN be ceded if the carrier chooses but CAR will NOT force them to Symbols 8 and 9 Hired Auto and Auto Non-ownership coverage If no owned auto and carrier NOT choose to issue BAP then add to Business owners Policy (BOP) And some companies allow you to add to CGL. 3
Hired Auto and Auto Non-ownership coverage The BOP and CGL excludes BI/PD arising from ANY auto owned by operated by rented to loaned to ANY insured Hired Auto and Auto Non-ownership coverage If no owned auto and carrier NOT choose to issue BAP Auto non-ownership CAN be added by endorsement to BOP 4
Hired Auto and Auto Non-ownership coverage Can buy 1)hired auto 2) non-owned auto Or BOTH!! Hired Auto and Auto Non-ownership coverage Covers BI/PD arising out of hired autos rented by You Your employees Covers BI/PD arising out of ANY non-owned auto used in Your business By ANY person 5
Hired Auto and Auto Non-ownership coverage The 2006 and 2010 editions works like the BAP with the CA 99 33 Employee as insureds Endorsement! Hired Auto and Auto Non-ownership coverage The 2002 ISO version is NOT as good!!! Employees are NOT insureds and therefore the BAP with the CA 99 33 endorsement SHOULD be used instead!!! 6
Hired Auto and Auto Non-ownership coverage My personal feeling in life if my employer wants me to use a vehicle that either I own or rent on behalf of them then they should provide liability coverage for me just as they do for other job related activities~ Special Form BOP. glitches spoilage; interruption of service Special form is NOT all risk Power surge could result in: 1) contents spoilage 2) equipment breakdown 3) Wiring/building damage 7
Special Form BOP. glitches spoilage; interruption of service (2002/2006 editions) Special form is NOT all ris The exclusions of: Wear and tear Mechanical breakdown Temperature changes Could result in spoilage Damage to contents in process Special Form BOP. glitches spoilage; interruption of service (2002/2006 editions) The concurrent causation exclusion for loss due to: Off premises power failure Lack of sufficient power Resulting covered cause of loss WOULD be covered such as frozen pipes But inability to operate and generate income due to storm damage to power lines would NOT be covered 8
2010/2013 edition power failure exclusion changed Special Form BOP. glitches interruption of service Exclusion title is revised to Utility Services. Exclusion is not limited to power failure, but to multiple facets of utility services (communication and water also mentioned) 2010/2013 edition power failure exclusion changed Special Form BOP. glitches interruption of service Revising the exclusion to NOW exclude utility failure that originates at the described premises when such failure involves equipment used to provide utility service supplied by an off premises provider (cables/transmission lines) Reduction in coverage A power surge related to the power failure event is part of the exclusion. 9
2010/2013 edition power failure exclusion changed Special Form BOP. glitches interruption of service Use same Utility Services Endorsements Utility Services Direct Damage Endorsement BP 04 56 Utility Services Time Element Endorsement BP 04 57 Special Form BOP. glitches spoilage; interruption of service Potential methods to provide coverage for contents and building due to Interruption of power or other utilities Mechanical breakdown Power surge 10
Special Form BOP. glitches spoilage; interruption of service Methods using the BOP Endorsements to BOP policy BP 04 56 Utility Services Direct Damage BP 04 57 Utility Services Indirect Damage BP 04 15 Spoilage Coverage BOP Optional Coverages Mechanical Breakdown (2002/2006) Equipment Breakdown (2010) Special Form BOP. glitches spoilage; interruption of service Methods other than BOP Separate Equipment Breakdown Policy 11
Special Form BOP. glitches spoilage endorsement; (all editions) DIRECT physical damage to perishablests tock Covered cause of loss as defined in endorsement Special Form BOP. glitches spoilage endorsement; (all editions) At DESCRIBED location either your property or property of others in your c/c/c IN building not on building not in vehicles not in open 12
Special Form BOP. glitches spoilage endorsement; (all editions) Defines perishable stock contents: Normally under controlled temperature/humidity Prone to loss if temperature/humidity changes Special Form BOP. glitches spoilage endorsement; (all editions) Two potential causes of losses for perishable stock 1) Breakdown/contamination Change in temperature or humidity due to mechanical breakdown or failure Contamination by refrigerant AT described location 13
Special Form BOP. glitches spoilage endorsement; (all editions) Two potential causes of loss for perishable stock 2) Power Outage Interruption of power BEYOND your control on or off premises Special Form BOP. glitches spoilage endorsement; (all editions) Normal BOP exclusions removed for perishable stock OTHER than Earthquake Government Nuclear War Water 14
Special Form BOP. glitches spoilage endorsement; (all editions) Some exclusions for this perishable stock added a) Disconnecting power b) Shutting off power c) Inability of utility company from providing power if due to lack of fuel Gov t order (forced brown out) Special Form BOP. glitches spoilage endorsement; (all editions) Some exclusions for this perishable stock added d) Lack of own power source to provide sufficient power e) Break glass that is part of refrigeration unit 15
