How are commercial insurance property rates determined?

Understanding Commercial Insurance Property Rates

Insurance companies use underwriting to determine how likely your business is to file a claim. The greater the likelihood of a claim, the higher the premium. If an insurance company determines that your business is at increased risk for a loss, it may decline to issue you a policy.

Fire risk is usually the primary factor determining a business’s commercial property rates—state-licensed fire inspectors contract with insurance companies to perform inspections as part of the underwriting process. Inspectors use a standard rating system and weigh five factors in determining a structure’s fire rating. The five factors for determining commercial insurance property rates are:

  • Construction materials. Buildings made of potentially explosive materials will have higher premiums, while those made of fire-resistant materials could earn a discount. Additions to an existing structure might negatively affect a fire rating, so it’s good to talk to your agent or insurance company before remodeling. Internal structural elements can also affect a fire rating. Using wood partitions, floors, and stairways in an otherwise fire-resistant building will likely nullify any rate reduction. Fire-resistant interior walls, floors, and doors can help maintain a good fire rating.
  • Location. Buildings in cities or towns with good fire protection typically cost less to insure than buildings outside a city where fire protection may be limited.
  • Occupancy. A building’s use also affects its fire rating, and an office building will likely rate better than a restaurant or auto repair shop. In a building with multiple tenants, one hazardous occupant will negatively affect the fire rating of the entire building. If your business is in a building with a more hazardous company, your premiums will be higher.
  • Fire protection measures. Automatic sprinklers can reduce a building’s fire rating by 50 percent. Buildings with fire extinguishers, automatic alarms, and those within 500 feet of a standard fire hydrant will usually have lower ratings.
  • Exposure. Nearby hazards increase a building’s fire risk, and proximity to external fire hazards, such as a lumberyard or oil storage tank, will affect a fire rating. Internal exposure risks might include cluttered buildings and grounds, heavy mechanical or electrical equipment, or on-site storage of volatile materials.

Tenant improvement and betterments coverage will protect your office.

Tenant Improvement and Betterment Insurance

One of the questions we frequently receive from our law firm clients is properly insuring property inside a leased location. Many firms have to put significant investments into leased property so they can make them ready. We will then frequently be asked how you insure the build out done on the property.

Tenant Improvements Coverage

Did you know that if a space you are leasing were to burn to the ground that your law firm technically wouldn’t receive a reimbursement for the permanent fixtures and construction you performed? The build-out is considered part of the building, and you do not own any part of the building.

This is why tenant improvement and betterment can be significant to a law firm. Tenant improvements and betterments insurance coverage will provide your firm with coverage for the property that you installed when moving into a leased location. This can include walls, partitions, fixtures, and even wiring or heating and air conditioning units.

How Much Does it Cost?

The cost of tenant improvement and betterments insurance coverage is quite cheap. Instead of using the more costly rate associated with business personal property, insurance companies will usually use the less expensive building rate to add coverage.

For any firm that has chosen to lease its space, we highly recommend that you add tenant improvements and betterments insurance coverage.   If you have any questions about adding this coverage or would like us to provide you with a quote, please don’t hesitate to call our office.

Law firms need property insurance to protect their company.

Law Firm Property Insurance

Commercial property policies aren’t standardized, and insurance companies must meet minimum state requirements but may create their policies. As a result, coverages, and policy terms will vary by the insurance company and policy.

In a single policy, commercial multi-peril (CMP) policies combine several coverages — such as commercial property, liability, inland marine, and commercial auto. It’s typically cheaper to buy a CMP policy than to buy the coverages individually.

Business owner program (BOP) policies are a common type of commercial policy primarily for small businesses. BOP policies combine property and liability coverage in one policy.

Commercial property policies provide various types of coverage, either as part of the base policy or through policy endorsements. Endorsements expand or amend a policy’s coverages and usually increase your premium. You can buy certain coverages as separate standalone policies.

