Common Insurance Terms

Description of operations: Office buildings lease commercial space to various tenants, including professional service providers, medical providers, and sales offices. The leases can be offered on a short-term basis or extend through a number of years.

Property exposure is low. Ignition sources include electrical wiring, heating, and air conditioning systems. Some tenants may have small kitchenettes for use by their employees. The owner should be aware of the electrical demands of tenants to ensure that there is adequate wiring in place to handle it. All wiring should be up to code. Each unit may have a separate heating system, or there may be a boiler to provide heat to all units. All systems must be properly maintained on an ongoing basis. There should be hard-wired smoke/fire alarms in all units and common areas. If alarms are battery-powered, there must be documented records of periodic maintenance. Upgrades should be handled with appropriate permits. If the building has any unique architecture or design, valuation may be a concern. Business interruption could be a concern should a loss occur and tenants are unable to access the building.

Crime exposure is from employee dishonesty. Background checks should be conducted on all employees. Rents are generally due on the first of each month. Receipts must be provided for all payments, and reconciliation between receipts and money received. Deposits should be made promptly with appropriate security provided. All orders and disbursements must be handled by separate individuals. Access to units must be limited to those authorized to do so, and access to master keys must be strictly controlled. Units should be rekeyed when there is a change in tenant.

Inland marine exposures are from accounts receivables for rents due, computers, and valuable papers and records for leases, mortgages, and tenants’ information. Duplicates of all data must be kept off premises for easy replication in the event of a loss. Contractors’ equipment may be needed if maintenance of yard and buildings is handled internally. Some building owners may display fine arts in the common areas.

Premises liability exposure can be high due to the number of tenants and visitors to the property. All buildings should meet life safety codes and be in compliance with codes on smoke and fire detection and fire extinguishers. To prevent slips, trips, and falls, all premises must be well maintained with aisle ways free of debris, flooring in good condition, no frayed or worn spots on carpet, and no cracks or holes in flooring. The number of exits must be sufficient and well marked, with backup lighting in case of power failure. Steps should have handrails, be well lighted, marked, and in good repair. Parking lots and sidewalks need to be in good repair, with snow and ice removed, and generally level and free of exposure to slip and fall. Security of tenants and visitors, both inside the building and in parking areas, is rapidly becoming the responsibility of the owner or operator of the premises. There should be a maintenance activity log to document the owner’s response to tenants’ needs. Personal injury losses may occur due to alleged wrongful eviction, invasion of privacy, or discrimination. Clear guidelines for tenant acceptability are important.

Automobile exposure is generally limited to hired nonownership for employees running errands. If there are owned vehicles, such as those used for servicing, any driver must have a valid driver’s license and acceptable MVR. Routine maintenance on owned vehicles should be documented.

Workers compensation exposure hazards are normally service, janitorial, or maintenance-related. Back pain, hernias, sprains, and strains from lifting and working from awkward positions are common. Skin and lung irritation can result from working with cleaning chemicals and paint. Interaction with tenants or guests can be difficult. Employees should be trained in dealing with difficult situations.

Minimum recommended coverage

Building, Business Personal Property, Business Income and Extra Expense, Employee Dishonesty, Accounts Receivables, Computers, Valuable Papers and Records, General Liability, Employee Benefits, Umbrella, Hired and Nonownership Auto, Workers Compensation

Other coverages to consider

Earthquake, Flood, Computer Fraud, Money and Securities, Equipment Breakdown, Contractors’ Equipment, Fine Arts, Cyberliability, Employment-related Practices, Automobile Liability and Physical Damage, Stop Gap Liability

Reprinted with permission from the Rough Note’s Company copyrighted content.