A client is seeking business insurance to cover a consignment shop for children’s clothing. The agent is unsure whether the client’s stock should be insured under business personal property (BPP) or personal property of others (PPO).

The client does not purchase the articles of clothing from the consignor and only pays when she sells the articles, returning them after 90 days if she does not sell them. The consignee (owner of the shop) has an agreement sheet that discloses she is not responsible for the items.

Q: "I have conflicting information in that one carrier tells me the materials being sold would be listed under 'stock' as BPP, and another tells me it is PPO because the client does not own it. How should the merchandise be classified and insured?"

 A: “You don't mention a policy form. Assuming an ISO CP 00 10, there is no ownership requirement for business personal property such as furniture, fixtures, machinery, equipment and ‘stock.’ Many people mistakenly believe that under both commercial property and homeowners forms, ownership is required for coverage. That's not true—which is easily ascertainable if they would take the time to actually read the forms.

If property is leased, the insurance must be required by contract. The policy applies an ownership requirement to ‘all other personal property owned by you and used in your business.’ However, if it's ‘stock,’ there is no mention at all of ownership, as this defined term shows: ‘“stock” means merchandise held in storage or for sale, raw materials and in-process or finished goods, including supplies used in their packing or shipping.’

As you can see, there is no mention of ownership. Floor plan policies are designed for merchandise sold on consignment, but the ISO form is silent on this.

An important requirement, however, is that you have an insurable interest in property: ‘We will not pay you more than your financial interest in the Covered Property.’

Ownership creates insurable interest. But it’s not the only thing that does—contractual requirement, for example, does the same. In your case, if I understand correctly, the consignment sales agreement places the burden of loss on the owner of the goods, not your insured. If that's the case, there may not be any BPP coverage—not due to lack of ownership, but rather to lack of insurable interest.

Since it appears that such property could fall under both the BPP and PPO coverages, if the BPP doesn't respond, the PPO should.”

Bill Wilson is director of the Big “I” Virtual University.

This question was originally submitted by an agent through the VU’s Ask an Expert Service. Answers to other coverage questions are available on the VU website. If you need help accessing the website, email logon@iiaba.net to request login information.