CLASSIFYING RISK–OFFICES

(April 2019)

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INTRODUCTION

While there is logic in the statement that "an office is an office," to most of us it is just seems inherently wrong. Why? Because we know that different things happen in different offices. Different exposures should generate different rates, premium and coverages.

MEDICAL OFFICES

Medical offices differ from other offices because the people who enter them are usually not well. Because this is known, the insured must extend an entirely different level of care to them compared to people who enter other types of offices. There is also a professional liability exposure. The general liability premium does not contemplate paying for professional liability claims. As a result, a professional liability exclusion must be attached.

Class Code 66561: Medical Offices applies to all medical offices but "medical" is not defined. The premium base is square foot area. The classification note specifies that professional services are excluded and requires attaching
CG 22 44–Exclusion–Services Furnished by Health Care Providers. Professional liability coverage is usually provided under separate coverage forms or policies.

LAWYERS' OFFICES

Lawyers' offices present an entirely different type of exposure. Many of their activities take place off-premises and so there is a significant off premises exposure in addition to the on premises exposure. Loss exposures that result from personal and advertising injury are extremely high and properly covered under lawyers' professional liability coverage forms or policies.

The two classifications for lawyers' offices are Class Code 66123: Lawyers Offices–Not-For-Profit Only or Class Code 66122: Lawyers Offices–Other Than Not-For-Profit. The premium base for each is square foot area. Each has a note that requires that CG 21 38–Exclusion–Personal and Advertising Injury be attached in order to exclude personal and advertising injury. If this total exclusion is too stringent, an alternative exclusion is available. CG 22 96–Limited Exclusion–Personal and Advertising Injury–Liability Endorsement can be attached to cover only personal and advertising injury that does not arise out of lawyers' professional services.

Interestingly, there is no note requiring that a professional exclusion be attached.

LABOR UNIONS, POLITICAL CAMPAIGN HEADQUARTERS, AND PROFESSIONAL OR TRADE ASSOCIATIONS

The exposures in labor union, political campaign headquarters, and professional or trade association offices are like one another. In each, certain statements or remarks are often made that others may consider inflammatory or even libelous. While each type of organization needs personal and advertising injury liability coverage, the exposures they present are probably far beyond those that other classes present and a different insurance company may have to write such coverage. Similar to lawyers' offices, these classes of business present significant off-premises exposures. Four separate codes apply to these three similar yet very different operations:

Class Code 65007: Labor Union Offices
Class Code 46822: Political Campaign Headquarters or Offices
Class Code 46882: Professional and Trade Associations–No Buildings or Premises Owned or Leased Except as Offices–Not-For-Profit Only
Class Code 46881: Professional and Trade Associations–No Buildings or Premises Owned or Leased Except as Offices–Other Than Not-For-Profit

The premium base for Labor Union offices is square foot area. The premium base for Political Campaign Headquarters or Office is each office. The premium base for both Professional and Trade Association codes is per member. The notes for all the codes state that CG 21 38–Exclusion–Personal and Advertising Injury must be used to exclude personal and advertising injury.

INSURANCE AGENTS

Insurance agency offices are significantly different than many others because insurance agents offer their clients advice every day with respect to how to best insure their lives, businesses, and property.

Class Code 45334: Insurance Agents is the correct classification. The premium base is square foot area. The accompanying note states that professional services are excluded and to use CG 22 48–Exclusion–Insurance and Related Operations. This is because of concern over insurance agents’ errors and omissions due to advice given. This exposure is better covered under errors and omissions or professional liability coverage forms or policies.

EMPLOYMENT AGENCIES AND COMPUTER DATA PROCESSING

Employment agencies and computer data processing operations are similar in that each has significant amounts of sensitive confidential information about others that must be protected from unintended disclosure.

Class Code 43200: Employment Agencies is the correct classification for employment agencies that gather large amounts of information on individuals it attempts to place in full time employment positions with a variety of employers. The premium base is payroll. The accompanying note says to use CG 21 38–Exclusion–Personal and Advertising Injury to exclude personal and advertising injury. These exposures should be covered under errors and omissions or professional liability coverage forms or policies.