Following are some typical commercial property insurance coverages:

  • The building occupied by the insured coverage insures a building that you regularly use but don’t own. This coverage can be necessary if you lease or borrow a building.
  • Newly acquired or constructed building coverage insures a new building if you add it to your policy within a certain amount of time. If you don’t tell your insurance company within the period – usually 30 days – your policy won’t cover the new building. Commercial property policies usually only cover buildings named in the policy.
  • Employees’ property coverage insures your employees’ personal property if the property is on your premises. Generally, you must buy this coverage as an endorsement if you need more than a limited amount.
  • Off-premises property coverage covers your property located off-site. Some policies might not cover off-premises property or may provide only limited coverage. You can usually buy an endorsement to cover off-premises property. If you can’t buy an endorsement, you may have to buy a separate policy.
  • Business interruption coverage pays for the income you’d lose if your business is damaged and you can’t perform your regular business operations.
  • Extra expense coverage pays any additional costs to return your business to normal after it’s damaged.
  • Valuable papers coverage provides limited coverage for your business records and other valuable papers. You may be able to buy an endorsement to increase this coverage.
  • Ordinance or law coverage pays additional costs to repair or rebuild a facility to current building codes after it’s damaged. Many policies provide limited ordinance coverage, but you can increase the coverage with an endorsement.
  • Boiler and machinery coverage covers boilers, air conditioning units, compressors, steam cookers, electric water heaters, and similar machinery. Coverage is usually only for machinery listed in the policy and to losses caused by malfunctions of boilers or machinery, such as when a boiler explosion or water heater leak causes damage to other property. You can buy this coverage as an endorsement or a separate policy.
  • Inland marine coverage insures goods in transit by land, air, or inland waterways. It also covers projects under construction and transportation and communications structures, such as bridges, tunnels, and communications towers.

Other Coverages to Consider

Depending on the type of business you own and where it’s located, you might want to consider more coverages to protect your business.

Crime Coverage

You can buy several types of coverage to protect your business from crime. Common crime coverages include:

  • Loss of glass and money due to theft pays for damage to glass and theft of money resulting from a break-in.
  • Robbery and safe burglary (property other than money) is more limited coverage that doesn’t include a loss of money or securities.
  • Forgery or alteration protects your business against forgery or alteration of checks, drafts, promissory notes, or other types of payments.
  • Theft, disappearance, and destruction coverage insures money, securities, and other property against losses, both on your premises and off-premises, in the custody of an employee or messenger.

A policy may pay losses from crime on either a loss sustained or discovery basis.

  • Loss sustained coverage pays for losses that happened during the policy period.
  • Discovery coverage pays for losses that happen at any time.

Both types of crime coverage require that you learn about the crime during the policy period or extended reporting period.

Commercial Property Insurance for Law Firms

Commercial Property Insurance for Law Firms

Commercial property insurance helps law firms pay to repair or replace buildings and other property damaged or destroyed because of fire, storm, or other incidents covered by the owner’s policy. It also pays to replace stolen or lost property. Business owners can buy commercial property insurance regardless of owning, renting, or leasing a building.

If you rent or lease a building, consider tenant coverage to insure your on-premises property, including machinery, furniture, and merchandise. A building owner’s policy doesn’t usually cover the contents of the building that belong to you. The cost of tenant coverage is generally less than building coverage because the policy only covers contents.

You can buy a single policy to cover a business with more than one location unless they have different functions and risk profiles. If your business has an administrative office and a separate factory, this could be the case. If your company has operations at multiple locations, ask your agent if you need different policies.

Types of Property Policies

There are three types of commercial property policies. The policies protect against different causes of damage, commonly called “perils.” These include fires, lightning, windstorms, or damage caused by vehicles and civil commotion.

  • Basic form policies usually cover common perils.
  • Broad form policies usually cover the common perils in addition to water damage, structural collapse, sprinkler leakage, and damage caused by ice, sleet, or weight of snow.
  • Special form policies cover all types of perils except those the policy specifically excludes. Common exclusions include damages from flood, earth movement, war, terrorism, nuclear disaster, wear and tear, and insects and vermin.

Read your policy carefully. To fully protect your business, you may need to buy additional coverages or specialized policies, such as flood, windstorm, or crime coverage.

Replacement cost and actual cash value coverage

Most commercial property policies provide either replacement cost coverage, actual cash value coverage, or a combination of both.

  • Based on current construction costs, replacement cost coverage will pay to rebuild or repair your property. Replacement cost is different from market value and doesn’t include your land value.
  • Actual cash value coverage will pay to rebuild or replace your property minus depreciation. Depreciation is a decrease in value due to wear and tear or age. If your business is destroyed and you only have actual cash value coverage, you may not be able to rebuild completely.

Which is better? Replacement cost or actual cash value.

Replacement Cost Versus Actual Cash Value

There are various ways that your insurance company can calculate the amount it will pay you for a loss. However, the two most common ways are replacement cost and actual cash value. Each method is different, and it’s essential to understand the difference between the two when purchasing a property insurance policy.

