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Commercial Insurance policy – Business owner policy and ALS

People in the industry are always telling me that a BOP is an “ALS” policy or that Loss of Use provided on a Homeowners Policy is “ALS”. When I ask what they mean they typically say that means there is NO limit to what the insured can recover for a loss. It is, in essence, whatever loss they sustained. Agent Beware! That clearly is not always the case.

Let’s begin our discussion with the Business Owners Policy ( BOP). The BOP from its very inception was a simplified form and included Business Income automatically. It was wonderful and most important we did not have to fill out that dreaded Business Income Worksheet. The Business Income on the BOP, in the past, was written with no separate limit of coverage; was, in fact unlimited in the recovery amount up to what the insured could prove they sustained as a loss but was typically subject to a maximum of twelve months of coverage. The Declarations Page of the BOP inserted the initials ALS next to Business Income. Now this is where things get confusing because with rare exception all Business Income Forms are ALS (Actual Loss Sustained) The form language starts out by saying: “We will pay for the actual loss sustained you incur as a result……”. The difference between the BOP Business Income and other Business Income policies is NOT that they are ALS but rather that the BOP traditionally has been “limitless”.

Things have changed! Many BOP policies may still indicate ALS on the Declarations Page but will include a limit for Business Income. The limit will be within the policy either in form language or attached by endorsement. You might ask, where are they getting a limit to include? Good question. The companies are arriving at these limits in different ways.

– Some carriers are providing a limit based on a percentage of the insured’s sales which were provided them on the application

– Some carriers require a worksheet to be included, although we thought this was for information only. The limit comes off that worksheet

– Some carriers have asked that we include that information on the application and have taken the limit off the app

– Other carriers are putting a maximum on Business Income based on the type of insured. Specifically this is done for risks such as manufacturers wherein a carrier might put a maximum based on sales revenue.

Often times the only way you would know there was a limit would be to check the policy beyond just the Declarations Page. Agent beware!. Some companies are not writing 12 months but rather restrict coverage to 8 months.

The discussion of the term ALS is not restricted just to the BOP. On a Homeowners Policy for the Loss of Use section, the Declarations Page may show ALS which implies there is no limit. Prior forms provided coverage for Additional Living Expense often referred to as Coverage D. More current forms use the term Loss of Use which is a broader coverage in scope. Some companies provide 20% of Coverage A (Dwelling) for this coverage automatically while some indicate ALS on the Declarations. Caution, even though the Declarations Page show ALS the policy may limit the recovery to a period of time such as 12 months or 18 months. Point being, this is not then a “limitless” form.

It is clear we need to look at the form language more carefully, be cautious on what we say to our customers and particularly careful about what we communicate to them verbally or in writing. Make certain that proposals do not overstate these coverages because in a court of law the insured will produce that document and then it is not so much a coverage issue as it is a misrepresentation issue on the part of the agent. Be mindful that forms are changing and we must check with our insurance companies to find the answers.

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