COMPARE: ISO BUSINESSOWNERS COVERAGE FORM BP 00 03:
07 13 EDITION TO THE 01 10 EDITION

(September 2022)

INTRODUCTION

The 07 13 edition of the Insurance Services Office (ISO) Businessowners Coverage Form was filed in most states with a July 2013 effective date. This edition has a number of significant changes. The following summary highlights the changes.

Related Article: BP 00 03–Businessowners Coverage Form Analysis

SECTION I–PROPERTY

A. COVERAGES

1. Covered Property

Business Personal Property

2. Property Not Covered

Item d. is changed to state that lawns on vegetated roofs are an exception to lawns as excluded property.

Item e. is changed to state that trees, shrubs, and plants on vegetated roofs are an exception to trees, shrubs, and plants as Property Not Covered.

Item i. exempts electronic data that is an integral part of a building’s heating, ventilation, air conditioning, lighting, elevator, or security systems.

3. Covered Causes of Loss

The 01 10 edition covered risks of direct physical loss. It was very specific that the only losses excluded were the ones listed in the exclusions section and that the only losses that were limited were the ones listed in the limitations section.

The 07 13 edition eliminates the words “risks of.” It no longer states where the exclusions and limitations are located. Instead, it states that losses may be excluded or limited anywhere in Section I–Property. This means that exclusions and limitations may be anywhere in the Property Coverage.

4. Limitations

a. (6) Vegetated Roofs

This new limitation is added because Covered Property now includes lawns, trees, shrubs, and plants that are part of vegetated roofs. This limitation excludes coverage for lawns, trees, shrubs, or plants within the vegetated roof that are damaged because of any of the following:

·         The atmosphere or the soil being too damp or too dry

·         The temperature changing too often or being considered extreme

·         Disease

·         Hail, frost, rain, snow, ice, or sleet

c. Limited Theft Coverage for Specific Type of Property

The sub-limits for theft can be increased.

5. Additional Coverages

a. Debris Removal

This Additional Coverage has multiple changes.

·         The cost to remove the debris of property is covered if the property DOES NOT meet the following criteria:

o    The named insured owns it but the coverage form does not insure it.

o    The named insured possesses it but the coverage form does not consider it to be covered property.

o    The insured is a tenant and the property belongs to the landlord except when the insured is contractually obligated to cover the property and does so under this coverage form.

o    Property listed in Property Not Covered. This applies even if coverage applies under Coverage Extensions e. Outdoor Property.

Note: This means that this Additional Coverage does not cover the cost to remove the debris from trees, plants, and shrubs.

o    Property of others that this coverage form considers to be Property Not Covered

o    Mud and dirt deposited on the grounds

·         If there is no direct damage to covered property, the maximum debris removal expense is $5,000.

·         The Debris Removal Additional Coverage sub-limit is increased to $25,000 from $10,000.

c. Fire Department Service Charge

The limit is changed. It is now a premises limit. It applies regardless of the number of services provided, the number of buildings, and/or the number of departments that respond.

f. Business Income

(1) Business Income

Coverage is broadened in two ways when the named insured occupies only part of a building:

·         For business personal property in the open or in or on a vehicle, coverage is broadened to consider not only the premises but also the building. Coverage applies if the business personal property is within 100 feet of either of them.

·         Similarly, lack of access is broadened beyond just the building so that lack of access to the premises also provides coverage.

g. Extra Expense

Coverage is broadened in two ways when the named insured occupies only part of a building:

·         For business personal property in the open or in or on a vehicle, coverage is broadened to consider not only the premises but also the building. Coverage applies if the business personal property is within 100 feet of either of them.

·         Similarly, lack of access is broadened beyond just the building so that lack of access to the premises also provides coverage.

l. Increased Cost of Construction

(2) The only additional costs covered are those required to meet the ordinance or law’s minimum standards.

(5) (a) and (b) The word “enforcement” previously used alone is now combined with “complying with or compliance with” with respect to ordinance or law.

m. Business Income from Dependent Properties

·         Coverage is broadened to include secondary dependent properties.

