Businessowners policy on the P&C exam

These questions cover the whole form: who qualifies, what Section I pays after a loss, how Section II limits stack, and which gaps need an add-on. Keep the comparison table above open; several BOP figures differ from their commercial property twins.

Notes on each optionCommit to an answer first. The notes under the item then open on every option: what rules it in or out, and the one word that splits the runner-up from the key.

1. Item 01

   Sam, a sole proprietor, is the only named insured on a BOP for his store. He dies in the middle of the policy term. What happens to the coverage?

   • AIt transfers to the buyer of the store
   • BIt ends on the date of his death
   • CIt continues for 30 days only
   • DIt continues for his executor
   1. AA buyer of the store takes over the policy only with the insurer's written consent.
   2. BDeath does not end coverage; the policy carves out an exception for the named insured's legal representative.
   3. CThere is no 30-day cutoff; coverage continues for the legal representative.
   4. DCorrect: if an individual named insured dies, his rights and duties pass to his legal representative, such as his executor.

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2. Item 02

   Under a Businessowners Policy, the fire department service charge additional coverage pays up to

   • A$10,000
   • B$2,500
   • C$1,000
   • D$500
   1. A$10,000 is the off-premises property figure, not the fire department charge.
   2. BCorrect: the BOP pays up to $2,500 for fire department service charges, with no deductible.
   3. C$1,000 is the commercial property (CP 00 10) figure carried over by mistake.
   4. D$500 is the homeowners and dwelling figure.

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3. Item 03

   A building with a replacement cost of $200,000 is insured under a BOP for $140,000. A windstorm causes $50,000 of damage (actual cash value $30,000). Ignoring the deductible, how much will the BOP pay?

   • A$43,750
   • B$30,000
   • C$35,000
   • D$50,000
   1. ACorrect: the limit is under 80% of replacement cost, so the BOP pays the greater of ACV or $140,000 ÷ $160,000 × $50,000 = $43,750.
   2. B$30,000 is ACV, but the BOP pays the greater of ACV or the proportional replacement cost figure.
   3. C$35,000 divides by the full $200,000 replacement cost instead of the $160,000 needed at 80%.
   4. D$50,000 is full replacement cost, which requires insuring to at least 80% of replacement cost.

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4. Item 04

   A fire closes a gift shop insured under a Businessowners Policy for five months. How does the BOP's business income coverage respond?

   • AActual loss sustained from the time of loss, for up to 60 days
   • BActual loss sustained up to a stated dollar limit, with no waiting period
   • CActual loss sustained after 72 hours, for up to 30 days
   • DActual loss sustained after 72 hours, for up to 12 months
   1. A60 days is the extended business income period, not the main BI period, and the 72-hour wait still applies.
   2. BA stated dollar limit and no waiting period describe a commercial property BI form, not the BOP.
   3. C30 days is too short; BOP business income runs up to 12 consecutive months.
   4. DCorrect: BOP business income pays actual loss sustained after a 72-hour wait, for up to 12 months, with no dollar limit.

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5. Item 05

   A BOP has a $100,000 business personal property limit, which equals 100% of the store's average monthly values. During the holiday season a fire destroys $120,000 of stock and equipment. How much will the BOP pay?

   • A$108,000
   • B$100,000
   • C$120,000
   • D$125,000
   1. A$108,000 applies an 8% increase, which is the building inflation figure, not the BPP seasonal increase.
   2. B$100,000 ignores the automatic 25% seasonal increase in business personal property.
   3. CCorrect: the 25% seasonal increase raises the limit to $125,000 when BPP is insured to 100% of average values, so the $120,000 loss is paid in full.
   4. D$125,000 is the increased limit, but the BOP never pays more than the actual $120,000 loss.

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6. Item 06

   How does a Businessowners Policy (BP 00 03) differ from a commercial property coverage part (CP 00 10) regarding coinsurance?

   • AThe BOP requires the Agreed Value option to avoid a penalty
   • BThe BOP has no coinsurance clause on its property limits
   • CThe BOP applies coinsurance only to business personal property
   • DThe BOP applies a 90% coinsurance clause automatically
   1. AAgreed Value is the commercial property fix for coinsurance; the BOP has no coinsurance to suspend.
   2. BCorrect: the BOP has no coinsurance clause; it only asks for 80% insurance to value to pay full replacement cost.
   3. CThe BOP does not apply coinsurance to business personal property either.
   4. DNo 90% clause applies automatically; the BOP has no coinsurance clause at all.

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7. Item 07

   A BOP-insured contractor's equipment worth $15,000 is destroyed by fire while temporarily displayed at a trade show. How much will the BOP pay?

   • A$0
   • B$15,000
   • C$2,500
   • D$10,000
   1. AOff-premises property is not excluded; the BOP extends limited coverage to it.
   2. B$15,000 exceeds the $10,000 off-premises limit unless a higher limit or a floater is bought.
   3. C$2,500 is the personal effects figure, not the off-premises limit.
   4. DCorrect: the BOP covers business personal property temporarily at a location the insured does not own, lease or operate, up to $10,000.

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8. Item 08

   A customer injured in a fall at a BOP-insured store incurs medical bills over 18 months. Which bills can the BOP's medical expenses coverage pay?

