Business Interruption Week – Part 5 – BOP Trouble

Many small businesses buy insurance in the form of a package policy known as the business owners policy (BOP). It is a great tool for insurance companies to provide common coverage to a multitude of businesses (mostly retail and office exposures). Included are the usually needed property and liability coverages.

Within most BOPs is business interruption insurance without limit. Ya-hoo! Nobody has to figure out how much insurance to buy! Nobody has to fill out an onerous worksheet (see yesterday’s posting on the BII worksheet). No thought is needed! The coverage is already in there and saints be praised!

Not so fast, Skippy!

Two big problems. (Yes, there are more than two problems. Let’s keep it simple here.)

First, the BOP only provides coverage for loss of income and extra expense for 12 months. Two days ago I talked about running out of time. What if it takes 15 months for your building to be rebuilt? What if the damage done to your building was also done to many many other buildings, like in a hurricane? You may have to wait in line for contractors or your local zoning board may go on vacation and not get your building application approved for 4 months.

Second big problem is on the other side. Your business is up and running but the customers don’t come to see you for a while. A damaged gift shop in Maine that reopens in February is going to be almost without customers until those nice New Yorkers and New Jersey people come up here in July. Your insurance company will pay loss of business income for March (most policies include 30 days of coverage to get up and running after your building is repaired.) You are going to have a tough April, May, and June, though.

Your agent should be working with you on getting the right insurance. Sure, BOPs are nice and easy. There are issues that need adjusting though.