9.2 Building and Personal Property Coverage Form (BPP)

The Building and Personal Property Coverage Form

The Building and Personal Property Coverage Form (BPP, ISO form CP 00 10) is the most-tested commercial property form. It insures three categories of covered property, each selected separately on the declarations with its own limit.

Three coverage categories

• Building — the structure, permanently installed fixtures, machinery and equipment, and outdoor fixtures.
• Business Personal Property (BPP/contents) — furniture, stock, machinery not part of the building, and improvements the insured made to leased space.
• Personal Property of Others — customer or third-party property in the insured's care, custody, or control; loss is paid to the owner.

Valuation: ACV versus Replacement Cost

The BPP defaults to Actual Cash Value (ACV) = replacement cost minus depreciation. Replacement Cost (RC) must be elected by entry on the declarations. Under RC the insurer pays the cost to repair or replace with like kind and quality, with no deduction for depreciation, but holdback applies until repairs are actually completed.

The Coinsurance condition

Most BPP policies carry an 80%, 90%, or 100% coinsurance clause. The insured must carry a limit equal to at least that percentage of the property value at the time of loss, or share the loss. The penalty formula is:

Recovery = (Did Carry / Should Have Carried) x Loss - Deductible

Worked coinsurance example

A building worth $500,000 carries an 80% coinsurance clause, so the insured should carry $400,000. The insured actually carries $300,000 and suffers a $100,000 loss with a $1,000 deductible.

• Did/Should = $300,000 / $400,000 = 0.75
• 0.75 x $100,000 = $75,000
• Less $1,000 deductible = $74,000 paid

The $25,000 shortfall is the coinsurance penalty the insured absorbs for underinsuring.

Additional Coverages and Extensions

Built-in Additional Coverages include Debris Removal (25% of loss plus deductible, with an extra $10,000 if the cap is exhausted), Preservation of Property, Fire Department Service Charge ($1,000), and Pollutant Cleanup ($10,000 annual aggregate). Coverage Extensions (newly acquired property, personal effects, valuable papers, outdoor property) require the insured to meet the coinsurance requirement to apply.

Property not covered and why it matters

Within the three covered categories, the BPP lists property not covered: money and securities (insure under Crime), land and water, the cost of excavations, foundations below grade, outdoor signs unless added, growing crops and lawns, and vehicles licensed for road use. Knowing these prevents over-promising - a stolen cash drawer is a Crime claim, not a BPP claim, and a damaged company truck is a Commercial Auto physical-damage claim.

Vacancy provision - a frequent exam trap

If a building is vacant more than 60 consecutive days before a loss, the insurer (1) pays nothing for vandalism, sprinkler leakage, glass breakage, water damage, theft, or attempted theft, and (2) reduces all other covered losses by 15%. "Vacant" for a tenant means the unit lacks enough business personal property to conduct customary operations; for an owner it means less than 31% of total square footage is rented or used. This is tested with a scenario where an owner empties a building for renovation and is surprised by the penalty.

Optional coverages that must be elected

The BPP offers four Optional Coverages that activate only by an entry on the declarations: Agreed Value (suspends coinsurance when a statement of values is filed), Inflation Guard (raises the limit by a stated annual percentage), Replacement Cost (overrides ACV), and Extension of Replacement Cost to Personal Property of Others. Because RC and Agreed Value must be elected, the default of ACV with full coinsurance is the most common cause of an underinsurance surprise.

Worked ACV-versus-RC example

A roof costs $40,000 to replace, has a 20-year life, and is 10 years old at loss. Straight-line depreciation is 50%:

• ACV settlement = $40,000 - $20,000 depreciation = $20,000, paid immediately.
• Replacement Cost settlement = full $40,000, but the insurer pays ACV first and releases the $20,000 recoverable depreciation only after replacement is completed and proof submitted.

This holdback is why RC policies do not hand the insured new value up front, and it is a favorite distractor on the exam.

Coinsurance mechanics on the BPP

Coinsurance is the BPP's most tested feature. The insured must carry a limit equal to the coinsurance percentage (80%, 90%, or 100%) of the property's value at the time of loss, or share the loss under Recovery = (Did Carry / Should Have Carried) x Loss - Deductible.

Worked example: a building worth $500,000 with an 80% clause should be insured for $400,000; insured for only $300,000 with a $100,000 loss and a $1,000 deductible, recovery is ($300,000/$400,000) x $100,000 = $75,000, minus $1,000 = $74,000, and the insured absorbs the $25,000 penalty for under-insuring. Electing Agreed Value with a signed statement of values suspends this penalty for the term.

Additional coverages and the seasonal-increase trap

The BPP builds in Additional Coverages that do not require separate limits: Debris Removal (25% of the loss plus the deductible, with an extra $10,000 if exhausted), Preservation of Property, Fire Department Service Charge ($1,000), and Pollutant Cleanup ($10,000 annual aggregate). Coverage Extensions (newly acquired property, personal effects, valuable papers, outdoor property) apply only if the insured meets the coinsurance requirement.

A frequent trap involves seasonal inventory: businesses whose stock spikes (a toy store before the holidays) should buy the Peak Season endorsement or a reporting form, because the flat BPP limit may leave them under-insured exactly when values are highest - triggering a coinsurance penalty on a peak-season loss.