Eligible Processing Or Service Businesses

Restaurants

Certain fast food and limited-cooking restaurants are also eligible for the Business Owners Policy. A limited-cooking restaurant is one where food is prepared cold or cooked using appliances that do not emit smoke or grease-laden vapors that require an exhault system. Examples of such appliances include microwave ovens, electric warmers, household-type ranges or ovens, and toasters. Other eligibility requirements are:

• No more than 7,500 square feet of floor area

• Seating capacity of 75 or less

• Sales of beer or wine may represent no more than 25% of total sales, and liquor may not be sold

• Catering service may not exceed 10% of total sales

• Seasonal risks closed for more than 30 consecutive days during the year are not eligible

A fast food restaurant may use certain appliances that emit grease-laden vapors, such as grills, enclosed broilers and deep fat fryers, but open broiling and solid fuel (charcoal or hardwood) cooking are not permitted. Additional requirements are the same as for limited-cooking restaurants, except that fast food restaurants may have a seating capacity of 150 and they must have fire extinguishing equipment appropriate for their cooking appliances.

Eligible limited-cooking and fast food restaurants include:

Eligible Restaurant Risks

Certain convenience food/gasoline stores are also eligible. Gasoline sales may account for no more than 50% of total sales. The business may not include a restaurant, auto service or repair operations, a car wash, or tank filling operations for propane or kerosene.

Contractors

Contractors may be eligible for a Business Owners Policy if certain requirements are met. The following factors make a contractor ineligible for coverage:

Ineligibility Factors For Contractors

Contractors working in the following trades are eligible for a Business Owners Policy if none of the factors listed in the previous table apply:

Eligible Contractors

Ineligible Risks

The following table lists risks that cannot be covered under the Business Owners Policy.

Ineligible Risk Categories

ORGANIZATION

Insurance Services Office’s (ISO) Business Owners Policy consists of:

• Business Owners Declarations

• Business Owners Common Policy Conditions form

• One of two available Business Owners Property forms

• Business Owners Liability form

Business Owners Common Policy Conditions And Declarations

The Business Owners Common Policy Conditions form contains the following conditions, which are similar to those found in the CPP (Commercial Package Policy) Common Policy Conditions:

• Cancellation

• Changes

• Concealment, Misrepresentation Or Fraud

• Examination Of Records

• Inspections And Surveys

• Insurance Under Two Or More Coverages

• Other Insurance

• Liberalization

• Premiums

• Transfer Of Rights Of Recovery Against Others To The Insurance Company

• Transfer Of Rights And Duties Under The Policy

The Business Owners Declarations contains the same type of information found in the Commercial Package policy Declarations.

BUSINESS OWNERS PROPERTY FORMS

Standard And Special Forms

The insured has a choice of two Business Owners Property forms – the Business Owners Standard Property form and the Business Owners Special Property form. These forms are very similar to the Commercial Property forms.

The Business Owners Standard Property form insures against a list of named perils:

• Fire

• Lightning

• Explosion

• Windstorm or hail

• Smoke (except smoke from an industrial or agricultural smudging operation)

• Aircraft or vehicles

• Riot or civil commotion

• Vandalism and malicious mischief

• Sprinkler leakage

• Sinkhole collapse

• Volcanic action

• Transportation damage to property in transit

The Business Owners Special Property form provides open peril coverage.

Building Coverage

Both Business Owners Property forms provide coverage for buildings (including landlord’s personal property) and business personal property (including the property of others to the extent of the insured’s liability). Coverage for buildings includes:

• Completed additions

• Permanently installed machinery and equipment

• Fixtures, including outdoor fixtures

• Personal property owned by the insured that is used to maintain or service the building, including fire extinguishing equipment, outdoor furniture, floor coverings, and appliances used for refrigerating, ventilating, cooking, dishwashing, or laundering

• Personal property furnished by the insured in apartments or rooms rented to others

The following are also usually covered if no other insurance applies:

• Additions under construction

• Alterations and repairs to the buildings or structures

• Materials, equipment, supplies, and temporary structures that are on or within 100 feet of the premises and being used for additions, alterations or repairs

Business Personal Property Coverage

To be covered under the Business Owners Property forms, business personal property must be located at the described premises and either:

