A Quick Guide to a Business Owner's Policy Exclusions

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A business owner's policy (BOP) can effectively protect your firm in the face of unforeseen incidents. This comprehensive policy combines commercial property and general liability into one insurance package. 

However, a BOP only covers some risks your firm may face as it has coverage limitations. Reviewing the business owner's policy exclusions is essential to find what your BOP does not cover. 


What are Insurance Policy Exclusions?

An insurance policy has pre-determined coverage. There are certain risks, events, and losses that the policy does not cover. These are called policy exclusions; your insurance company will not pay claims in such cases. However, you can get coverage by buying a policy specific to the risks you're looking to cover.

What is a Business Owner's Policy?

A BOP is a blend of two policies—it usually combines coverage for general liability and commercial property insurance. Getting this policy can be cheaper than buying these two policies separately. It might be helpful for small companies looking to cover basic risks such as third-party liability claims and damage to business property. A BOP helps alleviate financial burdens and promote a sense of security for both you and your customers.

There are several business owner's policy exclusions, but let's first look at what the policy can cover:

Coverage provided by a BOP

Here's how a BOP can help an entrepreneur such as yourself:

General Liability Coverage

A general liability insurance policy can help you cover the costs of claims related to third-party physical injury, property damage, and advertising injury and help pay for damages. 

Imagine a scenario where a customer slips and falls in your office, injuring themself. As the business owner, you may be expected to pay for the medical expenses incurred by the customer. A general liability policy can respond to this claim and defend you if sued. Additionally, it can also cover the repair or replacement of a customer's property that your business's negligence has damaged.

In another scenario, if you face a lawsuit due to an advertising injury like libel, slander, or copyright infringement, a general liability policy can help you cover the associated legal fees and other related expenses.

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Commercial Property Coverage

Commercial property insurance is a vital safeguard for your company's assets, including buildings, furniture, office equipment, and valuable contents. 

This policy has two components: business building insurance and business contents insurance. The former can shield you against structural damage to your building, while the latter can help cover valuable items housed within the building's premises, such as laptops, inventory, and furniture. 

Thus, a BOP can help cover various risks, as mentioned earlier. However, it is important to remember that certain risks may be excluded from the policy. Let's have a look at some potential business owners' policy exclusions.

General Liability Insurance Exclusions in a BOP

1. Employee Injuries

General liability insurance excludes coverage for work-related injuries and illnesses suffered by employees. You must purchase separate workers' compensation insurance to provide coverage in such cases. 

2. Professional Errors

Professional mistakes, negligence, and malpractices are part of a business owner's policy exclusions. You will need to buy professional liability insurance to cover financial losses caused by professional errors like delayed work, poor-quality services, and incomplete work. It is also known as errors and omissions (E&O) insurance

3. Auto Liability

General liability insurance excludes business auto coverage. For example, suppose your company driver damages another vehicle because he ran a light in the company car. General liability does not pay for any claims resulting from automobile liability. You will need to buy a commercial auto policy, which can protect against liabilities arising from collisions.

Commercial Property Insurance Exclusions in a BOP

A business owner's policy liability exclusions include the following under commercial property coverage:

1. Criminal Acts

This is a critical business owner's policy exclusion. If a business owner's illegal actions cause damage or loss to business property, the BOP will not cover it. The same goes for employee criminal acts, theft of money must be covered by Crime insurance. Before paying a claim, insurance companies first investigate what caused the damage or loss to see if it is covered. 

2. Wear and Tear 

Commercial property insurance policies typically cover accidental losses. However, damages caused by rust, corrosion, insects, and vermin are often excluded from standard coverage. The business owner can prevent these damages by taking proactive maintenance measures. 

For instance, if a company files a building damage claim due to rust affecting its metal structure, the insurance company would likely deny it, as rust is considered a natural progression of a building's aging. 

3. Flood Damage

A business owner's policy exclusions include damages caused by weather events such as floods and earthquakes. To cover these exposures, you must purchase a separate policy or endorsement. 
Apart from the exclusions mentioned above, a standard BOP also does not cover damages caused by the following:

  • Nuclear events
  • Pollution
  • Power shortages
  • Damage caused by machinery such as pressurized boilers and other equipment
  • Military actions-war
  • Government Authority
  • Water damage caused by seepage or sewer failures
  • Cyber losses
  • Property damage caused by a building's faulty design or workmanship

Where to Learn About Business Owner's Policy Exclusions

Read your BOP documents carefully because that's where you will find the section in the policy naming the exclusions.

You can contact your insurance agent to verify your business owner's policy exclusions. If you wish to obtain coverage for excluded risks, you can ask if there is a way to insure the exclusions with an endorsement or by purchasing a separate policy.

Wrapping Up

While a BOP offers comprehensive coverage, it does not cover all types of losses. Therefore, reading your policy and ensuring you understand the coverage carefully is essential. You can obtain coverage for certain business owner policy exclusions by purchasing endorsements or separate policies. However, some exclusions, such as intentional damage, natural decay, rust, and wear and tear, are not covered by any policy. 

Visit the Insurance Advisor blog to find a variety of helpful insurance guides and insightful articles to enhance your understanding of commercial insurance. Insurance Advisor's team of licensed agents can assist you in finding the policy that suits your company's needs. We provide a range of policies with comprehensive quotes and easy payment options. Take the first step and get insured today!

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