Commercial Package and Businessowners Policy
Two products, one logic
The businessowners policy (BOP) is a packaged product for small, low-hazard risks - apartments, offices, retail and service operations. It bundles building, business personal property, business income and liability, typically with replacement cost on property and no coinsurance clause, but with eligibility caps on building and contents values and exclusions for riskier classes. Larger, habitational-with-cooking, or hazardous operations move to a commercial package policy (CPP), which combines commercial property, general liability, auto, crime and inland marine coverage parts under one policy number, each with its own declarations, forms and limits.
Commercial property mechanics
- Causes of loss forms: basic, broad, and special (open peril).
- Coinsurance is common on CPP property: payment = (limit ÷ (coinsurance % × value)) × loss.
- Business income covers lost net income plus continuing expenses during the period of restoration, and usually carries its own coinsurance percentage; extra expense covers costs to continue operations.
- Blanket limits apply one limit across multiple locations; specific limits apply per building.
Worked example
A CPP building limit is $900,000 with a 90% coinsurance clause; value at loss is $1,200,000 and the fire loss is $300,000. Required limit is $1,080,000, so the ratio is 900/1,080 = 83.3%; recovery is $250,000, less deductible. The insured was underinsured by $180,000 and absorbs the difference.
Traps
Applying coinsurance to a BOP that has none; treating business income as rent reimbursement only; forgetting that ordinance-or-law coverage is limited and usually sub-limited; assuming a CPP automatically includes equipment breakdown or crime.