• In or on the building, or;

• In the open or in a vehicle within 100 feet of the premises

Typically, four different classes of business personal property are covered:

• Property owned and used by the insured in the business (such as inventory)

• Property of others in the insured’s care, custody or control (such as business equipment rented by the insured for use in the business)

• Tenant’s improvements and betterments made at the tenant’s expense to a building the tenant occupies but does not own, and which cannot legally be removed (such as alterations tenants make to buildings they rent to operate their business)

• Leased personal property that the insured has a contractual responsibility to insure, such as photocopiers and computer equipment

Property Not Covered

The business Owners Property forms do not cover:

• Aircraft

• Motor vehicles and other vehicles subject to motor vehicle registration

• Land, water, growing crops, and lawns

• Contraband and property being illegally traded or transported

• Outdoor fences, trees, shrubs, and plants*

• Outdoor radio or television antennas, satellite dishes, and lead-in wiring, masts or towers*

• Money, securities and bullion*

• Watercraft while afloat, including motors, equipment and accessories

• Outdoor signs that are not attached to buildings*

* Except as provided under coverage extensions or optional coverages

Additional Coverages

Both Property forms include additional coverages that provide reimbursement for specific situations. Normally, these coverages do not provide an amount of insurance in addition to the policy limits. The following additional coverages are included in both the Standard and Special Property forms:

• Debris Removal: Pays expenses to remove debris of covered property caused by a covered cause of loss during the policy period. It pays up to 25% of the amount paid for the direct physical loss that is applicable to that loss, plus the deductible.

For example, assume an insured has $100,000 of insurance on a building with a $1,000 deductible. A covered $30,000 loss occurs. The most this insured could collect for debris removal is $8,500 ($30,000 loss x 25% + $1,000 deductible). An additional $10,000 of insurance is available for debris removal under these circumstances:

__ The amount paid for the direct physical loss and the debris removal expense exhaust the limit of insurance

__ The maximum amount collectible for debris removal as described above is not enough to cover the debris removal expense

• Preservation Of Property: Covers loss from any cause of loss to property that was removed from the insured location to protect it from damage by a covered peril. Coverage applies while the property is being moved or while it is temporarily stored at another location, but only for 30 days after the property is first moved.

• Fire Department Service Charge: Pays up to $1,000 for fire department service charges. This is paid in addition to the limit of insurance.

• Business Income: Pays loss of income that the insured sustains due to a direct physical loss from a covered peril that forces the insured to suspend business operations. Coverage is provided until the business is repaired, rebuilt or replaced.

• Extended Business Income: Pays for loss of business income, even after operations have been resumed, until the business has been fully restored to its previous earnings level, but for no more than 30 days from the date business is resumed.

• Extra Expense: Reimburses the insured for additional costs incurred to avoid or minimize suspending business operations after a covered loss.

• Pollutant Cleanup And Removal: Provides up to $10,000 coverage for the costs to extract pollutants from land or water at the insured’s premises as a result of a covered loss.

• Civil Authority: Pays loss of income that the insured sustains due to actions of civil authorities that prohibit access to the insured premises because property other than the described premises was damaged by a civil authority and is available for up to three consecutive weeks.

• Money Orders And Counterfeit Paper Currency: Covers loss incurred when an insured accepts money orders and counterfeit paper currency in good faith in exchange for merchandise, money or services.

• Forgery And Alteration: Covers loss from forgery or alteration of checks, drafts and similar items made or drawn by or on the insured or the insured’s agent.

• Increased Cost Of Construction: Pays up to $5,000 for additional costs required to comply with ordinances or laws related to repair or replacement of damaged buildings. Applies only to buildings insured on a replacement cost basis.

• Exterior Glass: Covers damage to exterior building glass, including lettering and ornamentation.

These additional coverages are only included in the Special Property form:

• Collapse: Covers damage to covered property caused by the collapse of an insured building if the collapse is caused by a specified peril.

• Water Or Other Liquid, Powder Or Molten Materials: Covers loss to a building that indirectly results from the escape of water or other liquid, powder or molten materials, including costs to tear out and replace any part of the building to repair damage to the system from which the material escaped.