   • AThose incurred within 3 years
   • BOnly those in the first 30 days
   • CThose incurred within 1 year
   • DAll of them, with no time limit
   1. AThree years is the homeowners and personal auto medical payments period.
   2. BThere is no 30-day cutoff; the window is one year.
   3. CCorrect: BOP medical expenses are paid if incurred and reported within one year of the accident.
   4. DMedical expenses coverage does have a limit in time, one year from the accident.

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9. Item 09

   Hidden decay that the owner did not know about causes part of the roof of a BOP-insured building to collapse abruptly. How is the loss treated?

   • ACovered only if snow was on the roof
   • BExcluded as decay
   • CCovered only during construction
   • DCovered as collapse
   1. ASnow is one possible cause of a covered collapse, not a requirement.
   2. BThe decay exclusion removes the cost of the decay itself, not an abrupt collapse caused by hidden decay.
   3. CCollapse coverage is not limited to buildings under construction.
   4. DCorrect: the collapse additional coverage pays for abrupt collapse caused by decay that was hidden and unknown to the insured.

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10. Item 10

    A BOP-insured retailer buys a second building. What automatic coverage does the BOP give the new building before it is reported?

    • A$250,000 for up to 30 days
    • B$500,000 for up to 60 days
    • C$100,000 for up to 30 days
    • D$250,000 for up to 90 days
    1. ACorrect: a newly acquired building is covered automatically up to $250,000 for 30 days.
    2. B$500,000 and 60 days are both too high; the BOP gives $250,000 for 30 days.
    3. C$100,000 is the automatic limit for newly acquired business personal property, not a building.
    4. DThe automatic period is 30 days, not 90.

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11. Item 11

    After a covered fire, a store insured under a Businessowners Policy is repaired and reopens after four months, but customer traffic stays low for another six weeks. How does the BOP treat the lost income during those six weeks?

    • AIt is covered as extended business income, up to 60 days
    • BIt is covered for 30 days under the civil authority provision
    • CIt is not covered, because the period of restoration has ended
    • DIt is covered only if the insured purchases an extra expense endorsement
    1. ACorrect: extended business income keeps paying after repairs until operations return to normal or 60 days pass.
    2. BCivil authority requires an order prohibiting access, which did not happen here.
    3. CThe period of restoration has ended, but extended business income picks up where it stops.
    4. DExtra expense pays costs to keep operating, not lost income after reopening, and needs no endorsement in the BOP.

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12. Item 12

    A steam boiler at a BOP-insured bakery explodes because of internal pressure and damages the building. The BOP has no optional coverages. How is the loss treated?

    • ACovered only as extra expense
    • BExcluded unless endorsed
    • CCovered, as explosion is covered
    • DCovered only up to $10,000
    1. AExtra expense does not give back an excluded boiler explosion.
    2. BCorrect: the BOP excludes explosion of steam boilers the insured owns or controls unless equipment breakdown is added.
    3. CExplosion is a covered cause of loss in general, but steam boiler explosion is specifically excluded.
    4. DThere is no $10,000 sublimit; the loss is simply excluded without the endorsement.

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13. Item 13

    The owner of a building insured under a Businessowners Policy is worried that construction costs will rise during the year. Which BOP feature addresses this without an endorsement?

    • AThe extended business income provision
    • BThe Agreed Value optional coverage
    • CAn automatic 25% seasonal increase in the building limit
    • DAn automatic annual increase in the building limit
    1. AExtended business income concerns lost income after repairs, not the building limit.
    2. BAgreed Value deals with coinsurance in commercial property forms, not rising construction costs.
    3. CThe 25% seasonal increase applies to business personal property, not the building.
    4. DCorrect: the BOP automatically raises the building limit each year, 8% unless another percentage is shown.

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14. Item 14

    Which of the following would MOST likely need a commercial package policy because it is too large for a BOP? Assume the office tower has 250,000 square feet.

    • AA 3,000 sq ft gift shop
    • BA 40-unit apartment building
    • CA 10-story office tower
    • DA two-person accounting office
    1. AA small gift shop is a typical BOP risk.
    2. BApartment buildings are BOP-eligible regardless of size, which makes this one the trap.
    3. CCorrect: a 10-story, 250,000 sq ft office tower exceeds BOP office limits of about 6 stories and 100,000 sq ft.
    4. DA small accounting office is a typical eligible BOP risk.

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15. Item 15

    A tenant insured under a BOP paid to install custom shelving and lighting in its leased store. A fire destroys them. Under which coverage does the tenant recover?

    • ABuilding coverage
    • BOutdoor property coverage
    • CBusiness personal property
    • DThe landlord's policy only
    1. AThe tenant does not insure the landlord's building under building coverage.
    2. BOutdoor property covers fences, antennas, trees and similar items, not interior fixtures.
    3. CCorrect: improvements and betterments a tenant paid for are part of the tenant's business personal property.
    4. DRelying on the landlord's policy leaves the tenant's own investment unprotected.

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16. Item 16

    A BOP-insured owner's building has been vacant for 75 consecutive days when a fire causes $40,000 of damage. Ignoring the deductible, how much will the BOP pay?

    • A$30,000
    • B$0
    • C$40,000
    • D$34,000
    1. A$30,000 reduces by 25%, but the BOP vacancy reduction is 15%.
    2. BFire is not one of the perils excluded during vacancy; it is only reduced.
    3. C$40,000 ignores the vacancy penalty that applies after 60 consecutive days.
    4. DCorrect: after 60 days vacant, losses like fire are cut by 15%, so $40,000 × 85% = $34,000.

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