Special Form BOP. glitches spoilage endorsement; (all editions) Pay 1) Selling price if sold but not delivered 2) ACV if not sold (what about profit loss?) Special Form BOP. glitches spoilage endorsement; (all editions) BP 04 15 Spoilage Endorsement good for stock like Food Medicine Flowers The breakdown or contamination option covers spoilage caused by the breakdown of the refrigeration, cooling, or humidity control equipment, or damage from refrigerant (e.g., ammonia) contamination. There is no requirement that the power outage be the result of a covered cause of loss. 16
Special Form BOP. glitches spoilage endorsement; (all editions) DIRECT DAMAGE ONLY. No resulting loss of business income or extra expense loss payment may only be ACV Special Form BOP - glitches interruption of service (all editions) Utility Services endorsements Need TWO Direct BP 04 56 Indirect BP 04 57 17
Special Form BOP - glitches interruption of service (all editions) Utility Services Direct Damage BP 04 56 Special Form BOP - glitches interruption of service (all editions) Utility Services Direct Damage BP 04 56 What type of utility service 1) Water 2) Communication 3) Power ALWAYS request INCLUDES overhead transmission lines 18
Special Form BOP - glitches interruption of service (all editions) Utility Services Direct Damage BP 04 56 Need Direct physical loss To service provider described location (Paragraph C) By a BOP covered peril Special Form BOP - glitches interruption of service (all editions) Utility Services endorsement BP 04 56 Is constant water supply necessary for operations? Internet or telephone or satellite vital? Utilities such as electric, gas, steam essential to operations? 19
Special Form BOP - glitches interruption of service (all editions) Utility Services endorsement BP 04 56 If the cause of the service interruption is not a covered cause of loss, the resulting damage is not covered. (need perils that would be covered if happened at OWN premises) This means that no coverage is provided for damage caused by a service interruption that is the result of mechanical breakdown of the utility company's equipment. Loss caused by damage to overhead transmission lines must be specifically included or excluded in the endorsement schedule THE SPOILAGE endorsement DOES cover this. Special Form BOP - glitches interruption of service (all editions) Utility Services Time Element BP 04 57 Need to identify the same utility/power sources desire Water Communication Power (Gas/electric/steam) AGAIN always Request overhead Transmission lines 20
Special Form BOP - glitches interruption of service (all editions) Utility Services Time Element BP 04 57 Would need to add the time element coverage for loss of BII and EE resulting from the excluded causes of loss Doesn t change the Time period deductible in BOP/CP form so need a separate endorsement to reduce/remove the 72 hour deductible for BII Special Form BOP - glitches interruption of service 2010/2013 BOP changes Mechanical Breakdown option to Equipment Breakdown option 21
Special Form BOP - glitches interruption of service (all editions) Equipment Breakdown coverage separate policy Definitely covers: Loss or damage caused by artificially generated electric current, including electric arcing, that disturbs electrical devices, appliances, or wires Loss or damage caused by mechanical breakdown, including rupture or bursting caused by centrifugal force Most provide certain amount of spoilage/contamination coverage; utility services interruption Special Form BOP. glitches vacant buildings NO coverage for certain Perils after 60 days vacancy VMM Sprinkler leakage Building glass Water damage Theft Attempted theft ALL OTHER losses reduced by 15% 22
Special Form BOP. glitches vacant buildings Vacancy is DEFINED in the policy. For tenants Not have enough stuff to conduct business Special Form BOP. glitches vacant buildings Vacancy is DEFINED in the policy. For tenants When does the going out of business sale become a vacant operation??? 23
Special Form BOP. glitches vacant buildings Vacancy is DEFINED in the policy. For building owners % of area rule Must USE 31% TOTAL building area Rental to others or Use yourself Special Form BOP. glitches vacant buildings Vacancy is DEFINED in the policy. For building owners What if only use 25% and WANT to rent out the other 75%.but in tough economic times you can t 24
H a r d w a r e C o m p u t e r s Special Form BOP. glitches vacant buildings Special Form BOP. glitches vacant buildings Example: Building has been vacant for 72 days Cause of Loss Amount Policy pays Vandalism $100,000 Wind Storm $100,000 0 $85,000 25
Special Form BOP. glitches vacant buildings Vacancy is DEFINED in the policy. For building owners or tenants: Good news a building under Construction OR Renovation is NOT considered Vacant!!! Special Form BOP. glitches vacant buildings Endorsements to modify the vacancy issue Vacancy Changes BP 04 86 Vacancy Permit BP 04 87 26
Special Form BOP. glitches vacant buildings Vacancy Changes BP 04 86 Changes the % Of area that Defines vacant Building In previous Example use 25% Special Form BOP. glitches vacant buildings Vacancy Permit BP 04 87 Changes amount Of time the Building can be Vacant (over the 60 days in the policy) 27