Coverage Extensions

Coverage extensions allow the insured to extend the insurance for other specified purposes. They generally include a separate limit of liability that is available in addition to the policy’s limit of liability. These coverage extensions are included in both Property forms.

• Business Personal Property At Newly Acquired Premises: Covers business personal property that is moved to a premises that the insured acquires during the policy term. The maximum the insurer will pay is $100,000 at each premises. Coverage under this extension ends as soon as any of the following occur: the policy expires, the insured reports actual values to the insurer or 30 days expire after the date the premises is acquired or construction begins.

• Business Personal Property Off Premises: Covers business personal property while it is in transit or temporarily located at premises not owned, leased or operated by the insured. A $5,000 limit applies.

• Outdoor Property: Extends up to $2,000 in coverage for outdoor property such as fences, signs, trees, shrubs, plants, and radio and television antennas. The policy will not pay more than $500 for any one tree, shrub or plant.

• Personal Effects: Extends up to $2,500 in Business Personal Property coverage at each described premises for personal effects owned by the insured and his or her employees.

• Valuable Papers And Records: Pays costs to research, replace or restore information on lost or damaged valuable papers and records for which duplicates do not exist. Coverage is limited to $5,000 for papers and records on the described premises and $2,500 for papers and records that are not on the premises.

• Accounts Receivable: Reimburses the insured for money that cannot be collected from customers due to damage to the insured’s accounts receivable records. Coverage is limited to $5,000 for records on the described premises and $2,500 for records that are not on the premises.

Optional Coverages

Optional coverages are usually preprinted in the policy, but apply only if they are designated in the Declarations. Optional coverages usually require an additional premium. They include:

• Outdoor Signs: Covers damage to all outdoor signs owned by or in the care, custody or control of the insured. The limit of insurance is specified in the Declarations. When this optional coverage is selected, policy limitations that apply to outdoor signs do not apply.

• Interior Glass: Covers loss to glass items that are permanently attached to walls, floors or ceilings. Each item to be covered must be described in the Declarations. When this optional coverage is selected, policy limitations that apply to interior glass do not apply.

• Employee Dishonesty: Covers loss to business personal property and money and securities that results from dishonest acts of employees. Losses must occur during the policy period to be covered. The limit of insurance is specified in the Declarations.

• Mechanical Breakdown: Covers damage to covered property caused by sudden and accidental breakdown of boiler and pressure vessels and certain types of air conditioning units.

• Burglary And Robbery (Standard form only): Covers burglary and robbery to business personal property and money and securities. Separate limits are listed in the Declarations for money and securities that are on the premises and off the premises. The limit for business personal property is 25% of the business personal property limit shown in the Declarations.

• Money And Securities (Special form only): Covers loss of money and securities from theft, disappearance and destruction. Separate limits are listed in the Declarations for money and securities that are on the premises and off the premises.

Exclusions

The Standard Property form contains the following exclusions:

• Failure of computers to recognize a particular date or time, such as the year 2000

• Ordinance or law

• Earth movement (does not include a fire or explosion resulting from earth movement)

• Government action

• Nuclear hazard

• Failure of power or other utility services occurring away from the insured’s premises

• War and military action

• Water, including flood, sewer backup, mudslides, or seepage of ground water (does not include fire, explosion or sprinkler leakage resulting from water)

• Artificially generated electrical current

• Rupture or bursting of water pipes (other than automatic sprinklers)

• Leakage or discharge of water or steam resulting from breaking of water or steam system or appliance

• Explosion of steam boilers, pipes, engines, or turbines

• Mechanical breakdown

• Any consequential loss that causes extra expenses or increases in loss of income

• Loss to valuable papers and records and accounts receivable records due to the insured’s dishonest or criminal acts

Since the Special Property form covers all losses that are not specifically excluded, it contains a more detailed list of exclusions. In addition to the exclusions listed for the Standard Property form, the Special form excludes:

• Consequential losses caused by delay, loss of use or loss of market

• Wear and tear

• Rust, corrosion, fungus, decay, deterioration, and hidden or latent defects

• Smog

• Pollution (unless the release, discharge or dispersal is caused by a specified cause of loss)