What is replacement cost?

Replacement cost provides the most favorable payment terms between the two. Simply stated, it means the cost to replace the property on the same premises with other property of comparable material and quality used for the same purpose. This applies unless the insurance limit or the cost spent repairing or replacing the damaged property is less.

For example, if you have computers stolen from your law firm, it will reimburse you the full cost of replacing them with new computers of like kind and quality.

What is actual cash value?

Actual cash value, also known as market value, equals the cost minus any depreciation.   It is supposed to represent the dollar amount you could expect to receive for the item if you sold it in the marketplace. The insurance company determines the depreciation based on a combination of objective criteria (using a formula that considers the category and age of the property) and subjective assessment (the insurance adjuster’s visual observations of the property or a photograph of it).

We recommend purchasing your insurance policies with replacement costs instead of actual cash value whenever possible.   If you have any additional questions on how replacement cost and actual cash value affect your law firm’s insurance policies, please contact our office

Is it covered by flood insurance or water damage?

Flood Insurance Versus Water Damage

Is it covered by flood insurance or is it water damage covered by property insurance? Over the past year, we saw how many storms devastated many parts of the country, flooding homes and businesses, destroying roads, and ruining many lives.

From those storms, we received many calls about how insurance will respond to help law firms recover from the tragedies. So with that in mind, we want to share some insight into how a property insurance policy responds to a water damage claim and where flood coverage comes into play.

How your firm’s insurance policy will respond to these claims depends on how the water entered your office. And while every law firm’s property insurance policy differs, there are basic features common to all property policies.


A firm’s property policy doesn’t provide coverage for flood damage, but it does cover many types of water damage to your office.

For insurance purposes, the damage is considered to occur when water damages your office before the water comes in contact with the ground.

Your property policy would cover the following scenarios as they would be considered water damage:

  • A hailstorm smashes your window, permitting hail and rain access into your firm.
  • Heavy rain soaks through the roof, allowing water to drip through your ceiling.
  • A broken water pipe spews water into your firm.


As the name implies, a standard flood insurance policy, which the National Flood Insurance Program writes, provides coverage up to the policy limit for damage caused by a flood. The dictionary defines “flood” as the rising and overflowing of a body of water onto normally dry land.

For insurance purposes, the word “rising” in this definition is the key to distinguishing flood damage from water damage. Generally, damage caused by water on the ground at some point before damaging your firm is considered flood damage.   A handful of examples of flood damage include:

  • A nearby river overflows its banks and washes into your office.
  • A heavy rain seeps into your office because the soil can’t absorb the water quickly enough.
  • A heavy rain or flash flood causes the hill behind your office to collapse into a mud slide that oozes into your building.

Flood damage to your home can be insured only with a flood insurance policy — no other insurance will cover flood damage.


If, for some reason, a water-related claim is not covered by a flood or property insurance policy, losses from theft, fire, or explosion resulting from water are covered.

For example, if a nearby creek overflows and floods your office, and looters steal some of your furnishings after you evacuate, your property policy would cover the theft because it directly results from the water damage. H wever, the flood damage would be covered only if you have flood insurance.

We hope this provides you with insight into how both flood and property insurance will respond to water damage claims.
If you have any questions or would like to submit a claim, please feel free to give our office a call.

boiler and machinery coverage protects buildings.

Boiler and Machinery Insurance

Boiler and Machinery Insurance is an often overlooked insurance that can help protect your law firm from potential insurance claims.

To help provide some insight into what Boiler and Machinery Insurance are, we have compiled a list of the most common questions associated with the coverage.

What is Boiler and Machinery (Equipment Breakdown) Insurance? 

Equipment breakdown insurance for the financial losses incurred when equipment breaks down suddenly and accidentally.  Causes of loss can include power surges, short circuits, motor burnout, and mechanical breakdown.

Why Do I Need this Coverage? 

The costs associated with your equipment breaking down can be significant enough to affect the normal operations of your law firm.

Who Needs It? 

Suppose your law firm has or owns any type of large equipment like heating and air conditioning equipment, communication networks, or any other large pieces of equipment. In that case, you should consider this coverage.

What Does this Coverage Pay For? 

Equipment Breakdown coverage pays for the cost of repairing or replacing damaged equipment. It can also provide coverage for any income or extra expenses you incur to get your firm back up.

Our Law Firm Just Rents Our Building. Do I Still Need Boiler and Machinery Insurance? 

