Small Business Owner's Package (BOP) Policy
Liability Insurance Coverage
Defending against a legal complaint, even a minor one, is costly. The liability coverage in the BOP protects the assets of your business when it is sued for something your business did (or failed to do) that caused injury or property damage to someone else.
Types of Claims Covered by Liability
Single Limit Liability Coverage
How the Single Limit Liability Coverage Works
Defense and Legal Costs
Exclusions
Types of Claims Covered by Liability
The BOP liability covers claims in four basic categories of business liability:
- Bodily injury is damage to a person's body or physical well being.
- Property damage is damage to any type of real estate or personal property such as furniture.
- Personal injury (including Slander or Libel) is damage to a person's or business entity's reputation or basic rights, such as the right to be free from interference and to have privacy.
- Advertising injury refers only to liability for the harm caused as the result of the insured's advertising its goods or services, such as an advertisement that slanders another organizations products or services.
The liability coverage in the BOP also pays for medical expenses of persons, other than employees, who sustain injuries at the insured business or as a direct result of the operations of the insured business.
The liability coverage in the BOP covers liability claims that stem from ownership or control of premises, products and completed operations, and certain types of contracts. The term "premises" includes land, building and other property. This part of the policy, known also as owners', landlords' and tenants', covers claims due to the failure to avoid harming customers, salespeople or other people (even trespassers) who are on their premises.
"Products" coverage includes claims that stem not only from the manufacture of products but also from their distribution and sale. "Completed operations" is work that has been performed, such as the repairing of appliances, the cleaning of chimneys or the installation of plumbing.
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Single Limit Liability Coverage
The BOP has a single limit for liability and medical expenses with a separate medical expenses limit per person injured. The BOP also has separate limits for products/completed operations, that is, the work carried out and completed by the business, such as repairing electrical appliances, and for advertising and personal injury, as well as a general aggregate limit and limits per person injured and per occurrence, and limits on damage per fire.
The single limit in the BOP makes decisions on how much liability protection to purchase less complicated, but it also reduces flexibility. If your product has a higher than average product liability risk, such as toys, the BOP might not provide enough liability coverage.
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How the Single Limit Liability Coverage Works
Your craft store has chosen a $500,000 limit on liability and medical expenses and a $5,000 limit per person injured. If your store needed additional liability coverage, you could purchase higher limits or an umbrella or excess insurance policy.
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Defense and Legal Costs
The BOP obligates the insurer to provide a defense and pay for various legal costs when there is a covered liability claim or lawsuit against the insured business owner and the claim is covered by the policy. This provision not only protects a business from legal expenses, but it also generally makes available a more expert defense than the business would be able to afford on its own.
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Exclusions
The most important exclusion to note is the exclusion for injury and property damage that is intended or expected by the policyholder. For example, if you distributed a letter containing false negative information about a competitor in order to put him or her out of business, the policy would not cover the competitor's claim for damages.
The BOP policy excludes liability for exposures that would be covered under other insurance coverages such as worker's compensation and professional and auto liability insurance policies.
Also excluded are claims resulting from damage to the property of others in the business owner's care, custody and control. This is because coverage for such damage is covered under property policies.
Losses relating to contracts or agreements, injuries caused by exposure to nuclear radiation and liability for injury or property damage caused by substances that pollute the environment are excluded.
The BOP also excludes all coverage for pollution claims. However, to protect your interest in the property you own, and to prevent the pollutants from injuring others, the BOP property form provides $10,000 toward the cost of extracting the potentially polluting substances from the policyholder's own premises. If you need liability coverage for environmental pollution you must purchase a special policy.
Manufacturers of products subject to product recall, such as food items or toys, should consider purchasing a special policy to cover this exposure. Products are excluded from the BOP policy because of the costs incurred in a recall.
Coverage for administering certain kinds of professional services or failure to render such services may also be excluded from the BOP policy, depending on the extent of services provided.
Legal actions that do not involve a claim for bodily injury, property damage, personal injury, or advertising injury, are not covered. The BOP policy does not cover most contract disputes, actions by governmental agencies charging that a business has failed to abide by regulations or statutes, and charges of pollution.
A claim for back taxes or a penalty for failure to provide a safe workplace is not covered by the BOP policy.
It is important to ask your agent to explain anything about the policy you do not understand and to answer any other questions you might have. Among other matters, you should know what the policy does and does not cover, including any deductibles or coinsurance requirements, exclusions, exceptions, or limitations, how and when to make a claim and how claims are processed.
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