Insurance Skills Center Blog

We have always thought of the BOP as being a package policy offering both Property and Liability on the same policy.  Prior edition dates had a separate property and liability form that was combined on the policy while recent edition dates have both property and liability on the same form.  Regardless they were packaged coverages.  Insurance companies for some time have been offering  the BOP coverages on a monoline basis wherein the policy can be issued for property or liability ONLY.

Did You Know: That many insurance companies offer either property or liability written alone using the same form language as they do on the BOP.  For example Hartford Insurance will issue a property or liability ONLY policy for classes of business that qualifies for their BOP underwriting

Did You Know: That the criteria for writing monoline coverages are:
•    Must be an eligible class
•    Liability or property is written separately by another carrier often times in the excess surplus market
•    Liability exposures are too hazardous but property exposures qualify
•    Property exposures are too small to insure or the insured has chosen not to insure for property

Did you Know: Examples of risks that are more typically written on a monoline BOP are risks such as: contractors in CA in the artisan category and manufacturers.

Laurie Infantino, AFIS, CISC, CIC, CRIS, ACSR, CISR
Insurance Skills Center
www.InsuranceSkillsCenter.com

Whenever I ask the question, how does the Business Income on the BOP differ from other forms the answer always is that it is Actual Loss Sustained (ALS). Well, the truth is that ALL Business Income forms are Actual Loss Sustained, unless they are per diem, which simply means the business income claim will be paid based on the economic loss the client actually sustains.  What has been true about a BOP is that it has historically been “unlimited” in the dollar amount it would pay subject to a maximum time frame such as 12 months.  Well—NOT any more—buyer beware.

Did You Know: That some BOP companies are adding endorsements that state they will pay the greater of a time frame (12-15 months) or the limit of insurance for Business Income that appears on the Declarations page which has a coinsurance requirement?  That is far from what we have been telling our clients when we use the words Actual Loss Sustained. Also, it is anyone’s guess how the form would respond to a partial Business Income loss.

Did You Know: That some BOP carriers are writing on an ALS basis but for certain types of insureds they are putting a maximum amount recoverable.  An example one carrier indicated that for manufacturers that were eligible for their BOP program would be subject to 65% of the total sales of the company

Did you Know: That some BOP carriers are limiting the amount of Business Income coverage based on types of equipment.  An example provided was a doctor’s office that had an expensive diagnostic machine.  There was an internal limit on the BOP Business Income specific to any loss to that piece of equipment.

Laurie Infantino, AFIS, CISC, CIC, CRIS, ACSR, CISR
Insurance Skills Center
www.InsuranceSkillsCenter.com

Arriving at an adequate amount of insurance for a Builders Risk Form is a three pronged test including:  (1) review of the building specifications and costs; (2) review of the contractual requirements; (3) monitoring the work in process and increasing coverage as necessary.  Understanding the coverage form, be it Completed Value or Provisional Reporting, is key to the process.

Did You Know: Many construction requirements require insurance be written in the amount of the “initial contract” sum and all “subsequent modifications” thereto.

Did You Know: That most Builders Risk forms are written on a Completed Value Form which then would require that there are interim adjustments made to the policy to cover all “change orders.”

Laurie Infantino, AFIS, CISC, CIC, CRIS, ACSR, CISR
Insurance Skills Center
www.InsuranceSkillsCenter.com

The BOP has been around since the late 70s and over time insurance companies have significantly expanded the eligibility for the program.  Buyers beware:  there are serious limitations found in some sections of the form:

Did You Know: The BOP limits ordinary payroll to only sixty (60) days maximum recovery following a covered loss

Did You Know: There is no ISO endorsement to extend the ordinary payroll coverage time

Did You Know: That many insurance companies allow the BOP to be written for manufacturing risks which tend to have longer shutdowns and require significant payroll reimbursement.   The ordinary payroll limitation could be a determinant to a reasonable Business Income settlement

Laurie Infantino, AFIS, CISC, CIC, CRIS, ACSR, CISR
Insurance Skills Center
www.InsuranceSkillsCenter.com

Some of our business clients ask us to eliminate coverage for their ordinary payroll. They do so to lower the amount of required coverage on the Business Income Form. Also, many times the business client feels certain that they can easily replace their workforce following a loss.

Did You Know: That instead of eliminating “all” payroll you can limit payroll to take care of a short shutdown such as 60 or 90 days.

Did You Know: That the insurance company has the ultimate choice to “keep” ordinary payroll as a continuing expense even in those situations where ordinary payroll has not been excluded or limited.  The policy provides that the payroll expense will be considered “continuing” to the extent necessary to open up with the same quality of service that existed prior to the loss.

Did You Know: That the ISO has introduced the Discretionary Payroll Endorsement CP 15 04 effective 06 07.  This endorsement allows a name or job description to be inserted on the form. Additionally the maximum number of days of discretionary income to be included will be designated on the form.