·         Wastewater removal services are added to the list of services excluded.

p. Electronic Data

(4) Electronic data that is an integral part of a building’s heating, ventilation, air conditioning, lighting, elevator, or security systems is not part of this Additional Coverage. This is because it is now considered Covered Property.

q. Interruption of Computer Operations

(7) Electronic data that is an integral part of the building heating, ventilating, air conditioning, elevator, lighting, or security systems is not covered. This is because they are not subject to the Additional Limitation above and are completely covered without this additional coverage.

r. Limited Coverage for Fungi, Wet Rot, or Dry Rot

(1) A new subparagraph states that this Additional Coverage does not apply to lawns, trees, shrubs, or plants that are part of vegetated roofs.

6. Coverage Extensions

a. Newly Acquired or Constructed Property

(2) Business Personal Property

Newly acquired business personal property at a described location is no longer automatically covered. This could be a significant reduction of coverage for businesses that have rapid and constant turnover of stock.

c. Outdoor Property

Changes are made because of other changes in the coverage form.

·         Trees, plants, and shrubs on a vegetated roof are not part of this Coverage Extension because they are considered Covered Property.

·         Debris Removal Additional Coverage does not cover debris removal of any outdoor property. As a result, this extension is broadened to include costs of debris removal for trees, plants, and shrubs but only for costs within the limit of insurance.

·         There is coverage for debris removal of trees, plants, and shrubs that the named insured does not own unless it is a tenant and the landlord owns the items.

Note: The debris removal cost is part of the limit of insurance for Outdoor Property, not in addition to it. Increasing the Outdoor Property Limit should be considered if removal of tree debris is important to a customer.

d. Personal Effects

The term “employees” is broadened to include leased or temporary employees.

g. Business Personal Property Temporarily in Portable Storage Units

This is a new Coverage Extension. Business personal property placed in portable storage units is covered subject to certain criteria:

·         Coverage ends after the storage unit has been in use for more than 90 days. This is regardless of when the business personal property was placed in it.

·         The unit must be within 100 feet of the building, structure, or premises, whichever distance is greater.

·         The sand, dust, sleet, snow, ice, or rain limitation within a structure applies to property inside the unit.

·         The sub-limit for this Coverage Extension is $10,000. It can be increased.

·         Business personal property inside the storage unit is covered for only 90 days after it is placed in the unit.

B. EXCLUSIONS

1. Primary Exclusions

a. Ordinance or Law

Both of the following are excluded:

·         Expenses that relate to enforcing ordinances and laws

·         Any costs in conjunction with complying with ordinances or laws

b. Earth Movement

Tremors and aftershocks are added to the list of events that the term earthquake includes.

An explanatory note is added. It states that earth movement is excluded, regardless of how it is caused.

2. Secondary Exclusions

f. Dishonesty

The term employee is broadened to also include temporary and leased workers.

The phrase “dishonest or criminal acts” refers only to theft for actions of persons entrusted with property.

Damage by authorized representatives who destroy property is an exception to this exclusion.

E. PROPERTY LOSS CONDITIONS

5. Loss Payment

d. (1) (e) in the 07 13 edition adds the words “or compliance with” after the words “enforcement. The word “enforcement” previously used alone is now combined with “complying with or compliance with” with respect to ordinance or law.

G. OPTIONAL COVERAGES

2. Money and Securities

a. The term “employees” is broadened to include leased or temporary employees.

3. Employee Dishonesty

b. (4) is added. It excludes acts of an employee who committed theft or a dishonest act prior to this policy’s effective date. It applies only when the named insured or any of its partners, members, managers, officers, directors, or trustees are aware of that activity and but are not in collusion with the employee.

H. PROPERTY DEFINITIONS

9. Period of Restoration

b. The word “enforcement” previously used alone is now combined with “complying with or compliance with” with respect to ordinance or law.

12. Specified Causes of Loss

The water damage portion of the specified causes of loss definition is changed significantly.

Water damage is broadened to include damage caused by accidental water discharge or leakage damage caused by wear and tear or off-premises water and sewer pipes breaking. The pipes must be part of a municipal system.

This definition must work with the Water Exclusion. There is no coverage if flood causes the breakage or if flood makes a breakage worse.

