In this section we elaborate on the different types of optional property coverage available in the CPP offering insurance on property otherwise excluded or to meet the special needs of businesses:
- The Crime and Fidelity insurance program
- Inland marine (IM) insurance
- Boiler and machinery (B&M) insurance
- The Capital Assets Program
- The business owners policy (BOP)
The commercial package policy is designed to accommodate separate and sometimes special property needs of insureds. Refer again to Figure 15.1.1.
Commercial Crime and Fidelity Coverage
The program includes enhancements that protect businesses and government entities against the following:
- Employee theft
- Other workplace crimes
Historically, crime losses have been insured separately from other property losses. Perhaps the separation was intended to standardize the risk; exposure to crime loss may involve quite different loss-control needs and frequency and severity estimates from those associated with exposure to fire, weather damage, or other BPP type losses. Furthermore, within the crime coverage, employee dishonesty has typically been insured separately from other property crimes, likely also in an effort to recognize variations in risk and loss-control needs between the two. Employee dishonesty protection began as a bond (called a fidelity bond), which was a guarantee provided to employers by each employee promising loyalty and faithfulness and stipulating a mechanism for financial recovery should the promise be broken. As a result, bonding companies developed to protect against employee crimes, while insurers expanded their coverage separately to protect against other property-related crimes.
Today, ISO has a Crime and Fidelity insurance program.ISO press release at www.iso.com/products/2200/prod2241.html (accessed March 27, 2009). The ISO enhancements include coverage for losses caused by employee theft of the following:
- Other property of the insured
- Clients’ property on the clients’ premises
Also available is coverage for additional perils, including the following:
- Forgery or alteration of negotiable instruments
- Loss through transferring money and securities by fraudulent telephone or fax instructions
- Extortion threats targeting the insured’s property
You may recall that the BPP covers personal property while it is located at the described premises. Many businesses, however, move property from one location to another or have specialized personal property that requires insurance coverage not intended by the BPP. These needs are often met by inland marine (IM) insurance. Despite its name, inland marine (IM) insurance covers nonwater forms of transportation such as rails and trucking.
Inland marine insurance is an outgrowth of ocean marine insurance, which is coverage for property while being transported by water (including coverage for the vessels doing the transporting). IM tends to be broad coverage, often on an open-perils basis and generally for replacement cost. Exclusions tend to involve nonfortuitous events, such as wear and tear and intentionally caused loss. The protection IM provides is for inland transportation and specialized equipment.
Boiler and Machinery Coverage
When a boiler or similar piece of machinery explodes, the cost tends to be enormous. Typically, the entire building is destroyed, as are surrounding properties. Anyone in or near the building may be killed or badly injured. Furthermore, the overwhelming majority of such explosions can be prevented through periodic inspection and excellent maintenance. As a result, a boiler inspection industry developed, which ultimately became an inspection and insurance industry.
Boiler and machinery (B&M) insurance protects against loss that results from property damage to the insured’s own property and to nonowned property caused by explosions or other sudden breakdowns of boilers and machinery. (Bodily injury liability coverage can be added by endorsement.) The bulk of the premium, however, goes toward costs of inspection and loss control. Any business that uses a boiler or similar type of machinery needs to consider purchase of this coverage because the potential loss is large while the probability of loss is low if proper care is maintained.
Capital Assets Program
The Insurance Services Office introduced “the ISO Capital Assets Program—a manufacturer’s output type policy—that enables insurers to provide large and medium commercial accounts superior coverage and pricing flexibility for buildings and business personal property.”ISO press release at www.iso.com/press_releases/2002/01_22_02.html, January 22, 2002 (accessed March 27, 2009).
The Capital Assets Program provides businesses coverage on a blanket, replacement-cost basis without a coinsurance provision to sufficiently large accounts. The program also provides options to value property at actual cash value, agreed value, or (for buildings) functional replacement cost. Under the program, “Business income and extra expense coverages are written into the form and can be activated by entries on the policy declaration page.”
Business Owners Policy
In 1976, the ISO developed its first business owners policy, which was designed for small businesses in the office, mercantile, and processing categories and for apartment houses and condominium associations. The intent of the business owners policy (BOP) was to provide a comprehensive policy that would omit the need for small businesses to make numerous decisions, while also incorporating coverage on exposures often overlooked. The original BOP was one policy covering both property and liability exposures. The current program incorporates the BOP into the commercial package policy through separate property and liability policies designed for small businesses. When these coverages are combined, they provide protection nearly identical to the old BOP policy.
The property portion of the business owners program covers both direct and consequential losses, combining the types of coverage found in the BPP and BIC. An inflation guard is standard, as is a seasonal fluctuation for personal property. The inflation guard increases the building’s coverage limit by some stated percentage automatically each year. The seasonal fluctuation permits recovery of lost personal property up to 125 percent of the declared limit, as long as the average value of the personal property over the prior twelve months is not greater than the limit. For organizations with fluctuating stock values, this provision is helpful. Coverage is on a replacement cost new basis without a coinsurance provision.
The policy also provides business income loss for one year of interruption without a stated dollar limit or coinsurance requirement. Many small businesses are prone to ignore this exposure, which is why the coverage is included automatically.
Coverage can be purchased either on a named-perils or an open-risk basis. The named-perils form covers the causes of loss listed in Figure 15.2.6, which are the same perils available in other coverage forms. One additional peril, transportation, is also covered in the BOP. The transportation peril affords some inland marine protection.
The business owners program was released by the ISO in June 2002.“New ISO Offering for Smaller Businesses,” National Underwriter Online News Service, June 3, 2002. The press release by ISO “ISO’s NEW BUSINESSOWNERS PROGRAM SIMPLIFIES RATING AND EXPANDS COVERAGE ELIGIBILITY—ISO IntegRater™ and AscendantOne™ Updated for the New BOP” is available at www.iso.com/press_releases/2002/06_03_02.html. It expanded some risk categories eligible for coverage with a new section, “Commercial Lines Manual.” The BOP includes “computer coverage, business income from dependent properties coverage, and fire extinguisher system recharge expense.” There are some new optional endorsements, such as “coverage for food contamination, water backup and sump overflow, functional building and personal property valuation, liquor liability, employee benefits liability, and several coverage and exclusion options for pollution liability.”Businessowners Endorsement: BP 05 11 01 02 (N/A To Standard Fire Policy States); Businessowners Endorsement: BP 05 12 02 (Applies In Standard Fire Policy States); Businessowners Endorsement: BP 05 13 01 02.
In this section you studied the separate, special property needs of insureds that can be resolved through the CPP:
- The Crime and Fidelity insurance program provides employers with coverage for a variety of forms of employee theft.
- Inland marine insurance covers nonwater forms of commercial transportation.
- Boiler and machinery (B&M) insurance protects against loss from property damage to the insured’s own property and to nonowned property caused by explosions or other breakdowns of boilers and machinery.
- The Capital Assets Program provides large and medium commercial accounts businesses coverage on a blanket, replacement-cost basis without a coinsurance provision and options to value property at actual cash value, agreed value, or, functional replacement cost.
- The business owners policy (BOP) provides comprehensive coverage for small businesses through separate property and liability policies incorporating both the BPP and BIC.
- What is a fidelity bond?
- What is inland marine insurance?
- What are the advantages of using a business owners policy?
- What protection is provided by boiler and machinery (B&M) insurance?
- What does the Capital Assets Program provide?