Laurie Infantino, AFIS, CISC, CIC, CRIS, ACSR, CISR
Insurance Skills Center
www.InsuranceSkillsCenter.com

A common misconception is that Building Ordinance Coverage should only be provided for older buildings. Building Ordinance is a key coverage even when writing Builders Risk Coverage.  We learned our lesson the hard way when Santana Row in San Jose burned to the ground when it was near completion.  Building Ordinances changed after that loss which affected the costs of re-construction of Santana Row

Did You Know: Building Ordinance is typically excluded on a Builders Risk Form and can be added by endorsement

Did You Know: Building Ordinance only pays for increased costs of construction that are in effect at the TIME of LOSS.  Many times ordinance changes go into effect after a loss and thereby would NOT be covered on the typical Building Ordinance Endorsement
Did You Know:    When possible, language should be changed on the Building Ordinance Endorsement to say that it will pay for ordinance changes in affect at the time of RECONSTRUCTION.  Safest method is to have the Ordinance or Law exclusion removed, which some insurance companies will do

Laurie Infantino, AFIS, CISC, CIC, CRIS, ACSR, CISR
Insurance Skills Center
www.InsuranceSkillsCenter.com

How often have we read in the newspaper or heard news broadcasts showcasing a food establishment selling tainted food.  Maybe it was an employee at a restaurant that was found to have Hepatitis and they have notified the public that frequented to restaurant to seek medical care.  Sometimes the restaurant is closed by the board of health; the establishment must clean all the equipment, replace food and provide medical tests/vaccinations:

Did You Know: Food Contamination coverage is available by endorsement on both the Commercial Property series and the BOP.

Did You Know: The Food Contamination Endorsement typically contains sub-limits on coverage such as the $10,000 provided on the BOP for food contamination including Business Income and $3,000 for advertising costs.

Laurie Infantino, AFIS, CISC, CIC, CRIS, ACSR, CISR
Insurance Skills Center
www.InsuranceSkillsCenter.com

One of the hidden advantages of the Commercial Property Form series is the built in valuation of “stock sold but not delivered” at selling price.  This is automatically built into the ISO form covering Personal Property.:

Did You Know: That you must identify what percentage of stock a manufacturer has pre-sold and then evaluate that stock at “selling price” on the Commercial Property Form.  This could require that the limit of insurance is significantly higher.

Did You Know: That the Manufactures Selling Price Endorsement is an endorsement to the Commercial Property Form—not the Business Income Form—and is only for “unsold finished stock”.  This does not apply to pre-sold finished stock.

Did You Know: That on an BOP “sold stock” is evaluated at Replacement Cost rather then Selling Price which is a significant reduction in coverage from the Commercial Property Approach.

Did You Know: That the amount written for Business Income needs to be adjusted based on the “mark up” being covered by virtue of the selling price inclusion.

Laurie Infantino, AFIS, CISC, CIC, CRIS, ACSR, CISR
Insurance Skills Center
www.InsuranceSkillsCenter.com

Business Income forms have historically contained a twelve hour “waiting period” for Off Premises Utility Interruption.  In the last decade of coverage, the Business Income Form has contained a 72 hour waiting period.

Did You Know: The waiting period ONLY applies to Business Income.  There is NO waiting period for Extra Expense

Did You Know: That there is a difference between a “waiting period” and a “time deductible”. A “deductible” clearly intends to eliminate any Business Income Coverage for the first 72 hours.  If the 72 hours is expressed as a waiting period then coverage could be available from the first hour of loss if the loss exceeds 72 hours. Many insurance companies are changing to use the word to deductible to avoid the confusion.
Did You Know:       You can eliminate the waiting period entirely or change the waiting period to twenty four (24) hours.  The additional costs for reduction or elimination of the waiting period/deductible is typically nominal.

Laurie Infantino, AFIS, CISC, CIC, CRIS, ACSR, CISR
Insurance Skills Center
www.InsuranceSkillsCenter.com

Buildings and structures must be built to comply with the building codes in affect at the time the building will be rebuilt.

Did You Know: Building ordinance language in Commercial Property forms or endorsements state that increased costs of construction will be paid for building ordinances in effect AND enforced at the time of loss.

Did You Know: That the pre-construction process can be very time-consuming specifically in the area of obtaining building permits.  Prior to the actual reconstruction building ordinances that were in effect at the time of loss very often change to new ordinances in laws.  This is specifically true following a loss involving multiple units.  In that the policy language pays for code changes in affect at the time of loss, the policy will not pay for any changes or increases in codes put in force after the time of loss.

Laurie Infantino, AFIS, CISC, CIC, CRIS, ACSR, CISR
Insurance Skills Center
www.InsuranceSkillsCenter.com