SECTION II–LIABILITY

B. EXCLUSIONS

1. Applicable to Business Liability Coverage

c. Liquor Liability

The following changes are made in this exclusion.

1. The liquor exclusion applies when either of the following is alleged:

·         Negligence by any insured because of its hiring, employing, training, or supervising others

·         Negligence by any insured in providing or not providing transportation to an intoxicated individual

Note: This could be a significant reduction of coverage for certain operations. The liquor liability policy should be examined to verify that it picks up this additional exposure.

2. The exclusion recognizes that some businesses allow alcohol on their premises but do not actually serve or sell alcohol. The question may arise as to whether the liquor exclusion applies to it. This revision specifically states that permitting a person to bring alcoholic beverages on the named insured’s premises for the purpose of consuming them does not, “by itself,” make the operation be in the business of selling, serving, or furnishing alcoholic beverages. This applies regardless of whether or not a license is required or a fee for that activity is charged.

Note: Carefully consider the phrase “by itself.” This phrase adds uncertainty to this fairly clear statement. It states that there must be additional tests to determine if the operation is in the liquor-related business but does not provide any guidance as to the further testing.

q. Electronic Data

Coverage is broadened because the exclusion is changed to a property damage only exclusion.

ADDITIONAL INSURED ENDORSEMENTS CHANGES

The following changes are added to a number of additional insured endorsements.

1. The insurance the endorsement provides applies only to the extent that it does not conflict with the law. This means that an anti-indemnification statute may be in place that prohibits the additional insured from passing on any or all of its liability obligations to the named insured (or any other party). In that case, the additional insured endorsement applies to the extent that the statute permits.

 

Example: Big Builder, Inc. contractually requires all subcontractors to add it as an additional insured for any and all activities in which it is engaged. The contract is very broad. Jerry Carpenter, subcontractor, signs the contract and adds Big Builder to its policy as an additional insured. A loss occurs and Big Builder contacts Jerry Carpenter’s insurance carrier for defense. Before any defense can begin, Jerry Carpenter’s carrier must review the anti-indemnification statutes and determine if it can proceed and the extent to which it can proceed.

 

2. The additional insured added may due to a contract provision. In that case, protection is limited to what is specified. It is not broader.

 

Example: Big Builder, Incorporated’s contract with Jerry Carpenter requires that Jerry provides bodily injury and property damage coverage for Big Builder, Inc. Jerry Carpenter’s policy denies coverage when a personal injury lawsuit is filed against Big Builder, Inc. because the contract did not require Jerry to provide personal injury coverage.

 

Note: Any risk that currently uses contracts to restrict its liability should carefully review them to ensure that they use current coverage terms. Many risks carry forward older insurance language into new contracts that could now be very detrimental to their protection as additional insureds.

3. The limits of insurance the additional insured endorsement provides are not higher than the limits the contract requires. However, that limit is subject to the policy limit. Any and all limits provided to the additional insured do not increase the policy limits of insurance.

 

Example: Big Builder, Inc. requires its subcontractors to protect it for up to $500,000. Jerry Carpenter, Inc. has $1,000,000 limits. A loss occurs and Big Builder must pay $750,000. Jerry Carpenter’s policy pays up to only $500,000 because that is the limit the contract required. However, Jerry Carpenter was also named in the suit and the award was $800,000. This means only $200,000 is available to cover Big Builder’s award because it was involved the same occurrence.

PROFESSIONAL LIABILITY EXCLUSION ENDORSEMENTS CHANGES

Wording is added to most professional liability exclusion endorsements to exclude claims for negligence on an insured’s part in hiring, employing, training, supervising, and monitoring others who provide the professional services the endorsement excludes.

 

Example: Madeline hires Roberta as a beautician. Roberta provides references and promises to bring in her license but never does. Madeline is thrilled with Roberta until a client sues Roberta when her hair turned an awkward color and the chemicals burned her scalp. Madeline is very surprised when she is sued because of her negligence in hiring Roberta who did not actually have a license! Madeline’s policy does not provide coverage because of this added restriction.

Note: Roberta also does not have coverage under her professional liability coverage because it covers only licensed professionals.