Chapter 7 | Building and Premises

Educational Objectives

Upon completion of this section, you should be able to:

  1. Define area as to inclusions and exclusions for premium computations.
  2. Define lessor's risk.
  3. Determine the proper classification when the premises is owned and occupied, owned and partially occupied, owned but not occupied, not owned and occupied.
  4. Define the term unit.

CLASSIFICATION ASSIGNMENT

Offices or residential occupancies or buildings leased to others are classified in accordance with Rule 31, Building or Premises.

The classification of buildings or premises may be broken down between those that are rated on an area basis and those on a unit basis.

Area Based Classifications

Most buildings or premises are rated on an area basis. This includes offices and warehouses. The definition of area provided in Rule 24 is basically the total number of square feet of floor space at the insured premises.

The classification procedures for the Area based classes are broken down into four parts based on ownership and occupancy, as follows:

1. Buildings or premises owned and occupied entirely by the insured. Classify and rate the premises based on the occupancy. Examples:

  • Buildings or Premises - office - Other than Not - For - Profit, 61226 (area+)
  • Lawyers Offices - Other than Not - For - Profit, 66122 (area+)
  • Medical Offices, 66561 (area+)

2. Buildings or premises owned and partially occupied by the insured. Classify and rate the premises occupied by the insured based on that occupancy (same as in #1 above).

Classify and rate the remainder of the premises according to the appropriate lessor's risk only classifications. If 90% or more of the premises is occupied by the insured, classify and rate the entire premises under the insured's classification.

Example: Suppose that an insured owns a three story building with the following occupancies:

  • 1st floor - Hardware Store (operated by insured)
  • 2nd floor - Lawyer's Offices (tenant)
  • 3rd floor - Accountant's Offices (tenant)

The proper classifications would then be:

  • 1st floor - Hardware Store - Code 13716 (gross sales)
  • 2nd floor - Building or Premises - Code 61212 (area+)
  • 3rd floor - Building or Premises - Code 61212 (area+)

Note: the premium basis for the hardware store operated by the insured is Gross Sales.

3. Buildings or premises owned or sublet by the insured, but not occupied by the insured.

Classify and rate according to the appropriate "lessor's risk only" classification.

Example: Suppose that an insured owns a three story building with the following occupancies:

  • 1st floor - Hardware Store (tenant)
  • 2nd floor - Lawyer's Offices (tenant)
  • 3rd floor - Accountant's Offices (tenant)

The proper classification would be the following for all floors:

Building or Premises - bank or office - mercantile or manufacturing (lessor's risk only) - Other than Not - For Profit, Code 61212 (area+) (assuming the insured is not responsible for the care and maintenance of the building).

4. Buildings or premises occupied but not owned by the insured.

Classify and rate based on the occupancy.

Example: Assume an insured rents an area of the first floor of a five story office building and operates a doctor's office.

The appropriate classification would be:

  • Medical Offices, Code 66561 (area +)

Unit Based Classifications

Buildings written on a unit basis are those generally occupied as residences, such as apartment buildings, garden apartments, residential condominiums, hotel time-sharing facilities.

Rating of this type of risk is on a Unit basis, regardless of whether the premises are owned, occupied or operated by the insured or by others. The following points should also be considered:

1. Portions of the premises rented to others which are not on units basis shall be separately classified and rated under the appropriate lessor's risk only classification.

Example: Suppose an insured owned a garden type apartment complex containing: 4 buildings with 6 apartments, 5 buildings with 8 apartments and a health spa operated by a tenant.

The insured's portion would be classified:

  • Apartment Buildings - garden - Code 60011 (64 units+)

The tenant's portion would be classified:

  • Building or Premises - bank or office - mercantile or mfg. (lessor's risk only) Code 61212 (area+).

2. If the owner operates a business enterprise other than residential and occupies a portion of the building not classified on a units basis, that portion shall be classified and rated on the occupancy.

Example: The previous example is changed making the owner also the operator of a health spa open to the public.

The residential portion would continue to be classified the same, however, the health spa would be classified:

  • Health or Exercise Clubs - Code 44311 (sales+)

RATING

Use the rates applicable in the territory where each building or premise is located.

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