• Setting, cracking, shrinking, or expansion

• Damage caused by insects, birds, rodents, or other animals

• Dishonest or criminal acts of the insured or his or her employees

• Voluntary parting with property if induced to do so by fraud or a trick

• Rain, snow, ice, or sleet damage to personal property that is not in a building

• Loss resulting from acts or decisions, or the failure to act or decide

• Collapse

• Faulty planning, development, design, specifications, workmanship, or repair

• Smoke, vapor or gas

• Frozen plumbing

• Weather conditions that contribute to causing a loss

Other Features

The Business Owners Property forms provide replacement cost coverage if the limit of insurance is 80% or more of the full replacement cost at the time of loss.

A built-in inflation guard coverage provides an automatic 8% per year increase on building coverage. (Other percentages may be selected, but must be shown in the Declarations.) In addition, coverage on business personal property can be increased by 25% to cover seasonal variations.

The Control Of Property condition states that an act of neglect of a person beyond the insured’s direction or control will not affect the insurance. In addition, if the insured violates a condition of the policy with regard to a specific location, the insurance applicable to other locations will not be affected.

The Legal Action Against The Insurer condition gives the insured two years from the date that direct physical loss occurred to bring an action against the insurer. Such an action cannot be brought unless the insured has complied with all conditions of the policy.

The standard deductible is $500.

BUSINESS OWNERS LIABILITY FORM

Coverage, Limits

The Business Owners Liability form is very similar to the Commercial General Liability form.

The Business Owners Liability form provides Business Liability coverage, which includes coverage for the insured’s liability for bodily injury, property damage and advertising and personal injury (liability arising out of offenses such as libel, slander and invasion of privacy). It also provides Medical Expense coverage. Liability is covered only for injury or damage that occurs during the policy period.

There is a standard Liability And Medical Expenses limit of $300,000, which is the most the insurer will pay for all damages as a result of BI, PD and medical expenses arising out of any one occurrence, and personal and advertising injury sustained by any one person or organization. Separate limits apply to medical expenses and fire legal liability (which applies to fire damage to premises rented to or temporarily occupied by the insured).

There is an Aggregate limit applicable to all injury or damage during the policy period, except injury or damage falling within the Fire Legal Liability limit or Products-Completed Operations limits (which applies to legal liability arising out of the use of products manufactured by the insured). This aggregate is twice the Liability And Medical Expenses limit. In addition, there is a separate Products-Completed Operations Aggregate limit.

Supplementary Payments

The following Supplementary Payments are also included in the Business Owners Liability form. Most of these are paid in addition to the policy limit.

• Expenses the insurance company incurs in defending a claim or suit against the insured

• Up to $250 for the cost of bail bonds related to violations that arise from vehicles to which BI Liability coverage applies

• Cost of bonds to release attachments

• Reasonable expenses the insured incurs at the insurance company’s request to assist in investigating or defending a claim or suit, including up to $100 per day for lost earnings because of time off from work

• Costs the insured is required to pay because of a suit

• Prejudgment interest the insured is required to pay. However, if the insurer makes an offer to pay the limit of insurance, it will not pay prejudgment interest for the period of time after the offer was made.

• Interest that accrues after a judgment is made and before it is paid

Exclusions

There are a number of important exclusions that apply to Business Owners Liability coverage. For BI and PD liability losses, the policy excludes liability:

• Arising out of expected or intentional injury

• The insured assumes under a contract or agreement

• For those in the business of manufacturing, distributing, selling, serving, or furnishing alcoholic beverages

• For work-related injuries covered under Workers Compensation or Employer’s Liability laws

• For most pollution losses that result in bodily injury, property damage or clean-up costs

• Resulting from the maintenance, operation or use of aircraft, autos or watercraft, except as specified in the policy

• Arising out of the transportation of mobile equipment by auto or the use of mobile equipment in any prearranged racing or related activity, or while practicing or preparing for such an activity (mobile equipment is specifically described land vehicles such as bulldozers, farm machinery and forklifts)

• Assumed under a contract for war or warlike acts

• Arising out of rendering or failing to render or occupied by the insured or in the insured’s care, custody or control

• For damage to the insured’s own product arising out of the product itself

• For damage to the insured’s own work

• For claims based on:

Defects, deficiencies, inadequacies, or dangerous conditions in the insured’s products or work; and

Delays or failures to properly perform contracts

• Related to recall of the insured’s products or work because of a known or suspected defect

The exclusion for liability assumed under contract has some important exceptions. Liability that the insured would have incurred even without assuming it under contract and liability assumed under insured, or incidental, contracts is covered. Insured contracts include leases, sidetrack agreements, easement agreements, contracts with municipalities required by ordinance, elevator maintenance agreements, and contracts relating to the insured’s business under which the insured assumes another’s liability.