Related Article: Classifying Risk–Employment Agencies

Class Code 43151: Computer Data Processing–Operations applies to risks that use their own computer systems to provide a full range of services to others. The premium base is square foot area. CG 22 77–Professional Liability Exclusion–Computer Data Processing is used to exclude professional liability exposures that arise out of such operations. These exposures should be covered under separate errors and omissions or professional liability coverage forms or policies.

OFFICE CLASSIFICATIONS BASED ON PAYROLL

All the following office classifications use payroll as their premium base. While their office operations are important, each has extensive off-premises operations and activity that involve interaction with customers. With these classes of business, office operations are of secondary importance compared to the interaction that takes place off-premises with their clients. The three classes are real estate agents, computer consultants/programmers, and consultants.

Class Code 47050: Real Estate Agents is unusual in that the payroll of both clerical and sales associates is used to develop the premium. The notes states that property the insured has for sale or rent are included in addition to its advertising signs on the property. It does not apply to properties the insured owns, rents, or manages; all of which must be rated separately. When the policy is not to include the property the insured owns, rents, or manages, CG 22 60–Limitation of Coverage–Real Estate Operations must be attached. CG 23 01–Exclusion–Real Estate Agents or Brokers Errors or Omissions is used to exclude liability from misrepresentations, errors, or omissions in real estate transactions.
Class Code 41675: Computer Consulting or Programming is based on the payroll of all employees and applies to risks that provide computer-consulting services to others. CG 22 88–Professional Liability Exclusion–Electronic Data Processing Services and Computer Consulting or Programming Services excludes professional services and attaching it is mandatory. Any business that offers computer instruction on its premises for a fee should be classified and rated under the appropriate school classification.
Class Code 41677: Consultants is a Not Otherwise Classified (NOC) classification. It applies to businesses that offer consultation services on their premises or at their client's premises. It is based on the consultant's payroll as well as the payroll of employees who perform support functions for them. It does not apply to architectural, engineering, legal, medical, or computer consulting activities and is used only when another classification does not apply.

OFFICE AND OFFICE NOT OTHERWISE CLASSIFIED (NOC) CLASSIFICATIONS

The NOC classifications must be examined after reviewing all office exposures listed above and determining that they are not appropriate. Four classifications should be considered. Each is very straightforward, and none has any special amendments or exclusions.

Class Code 61227: Buildings or Premises–Office–Not-For-Profit Only is rated using the square foot area of both the office and private garages as the premium base. This is a NOC classification. It applies to locations that the insured's employees occupy and that are open to its customers as well as the general public.
Class Code 61226: Buildings or Premises–Office–Other Than Not-For-Profit is rated using the square foot area of both the office and private garages as the premium base. This is a NOC classification. It applies to locations that are open to its customers as well as the general public.
Class Code 61225: Buildings or Premises–Office–Premises Occupied by Employees of the Insured–Not-For-Profit Only is rated using the square foot area of both the office and private garages as the premium base. It applies to locations that the insured's employees occupy but that are not usually open to its customers or the general public.
Class Code 61224: Buildings or Premises–Office–Premises Occupied by Employees of the Insured–Other Than Not-For-Profit is rated using the square foot area of both the office and private garages as the premium base. It applies to locations that the insured's employees occupy but that are not usually open to its customers or the general public.

SUMMARY

Classifying offices correctly the first time means there is no additional paper work to do or errors to correct. Policies that generate relatively small premiums quickly become an expense instead of an asset when questions about them continually arise and require time and attention to resolve. Keep in mind that proper classification also reveals other exposures that must be insured. Being familiar with certain mandatory exclusions that accompany some classifications assists in directing the customer to the proper errors and omissions or professional liability coverage. This also generates additional commission revenue and helps to prevent possible insurance agent's errors and omissions claims.