7 Common Exclusions on Business Owners Policies And How to Avoid Them

Most BOPs exclude intentional damage, for example. Policies also typically exclude professional liability coverage, auto insurance coverage, and worker’s compensation.

Keep reading to discover common exclusions on business owners policies – and how to avoid these exclusions to protect your business.

How Business Owners Policies Work

A business owners policy, or BOP, is the most common type of insurance policy carried by small businesses.

Insurance companies realized small business owners needed multiple types of insurance coverage to protect their small businesses. Instead of requiring businesses to buy separate policies for each required coverage, insurance companies packaged multiple coverages into one common policy.

Today, BOPs combine multiple protections – including all major property and liability risks for your business – into one convenient package. Insurers sell BOPs to companies that generally face similar levels and degrees of risks – like small and medium-sized businesses with fewer than 50 employees.

What Does a Business Owners Policy Cover?

A business owners policy typically covers major risks faced by a small or medium-sized business, including:

• Property insurance for the business’s building and inventory
• Business interruption coverage
• Liability protection

What Does a BOP Not Cover?

A BOP covers many common risks faced by insurers. However, it doesn’t cover everything.

The items listed below aren’t always stated exclusions; they just don’t typically fall under the umbrella of a standard BOP.

• Items not covered by a BOP include:
• Professional liability insurance
• Auto insurance
• Worker’s compensation, health insurance, and disability insurance

Many small businesses buy separate policies for these coverages. Others add coverages to their existing BOP in exchange for higher premiums.

7 Common BOP Exclusions

A business owners policy, like any insurance policy, has exclusions.

Unfortunately, many business owners are unaware of these exclusions until after a loss occurs. That’s why it’s important to familiarize yourself with exclusions upfront.

Common BOP exclusions include:

Exclusion #1: Flood Damage

Many businesses are surprised to discover their BOP does not cover flood damage. If rising floodwaters damage your business’s property or inventory, then you may need to pay for repairs out of pocket.

A standard BOP covers storm damage. If hail and wind damage your business, then insurance should cover any damage. However, if a similar storm with heavy rain, causes floodwaters to rise, then flood damage would not be covered.

If your business is close to a river, lake, or body of water prone to flooding, then you may want to buy flood insurance.

Exclusion #2: Sewer Backup

A standard BOP does not cover damage caused by sewer backups. If flooding causes the sewer system to overflow and flow back into your business, for example, then you may not receive compensation from your insurer for the loss.

Exclusion #3: Mudslides Caused by Flooding

Mudslides aren’t a concern for much of the United States – but they can and do occur. Business owners policies typically exclude mudslides caused by flooding. If heavy rains caused a local body of water to flood, and that flood created a mudslide, then the insurer may deny your claim.

Exclusion #4: Deliberate Damage by Owner, Employee, or Anyone with Permission

All BOPs exclude deliberate damage against a business from an owner, employee, or anyone with permission.
Of course, if a random arsonist deliberately damages your building by burning it to the ground, then insurance covers the claim. If that arsonist was told by an owner to damage the property, however, then insurance will deny the claim.

Exclusion #5: Existing Damage

A BOP, like a homeowners policy, will not cover pre-existing damage. If damage already existed before a loss or before you purchased the policy, then insurance may not cover the damage.

Exclusion #6: Wear and Tear or Damage Caused by Lack of Maintenance or Faulty Repairs

As a business owner, you have an obligation to maintain your business. If you fail to maintain your business, then insurance may not cover the resulting problems.

Let’s say your business has an old roof that needs to be repaired. You perform substandard repairs on the roof to fix a leak. During the next windstorm, however, the roof is severely damaged, causing water damage to your business and inventory. Insurance may deny your claim (or substantially reduce it) because of wear and tear, improper maintenance, and faulty repairs.

Insurers may use different terms to deny coverage, including:

• Corrosion
• Contamination
• Lack of maintenance
• Faulty repairs
• Errors in design
• Mold and mildew

Exclusion #7: Other Events

Other exclusions on a BOP include:

• Eminent domain or other lawful actions performed by a local, state, or federal government
• Vermin and insect damage
• Hijacking, kidnapping, bomb threats, extortion, and acts of terrorism
• Acts of war

Check your BOP carefully to ensure you understand the exclusions. It could be the difference between winning and losing a claim.

How to Avoid BOP Exclusions

Some insurers have a legitimate reason to deny claims. The damage occurred because of an excluded event, and you don’t have the right coverage.

In other cases, however, you can avoid BOP exclusions by buying extra coverage or challenging claims:

Option #1: Buy Extra Coverage

The best way to avoid BOP exclusions is to review your policy today, understand your exclusions, and buy the coverage you need to avoid those exclusions.
Because your BOP doesn’t have worker’s compensation coverage, for example, you might buy worker’s compensation coverage through your insurer or a third party.

Or, if you’re concerned about flood risk in your area, then you might buy flood insurance through FEMA’s National Flood Insurance Program, which covers homeowners and business owners in flood zones nationwide.

Option #2: Challenge Insurance Claims by Hiring a Public Adjuster

Some insurers use exclusions to avoid paying legitimate claims. They might claim that the damage was pre-existing, for example, to avoid paying a high-priced claim.

In this situation, you may want to challenge the insurance claim yourself – or, if it’s a high-value claim, challenge the claim with the help of a public adjuster.

Public adjusters analyze your policy and damage, then negotiate with the insurer on your behalf to obtain an optimal outcome.

Contact ClaimsMate today for a no-cost consultation with a public adjuster in your area.

Stephanie Corona

Stephanie is a property insurance claim expert with over 20 years of experience working as an insurance adjuster, expert witness, appraiser and umpire. She is passionate about sharing her expertise, knowledge, tips and training to help both property owners and Public Adjusters in their pursuit of effectively managing claims and recovering the claim settlement they deserve after a loss.