Special Form BOP. glitches vacant buildings Don t forget MA law vacancy issue for fire and lightning (Found in BP 01 08) No Fire or lightning after 60 days if residential building 3 units or less 30 days for all other risk types Own definition like the Tenant definition Special Form BOP. glitches business income Good news Business Income coverage is automatic and no limit or actual loss sustained within 12 months from date of direct physical loss 28
Special Form BOP. glitches business income Good news Extra Expense coverage is automatic and no limit or actual loss sustained within 12 months from date of direct physical loss Special Form BOP. glitches business income If your risk would take LONGER than 12 months to rebuild too bad nothing you can do Should have had a regular BII policy 29
2013 new endorsements 1. BII and EE Revised Period of Indemnity 12 month of policy can be EXPANDED or REDUCED 2. Still actual loss sustained of BOP 2013 new endorsements BII/EE on specified limit basis NOT ALS But you better know how much you need!!! Limit INCLUDES the policy options of: Civil Authority BI from Dependent Properties Interruption of Computer Ops (no longer in addition to) 30
Special Form BOP. glitches business income Also ordinary payroll is limited 60 days Will your insured be up and running within 60 days Will they wait to be called back if not? Does the insured care? If so modify coverage!!! Consider endorsement Can make certain job classifications continue to be paid after 60 days Remove from ordinary payroll definition as coverage for ordinary payroll ends 60 days after loss 31
Special Form BOP. glitches business income Also for BII the FIRST 3 days of loss is NOT COVERED!!!!! We see the insuring agreement discuss loss sustained during the period of restoration Special Form BOP. glitches business income Also for BII the FIRST 3 days of loss is NOT COVERED!!!!! Period of restoration starts THREE days AFTER the direct physical loss for BII 32
Special Form BOP. glitches business income Good news extra expense loss starts immediately But how much $$$ can be lost within the first 3 days? EE loss starts ASAP Special Form BOP. glitches business income Consider modifying the definition of period of restoration with BP 04 41 BII starts ASAP with This Endorsement 33
Special Form BOP. glitches business income BII from dependent properties is limited consider Increasing overall value if necessary to your client Special Form BOP. glitches business income BOP declarations pages allow a higher limit for BII due to dependent property situation 34
Special Form BOP. glitches property in c/c/c Contents in the insured s c/c/c is limited to described location (edition language prior to 2013) contents covered IN buildings at described location or out in open at described location or within 100 feet of described premises Special Form BOP. glitches property in c/c/c Contents in the insured s c/c/c is limited to described location (2013 BOP ) contents covered IN buildings at described location or out in open at described location or within 100 feet of described premises OR 100 feet of building whichever GREATER (to help tenants in building ) 35
Special Form BOP. glitches property in c/c/c If insured has property of others ON premises include in BPP scheduled limit Special Form BOP. glitches property in c/c/c If insured has property of others ON premises include in BPP limit or blanket basis 36
Special Form BOP. glitches property in c/c/c If have property of others in c/c/c OFF premises. oh oh if need more than $10,000 Special Form BOP. glitches property in c/c/c If property in c/c/c is REAL property.such as when a tenant might have to do something here since liability coverage will NOT respond If the client rents/leases the whole building could add building coverage to the BOP but when rent/lease portion of the building we need to address loss to it elsewhere in the policy. 37
Special Form BOP. glitches property in c/c/c BOP liability excludes. Building in one s c/c/c Contents in one s c/c/c Special Form BOP. glitches property in c/c/c BOP liability excludes. Short term rental less than 7 days is forgiven - but long term rental AND fire loss in short term rental is restricted 38
Special Form BOP. glitches property in c/c/c BOP liability excludes. That portion of the building occupied by insured is limited to ONLY being covered for negligent theft and then subject to a smaller fire damage limit Special Form BOP. glitches property in c/c/c Consider adding the tenant liability endorsement Remember it is Negligence based.. So damage by tornado not applicable! 39
BOP glitches.signs Excludes non-attached signs and relegates coverage to the Outdoor Property extension coverage BOP glitches.signs Higher Outdoor property limit than older CP counterpart but still only FIVE perils for nonattached signs 40
BOP glitches.signs Only $1000 for attached signs But get full policy perils BOP glitches.signs BOP has sign option for attached or non-attached sign 41
Insurance to value penalty Must carry 80% of building or personal property in order to get R/C coverage. Otherwise get. Insurance to value penalty Only get ACV Or Underinsurance penalty Did/should 42
Insurance to value penalty No agreed value option like in CP But there is an endorsement to remove the insurance to value provision Thank you for attending The BOP is Great. but 43