REVISED AAIS BUSINESSOWNERS PROGRAM, THE

Rough Notes, Nov 2004 by Harrington, Joseph S

New classes and higher limits are features of the new BOP

It's been nearly 50 years since businessowners policies appeared as a commercial lines counterpart to the homeowners package policies that were becoming standard in the personal lines market.

Over those years, the essential characteristics of a BOP-the packaging of property and liability coverage in a single policy, with simplified rating-have appealed to insurers and insureds alike. As a result, both the number and variety of risks insured by BOPs has grown beyond the small retail operations, offices, and apartment buildings originally envisioned.

The newly revised Businessowners Program recently filed by the American Association of Insurance Services (AAIS) reflects the growing use of BOPs for an expanded range of commercial operations, and the growing breadth of coverage offered by the policies. AAIS has filed its revised BOP in most states, with effective dates ranging from October 1, 2004, to May 1, 2005.

Expanded eligibility

One indication of the growing use of BOPs is the increasing size of risks insured by them. The revised AAIS Businessowners Program broadens eligibility for all BOP classes to risks up to 25,000 square feet (up from a previous maximum of 15,000) and up to $3 million in sales (up from $1 million).

Another indication of the growing popularity of BOPs is the ever-widening range of eligible classes. The revised AAIS Businessowners Program adds several new classes of eligible risks, including:

* Wholesale operations

* Self-storage "mini-warehouses"

* Home improvement stores

* Convenience stores with food and gasoline

* Office machine and appliance stores

* Printing supply stores

* Medical and surgical supply stores

* Mailbox or packaging outlets

It is important to note that AAIS provides a separate Artisans Program for insuring small contractor operations. More than 60 classes of artisan contractors are eligible for coverage under that program.

Perhaps the most significant new class of eligibility under the revised AAIS BOP is restaurants and similar establishments that have commercial cooking on premises open to the public. To address the unique risks posed by restaurants, the revised BOP introduces separate rating for property and liability coverages for restaurants; all other BOP classes will continue to have unified rating.

Building and personal property coverage for restaurants are rated according to loss costs developed per $1,000 in property value. Premium credits will be available for establishments that do only limited cooking and that have automatic fire extinguishing systems. Premium debits can be applied to risks that do not have exhaust systems and/or have other unsafe conditions.

Liability rating for the restaurant class is based on loss costs developed for each $1,000 of the gross amount charged for product sales or per 1,000 square feet for a lessor's operations.

Off-premises rating

Beyond expanding the number of eligible classes, the AAIS BOP introduces a new rating procedure for determining an additional charge for off-premises liability exposures. Upon introduction, this feature will be unique among standard BOPs filed countrywide.

On-premises exposures, the risk of injury and damage to people coming onto insured premises, still constitute the main source of liability for most BOP-eligible businesses. However, for several BOP classifications there is also an off-premises exposure when employees leave the store or shop to perform installation, repair, or other service operations. The revised AAIS BOP recognizes this additional liability exposure by providing an optional additional liability charge based on loss costs developed per $1,000 of payroll.

Expanded computer coverage

Another innovation in the revised AAIS BOP is the introduction of property coverage for computers that is similar in scope to that provided in inland marine policies, but written to fit into the policy structure of a BOP.

The revised BOP includes definitions of terms such as "computers," "hardware," "software," "programs and applications," and "proprietary programs" that are drawn from forms in the Electronic Data Processing section of the AAIS Inland Marine Guide.

Each of these types of computer property is considered business personal property in regard to loss caused by covered perils. The scope of coverage is expanded, however, by excepting physical damage to computers from exclusions for other perils in the Special (open perils) base form.

By exceptions to exclusions in the new BOP, physical damage to computer hardware and software will be covered in the Special form for loss arising from utility failure, electrical currents, mechanical breakdown, and other designated perils.

On the other hand, to avoid a newly emerged and still unquantified exposure, the new BOP also incorporates definitions and an exclusion for "computer hacking" and "computer virus." An endorsement option is available that allows insurers to provide limited coverage for property and income losses caused by computer viruses or hacking.