Does a Hedge Fund need a BOP (Business Owner’s) policy?
In my opinion, yes, totally they do. What if the firm is totally virtual? There are no office premises, no office furniture, and contents and everyone works from home on their own laptops?
Again, I’d answer yes, and here’s why.
The D&O and E&O coverage forms are commonly combined into one policy form to protect the firm and its managers, members, officers, and directors from claims which may allege wrongdoing in managing the firm, or the fund; however, the entity and its managers still have potential general liability and other business insurance exposures. General liability which is part of a business owner’s policy form coverages the insured from claims which may arise from bodily injury, property damage, or personal injury claims.
Now you may be thinking: “If I don’t have a premise how will a bodily injury or property damage claim occur?“
Good question and you’re right the risk that the typical slip and fall claim that happens inside an office to a visitor or other third party is very low, but what could happen even in a virtual work environment is when you are visiting a client, investor or other third party and you or one of your employees causes a claim to occur triggering a general liability loss. The other need for general liability insurance is when you host a meeting or event at an outside meeting or event space and need to provide the owner of that space a certificate of insurance illustrating that you do have GL insurance.
The BOP policy used for Hedge Fund Business Insurance covers more than just general liability.
Here are a few of the things that I could see as important for a hedge fund:
- Hired & Non-Owned Auto Liability Insurance – when you use a personal auto or a borrowed or rented vehicle for business purposes – even if that’s just running to the post office on business, there is a potential liability exposure to the firm that can be covered by your BOP policy, which is very critical.
- Property insurance – the BOP policy also covers property owned, rented, or used by the business and this can include computers that are not going to be covered by your homeowner’s insurance since they are used for business. This is an important point for anyone working from home.
- Crime insurance – while a hedge fund does need a commercial crime policy to provide broad protection and high limits from several forms of crime exposures, a BOP policy can help fill in some gaps, especially for start-up hedge funds that may not yet purchase a high limit crime policy. Most BOP policies do protect from employee dishonesty, forgery and alteration, and theft of money and securities.
- A BOP policy is a very broad coverage form and will offer a variety of what I call fringe coverages to help fill in the gaps between other policies and finally one of the most compelling reasons of r a start-up hedge fund to purchase a BOP – it’s cheap. Most BOP policies with low property limits will run under $1,000 and for the coverage it provides, I think it’s a smart purchase.
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