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A Deep Dive Into Business Owners Policy Exclusions to Avoid Surprises

Author: Kimberlee | January 27, 2025

Edited by: Kimberlee and Reviewed: Kimberlee

A business owner’s policy (BOP) is an important insurance policy for small business owners to have. It covers them for multiple types of claims, such as those resulting from general liability, commercial property, and business interruption losses. Insurance companies bundle these three types of policies into one for better underwriting and fewer gaps in coverage when a claim arises. However, some exclusions apply that small business owners should be aware of.  

Importance of a Business Owners Policy (BOP)

The business owner’s policy covers common claims for a multitude of losses and claims, such as slip-and-fall accidents, property losses, and business interruption. For many business owners, this is the first and primary insurance policy they purchase because it provides the financial security to get past some of the most common claims they might face and their costly results. 

Common Exclusions in a Business Owner’s Policy

Here are some common BOP exclusions.

General Liability Exclusions

There are some claims exclusions for the general liability portion of the business owner’s policy:

  • Expected or intended injury: Incidents done on purpose will not be a covered claim for general liability. 
  • Contractual liability: This type of claim is sometimes covered under a professional liability policy, not a general liability policy or business owner’s policy. These claims would be denied under the latter.
  • Workers’ compensation and similar laws: Third-party injuries and claims are covered. First-party claims to injured employees are covered under a workers’ compensation policy. 

Property Exclusions

There are limitations to commercial property claims in a business owner’s policy:

  • Earthquake and flood exclusion: Claims resulting in property damage from a flood or earthquake are not covered. Small business owners would need a separate, specialized policy for this type of loss. 
  • Utility services exclusion: If power is lost for a given period of time, resulting in a loss, this is not covered. A specialized policy or endorsement is needed. 
  • Pollution or contamination exclusion: These types of losses are not covered by a BOP.

Business Interruption

Certain exclusions to claims of business interruption coverage exist:

  • Temporary closures: Short-term closures not resulting from a covered claim are not covered under a BOP.
  • Undocumented income: An insurance company will not pay a claim for undocumented income. Tax returns and bank records are used to verify income to process a BOP business interruption claim. 

Reasons for BOP Exclusions

Insurance companies have common reasons for excluding certain claims for business owners: 

  • Risk management tactics: Insurance companies must balance between covered and uncovered claims to manage risk. The potential loss in covering what is excluded is too much. 
  • Budgetary considerations: If every risk were covered in a BOP, the cost of the BOP would be too high. 
  • Legal and regulatory compliance: Insurance companies must remain compliant with all laws and regulations.

Specific Exclusion Scenarios

Let’s take a look at specific exclusion scenarios. 

Cyber Liability Exclusion

Unless a BOP purchases a cyber liability endorsement, it does not cover claims associated with cyber and data breaches. Business owners must be prepared to mitigate a loss without insurance coverage and pay any compliance mandates. 

Professional Liability Exclusion

Professional liability is covered by insurance companies through professional liability insurance, also known as errors and omissions insurance. This covers professional mistakes and contractual liability. 

Terrorism Exclusion

Acts of terrorism are not covered under the standard BOP. Insurance companies often have exclusions for terrorism and war acts. 

Impact of Exclusions on Small Businesses

Exclusions can have a significant impact on small businesses. When coverage is not available for a specific type of loss, the business assumes the financial risks of claims, which can result in legal implications and liability. Businesses should have a contingency plan for operational considerations when buying insurance and overcoming exclusions. 

Mitigating the Effects of BOP Exclusions

To mitigate the effects of BOP exclusions, businesses should:

  • Understand policy terms: Take the time to read through insurance contracts to understand what is and isn’t covered. 
  • Purchase additional coverage: When able to get an endorsement or other type of insurance coverage, small business owners should purchase as much insurance as they can afford to get. 
  • Work with insurance agents: Talk to your insurance agent to understand and mitigate risk. Reduce risk in the workplace with safety mechanisms and protocols. Insurance agents can help with this and in getting more coverage. 

Frequently Asked Questions About BOP Exclusions

Can Exclusions Be Negotiated?

Exclusions can not be negotiated and are a standard part of an insurance policy. However, small businesses may be able to add endorsements to increase coverage and overcome some exclusions. 

How Often Should a BOP Be Reviewed?

A business owner’s policy should be reviewed at least once per year or when there is a significant change in the business profile. 

What Are Alternatives If Coverage Is Denied?

Businesses are left to self-insure if a claim is denied due to an exclusion. Unless an endorsement was purchased to cover the exclusion, there isn’t much a business owner can do but pay for the loss out of pocket. 

Find Coverage that Fills the Gaps of Business Owner’s Policy Exclusions

Now that you understand exclusions, it is important to shop for insurance with a trusted carrier to get the most coverage for the best price. Shop among our best business owner’s policy carriers for a trusted resource for your insurance needs.

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