CLASSIFYING RISK–PROPERTY OWNERS

(April 2019)

INTRODUCTION

A property owner’s lessor’s risk exposure can be difficult to classify because of the many classifications that are available. This doesn’t mean that many different codes could apply to a specific risk but instead that there are many codes that must be considered before the one that most closely matches the risk can be determined.

The most specifically described classifications must be considered first. Only after those are eliminated as possibilities are the broader, less specific class to be considered.

SHOPPING CENTERS

A shopping center is a very specific type of risk. It must contain at least five stores. If there are fewer than five stores, the business is not a shopping center and another classification must be selected. When there are five or more stores, there are two shopping center classifications to consider.

Class Code 67634: Shopping Centers–Indoor Malls–Buildings or Premises Not Occupied by the Insured (Lessor's Risk Only) requires a common indoor passageway between all stores.

This classification does not require a certain amount of space for automobile parking because it is possible to have an indoor mall without a parking area. An indoor mall shopping center without parking is becoming more common in downtown areas where municipal parking facilities are used instead of parking the shopping center provides in conjunction with its operation.

Class Code 67635: Shopping Centers–Buildings or Premises Not Occupied by the Insured (Lessor's Risk Only) requires at least 25,000 square feet of automobile parking area at each location. It does not require a common indoor passageway between the stores. These risks are frequently referred to as "strip centers" or "mini-malls" and are familiar structures in most commercial areas in suburban areas and in rural settings.

If one of the shopping center classes applies, there are three items that must be separately rated:

• Parking

Many classifications include parking areas without a separate charge. However, the shopping centers classifications notes specifically state that parking must be separately classified and rated.

Related Article: Classifying Risk–Parking Lots

One of two classifications can apply to these parking facilities and the correct one depends on who is responsible for maintaining the parking lot:

• Class Code 46607: Parking–Public–Shopping Centers–Maintained by the Insured (Lessor's Risk Only)
• Class Code 46606: Parking–Public–Shopping Centers–Maintained by Lessee (Lessor's Risk Only)

There is a significant difference in rate and premium between these two codes. As a result, the contract or lease must be reviewed carefully to determine the party that is responsible for maintaining the parking area instead of simply and arbitrarily using one class code or the other.

• Special Events

Separate charges must be made for special events. However, the notes do not specify the amount to charge, or the type of activities included as special events. The insured should disclose the nature and types of events held on a regular or repeating basis in order that a premium charge can be developed in advance. This ensures that there are no surprise premium charges made at audit or coverage is denied because exposures were misrepresented.

• Other Occupied Buildings

Any building the named insured occupies that is not considered incidental to the shopping center’s operation must be separately rated.

SPECIFIC "LESSOR'S RISK ONLY" CLASSES

If the risk is not a shopping center, each of the following classifications should be considered before a risk is classified using one of the Not Otherwise Classified (NOC) classifications.

• Class Code 44009: Gasoline or Oil Supply Stations–Retail (Lessor's Risk Only)

Note: The premium charge is based on gross sales, not on square foot area.

• Class Code 64074: Hotels and Motels–(Lessor's Risk Only)–Less Than Four Stories
• Class Code 64075: Hotels and Motels–(Lessor's Risk Only)–Four Stories or More
• Class Code: 45539: Land–Occupied by Persons Other Than the Insured For Business Purposes–(Lessor's Risk Only)

Note: The premium charge is based on acreage, not on square foot area.

• Class Code 15120: Markets–Not Open Air (Lessor's Risk Only) Not-For-Profit Only
• Class Code 15119: Markets–Not Open Air (Lessor's Risk Only) Other Than Not-For-Profit
• Class Code 15124: Markets–Open Air (Lessor's Risk Only) Not-For-Profit Only
• Class Code 15123: Markets–Open Air (Lessor's Risk Only) Other Than Not-For-Profit

Note: The premium charge for each of the Markets classifications is based on sales, not on square foot area.

• Class Code 46913: Race Tracks–Motorized Vehicles (Lessor's Risk Only)
• Class Code 46914: Racing (Lessor's Risk Only) (NOC)

Note: The premium charge for Class Codes 46913 and 46914 is based on sales, not on square foot area.

• Class Code 68702: Warehouses–Occupied by Multiple Interests (Lessor's Risk Only)
• Class Code 68703: Warehouses–Occupied by Single Interest (Lessor's Risk Only)
• Class Code 49802: Wharf and Waterfront Property–Not Occupied by the Insured (Lessor's Risk Only)

NOT OTHERWISE CLASSIFIED (NOC) CLASSIFICATIONS

Not Otherwise Classified (NOC) classifications can be used ONLY when none of the classifications above apply to the risk. Specifically, such classifications can be used only if either of the following applies:

• The building has five or more stores, there is no common passageway between all stores, and the parking area is less than 25,000 square feet
• The building has fewer than five stores and none of the following occupancies:
• Gasoline or oil supply stations
• Land–occupied by persons other than the insured for business purposes
• Markets
• Race tracks or racing areas
• Warehouses
• Wharf or waterfront property

The following are NOC classifications that can be used:

• Class Code 61216: Building or Premises–Bank or Office–Mercantile or Manufacturing (Lessor's Risk Only)–Not-For-Profit Only
• Class Code 61212: Building or Premises–Bank or Office–Mercantile or Manufacturing (Lessor's Risk Only)–Other Than Not-For-Profit
• Class Code 61218: Building or Premises–Bank or Office–Mercantile or Manufacturing (Lessor's Risk Only))–Maintained by the Insured–Not-For-Profit Only
• Class Code 61217: Building or Premises–Bank or Office–Mercantile or Manufacturing (Lessor's Risk Only)–Maintained by the Insured–Other Than Not-For-Profit

The lease agreement should clearly state the party that is responsible for property maintenance. As a general rule-of-thumb, the larger the area that one tenant occupies, the more likely that the lease’s terms with that tenant will require it to maintain the property. Because the premium charge for risks that maintain property is considerably higher, the named insured benefits when the lease requires the tenant to maintain the property so that code 61212 or code 61216 can be used.

According to the Classification Tables the NOC classifications above are not subject to additional premium charges. This is especially important because it means that parking lots are included for no additional charge.