Even if you don’t own your building, you still face potential losses associated with equipment within your building that could break down. For example, damage to your phone systems, fax machines, computers, and air conditioning units can cause significant financial damage.

If your firm has any additional questions on how this insurance can help, please give our office a call.

Law Firm Property Items

Blanket Insurance

One of the recommendations we usually make to law firms with more than one location is for them to add blanket coverage to their property insurance. As many law firms don’t have this coverage or know what it is, we thought we would provide some insight on how this coverage can help your firm.

This coverage allows you to use one limit of insurance across multiple locations. There are two situations where this usually applies to law firms:

  1. If your law firm has multiple offices with many buildings, this insurance will make covering all of the buildings much more accessible.
  2. Suppose your law firm has property that you move between offices frequently. In that case, it is much easier to have a blanket limit of insurance rather than adjusting your limits of insurance to account for the fluctuations in the property.

Who Needs Blanket Insurance?

If your firm has multiple locations or buildings that need to be insured, a blanket property insurance policy may be ideal.

However, any policy needs to be evaluated on a case-by-case basis. So it is essential to work with a knowledgeable agent who can customize coverage to your needs.

How Much Does It Cost?

One of the most significant benefits of this coverage is that it can usually be added to your policy for no additional premium.

If you would like to find out more about this insurance and whether your law firm needs the coverage or not, please feel free to contact our office.

Outside of an attorney's law office.

What is coinsurance?

A common but seldom understood provision in a property insurance policy is coinsurance.   We have found that many law firms don’t know what coinsurance is and how it affects their insurance policy.

Coinsurance is a “penalty” from insurance companies for underinsuring property.   Only 2% of property losses are total losses, while 86% of property losses are less than 20% of the property’s value.   So to make sure that clients don’t provide limits of insurance that are less than the values of the property, the insurance company has a coinsurance penalty.

Insurance companies will require clients to insure their property up to a specified percentage of the property’s value (usually 80%, 90%, 0r 100%).   If the insured amount is less than the appropriate percentages, the insurance company will invoke the coinsurance penalty in the event of a claim.


The best way to explain coinsurance is with an example of how it works.   Let’s say that a law firm has a building that is worth $1,000,000.   However, to save money on their premiums, the firm decides to insure the building for only $500,000, knowing that its chances of a total loss are minimal.

Now let’s say the law firm experiences a fire that will cost $150,000 to repair.   When the adjuster arrives to assess the damage, he realizes the building’s value is $1,000,000 instead of the $500,000 provided by the firm.   Since the firm only purchased limits equal to 50% of the building’s value, the insurance company will invoke a coinsurance penalty and pay for only 50% of the claim.

It becomes readily apparent with the example that it simply is not worth it to try and insure the property for amounts less than their actual value.   Doing so will not save you much on your insurance premiums while causing you significant headaches in the long run.

Insuring property in a storage unit.

Storage Unit Insurance

One of the questions we receive from a number of the law firm we work with is about properly insuring items inside a storage unit.   Many firms will have excess property they don’t want to keep on campus, so they will typically keep it in a storage unit for a temporary or even permanent basis.

 If the property in the storage unit is stolen or destroyed, how your insurance company will respond is really dependent on how your property insurance policy was written.  Handling the claim could (and should) be as simple as the property adjuster confirming the claim is covered, determining the amount of coverage, and cutting your law firm a check.  

Unfortunately, there are situations where the claim isn’t covered, or the coverage is at a highly reduced amount from the actual value of the property located within the unit. 

Insuring a Storage Unit Properly

When we see problems arise with property claims stemming from a storage unit, it is usually because the insurance agent was unaware the storage unit existed. The law firm didn’t know it needed to notify its agent of the location.  So the best way to ensure you have coverage for the items located within your firm’s storage unit is to have your insurance agent add the storage unit as if it were another location for the law firm.  

With a location address and limit listed on the policy, you can eliminate any claims-related headaches associated with the unit.  (Make sure you talk with your agent about the type of property stored in the unit.  Old tables, desks, and chairs are insured very differently from old firm files and records.) 

Is There Coverage If I Forgot To Include The Location On My Policy?

If you forget to include your storage unit located on the policy and your storage unit is vandalized or destroyed, you may still have coverage on your policy.   Many property policies will include a coverage called “Off-Premises Property” that will provide your law firm with some protection in the event of a claim.   This limit is usually capped at $5,000 or $10,000, so you shouldn’t use this coverage as a safety net.