8.2 BOP Limits, Deductibles, Additional Coverages, Loss & General Conditions, Optional Coverages & Endorsements (BP 04 30, BP 04 56, BP 04 57)
Key Takeaways
- The BOP has no coinsurance clause; instead the building limit increases automatically by an annual percentage and the business personal property limit rises 25% for seasonal variations when the insured carries at least 100% of average monthly values.
- BOP business income and extra expense are paid on an actual-loss-sustained basis for up to 12 months, with no separate dollar limit.
- The BOP vacancy condition, like commercial property, eliminates vandalism, sprinkler leakage, glass, water damage, and theft after 60 consecutive days of vacancy and reduces other losses by 15%.
- The Protective Safeguards endorsement (BP 04 30) removes fire coverage if the insured knew a required safeguard such as an automatic sprinkler system was impaired and failed to notify the insurer.
- Utility Services — Direct Damage (BP 04 56) and Utility Services — Time Element (BP 04 57) buy back coverage for off-premises utility interruptions caused by a covered peril at the utility's property.
Limits of Insurance: Automatic Increases Instead of Coinsurance
The BOP has no coinsurance clause. It encourages insurance to value in two automatic ways:
| Provision | Rule | Example |
|---|---|---|
| Building — automatic increase | The building limit increases through the policy year by the annual percentage shown in the declarations (the ISO default is 8% when no other percentage is shown), prorated to the date of loss | $1,000,000 building limit, 8% annual, loss at mid-term → about $1,040,000 available |
| Business personal property — seasonal increase | The BPP limit increases by 25% to cover seasonal variations, but only if the BPP limit is at least 100% of the average monthly values during the 12 months before the loss | $200,000 BPP limit, average monthly values $190,000 → $250,000 available at the holiday peak |
Deductible
A single per-occurrence property deductible shown in the declarations applies to each covered loss. The deductible does not apply to certain additional coverages, such as business income, extra expense, civil authority, and the fire department service charge.
Business Income and Extra Expense
- Business income: actual loss sustained during the period of restoration, up to 12 consecutive months after the date of direct physical loss, with no separate dollar limit. A waiting period (72 hours in the standard form) applies.
- Extra expense: necessary expenses incurred during the period of restoration to avoid or minimize suspension of operations, for up to 12 months.
- Extended business income: continues after operations resume, for a limited number of days, while income recovers to normal.
- Civil authority: business income and extra expense when a civil authority prohibits access because of damage to nearby property by a covered cause of loss, for a limited period.
Selected Additional Coverages and Extensions
| Coverage | Key point |
|---|---|
| Debris removal | Paid within the limit up to a percentage of the direct loss, plus an additional amount if limits are exhausted |
| Preservation of property | Covers property moved to protect it from loss, for up to 30 days |
| Fire department service charge | Up to $2,500, with no deductible |
| Collapse | Abrupt collapse from specified causes (hidden decay, hidden insect damage, weight of people or property, and similar) |
| Water damage, other liquids | Pays to tear out and replace part of the building to repair a leaking system |
| Pollutant cleanup and removal | $10,000 annual aggregate for pollutant cleanup caused by a covered cause of loss |
| Forgery or alteration | Checks and drafts forged or altered, up to $2,500 |
| Money orders and counterfeit money | Up to $1,000 |
| Increased cost of construction | Code-upgrade costs for covered buildings on replacement cost, up to $10,000 |
| Outdoor property (extension) | Fences, antennas, signs (not attached), trees, shrubs, and plants against named perils, up to $2,500, but not more than $1,000 per tree, shrub, or plant |
Loss Conditions
- Abandonment: no abandonment of property to the insurer.
- Appraisal: the standard two-appraisers-and-umpire mechanism.
- Duties in the event of loss: notify police of any crime; give prompt notice; protect property; provide an inventory; permit inspection; submit to an examination under oath; send a signed, sworn proof of loss within 60 days after the insurer's request; cooperate.
- Legal action against us: within two years after the date of direct physical loss (subject to New York's Standard Fire Policy minimum for fire).
- Loss payment: the insurer may pay, repair, rebuild, replace, or take property. Replacement cost is the default valuation, with exceptions for certain property.
- Recovered property and resumption of operations (business income is reduced to the extent the insured can resume operations).
- Vacancy: after 60 consecutive days of vacancy, no coverage for vandalism, sprinkler leakage (unless protected against freezing), building glass breakage, water damage, theft, or attempted theft, and other covered losses are reduced by 15%.
General Conditions
Control of property; mortgageholders (a standard mortgage clause protecting named mortgageholders); no benefit to bailee; policy period and coverage territory; and the Businessowners Common Policy Conditions (cancellation, changes, concealment or fraud, examination of books, inspections, insurance under two or more coverages, liberalization, other insurance, premiums, transfer of rights of recovery against others to us, and transfer of the insured's rights and duties).
Optional Coverages
Available by selection on the declarations: outdoor signs, money and securities, employee dishonesty, and equipment breakdown protection, which buys back the mechanical breakdown and steam boiler exclusions (Section 7.4).
Endorsements Named on the Outline
Protective Safeguards (BP 04 30)
The insured must maintain the protective devices or services listed in the schedule, such as an automatic sprinkler system, an automatic fire alarm, a security service, or an automatic commercial cooking exhaust and extinguishing system. The insurer will not pay for fire loss if, before the fire, the insured knew of a suspension or impairment of a listed safeguard and failed to notify the insurer, or failed to maintain the safeguard in working order. Exceptions exist for temporary shutdowns for repair or testing that are reported as required.
Adjusting scenario: a restaurant fire starts at the fryer. The insurer learns the hood suppression system was last serviced two years ago. The PA's questions: was the system actually impaired? Did the insured know? Was the insurer notified? Do the endorsement's exact words (and New York law on forfeitures) support a denial?
Utility Services — Direct Damage (BP 04 56)
The base BOP excludes loss from failure of utility service originating away from the premises. BP 04 56 covers direct physical loss or damage to covered property caused by an interruption of water supply, communication supply, or power supply services to the premises. The interruption must result from direct physical loss by a covered cause of loss to the utility property, such as a lightning strike on a substation. Overhead transmission lines are included only if the schedule says so.
Utility Services — Time Element (BP 04 57)
Extends the same off-premises utility interruption to business income and extra expense, so income lost while the power is out is covered, subject to the endorsement's conditions and waiting period.
A BOP insured's business personal property limit is $300,000. Over the prior 12 months, its average monthly BPP value was $280,000. A covered fire in December destroys $360,000 of property at the holiday inventory peak. How much BPP limit is available?
On what basis does the standard BOP pay business income loss?
A BOP carries the Protective Safeguards endorsement listing an automatic sprinkler system. The insured shut the sprinkler system off a week before a fire to save on repairs and did not notify the insurer. How does the endorsement affect the fire claim?