Liability arising out of any of the following is excluded for personal and advertising injury losses:

• Oral or written publication of material that the insured knows is false, but publishes anyway

• Violation of a penal statute or ordinance

• Liability assumed under contract, except for liability the insured would have incurred even without assuming it under contract

These exclusions apply to advertising injury losses only:

• Breach of contract

• Failure of goods, products or services to conform with advertised quality or performance

• Incorrect price descriptions of goods, products or services

• Any offense committed by an insured who is involved in the business of advertising, publishing, broadcasting, or telecasting

Finally, for medical expense coverage, there is no coverage for losses that are:

• Included in the products-completed operations hazard (these would be paid under BI and PI Liability coverage)

• Excluded under BI and PD Liability coverage

• Related to war

ENDORSEMENTS

Since the Business Owners policy was designed specifically for small businesses, there are few coverage options or choices. Those who purchase the policy must accept the standard package. Certain endorsements are available, however.

The Utility Services – Direct Damage Coverage endorsement covers loss or damage to property caused by an interruption in water, communication or power supply service. For coverage to apply, the property must be scheduled for coverage on the endorsement and the service interruption must be caused by a covered cause of loss.

Here’s an example of a loss that would be covered under this endorsement.

The insured, a photographer, has her developing equipment insured under a Business Owners policy with the Utility Services – Direct Damage endorsement. When an electrical transformer is struck by lightning, a power surge results that damages the equipment. The Business Owners policy would cover this loss.

The Utility Services – Time Element Coverage endorsement is similar, except it covers loss of business income and extra expense that occurs due to an interruption in utility services.

The Protective Safeguards endorsement requires the insured to maintain the protective devices or services listed on the endorsement on specified property as a condition of the policy. The protective safeguards are identified by the following symbols:

• P-1 – Automatic Sprinkler System: Any automatic fire protective system, including related supervisory services and connected sprinklers, pipes, pumps, and similar devices.

• P-2 – Automatic Fire Alarm System: An automatic fire alarm system that protects the entire building and is connected to a central station or reports to a public or private fire alarm station.

• P-3 – Security Service: A security service with a guard that makes hourly rounds of the premises while the business is closed.

• P-4 – Service Contract: A privately owned fire department that provides fire protection service to the premises.

• P-9: Any other protective system described in the endorsement.

The insurer will not pay for fire damage losses if the insured failed to keep the protective safeguard in working order or did not notify the insurer that the device was not working properly. When an automatic sprinkler system is shut off due to breakage, leakage, freezing, or opening of sprinkler heads, the insurer does not have to be notified if the system can be restored within 48 hours.

Finally, the Hired And Nonowned Auto Liability endorsement provides coverage for hired or nonowned autos used by the business if the insured does not have Commercial Auto insurance.

COMPARISION OF COMMERCIAL PACKAGE POLICY AND BUSINESS OWNERS POLICY

The following table summarizes the key differences between the Commercial Package Policy and The Business Owners Policy.

Please note that the precise coverage afforded is subject to the terms, conditions, and exclusions of the policy as issued. This explanation is intended only as a guideline. This information is not intended to be considered investment, tax or legal advice. It is provided, for your education only. This is not an insurance contract. All terms and coverages are defined solely by your policy.

For more details, please call a PaulBalep representative toll-free 1-800-964-8614 to receive a free, no-obligation quote. Like so many satisfied clients, we think you’ll be happy you did. And to set up a meeting to discuss additional insurance and financial goals: Visit us online at www.paulbalep.com, or e-mail us at info@paulbalep.com.

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