Vacancy, partial occupancy, and lessor’s risk only (LRO) classifications influence apartment placements more than many owners realize. For brokers placing insurance for apartment owner risks, occupancy descriptions based on operational language rather than underwriting definitions often slow submissions and affect eligibility within an apartment insurance program. Underwriters evaluate vacancy using specific thresholds tied to tenant activity, duration, and use, not perception.
LRO classifications add another layer of complexity. Brokers and insureds may view LRO as a straightforward landlord exposure, while property and casualty insurance companies apply the classification based on specific criteria tied to use, control, and tenant activity. These definitions matter because they influence underwriting treatment, coverage form, and placement options. In this article, we explain how underwriters define vacancy, partial occupancy, and LRO — and how those definitions shape underwriting decisions and coverage outcomes across both admitted and non-admitted markets.
How Underwriters Define Vacancy, Partial Occupancy & LRO
The terms “vacant” and “partially occupied” often mean different things to different audiences. To a building owner, vacant may conjure the image of a dilapidated or abandoned structure, leading them to answer vacancy questions based on perception rather than definition. An owner may consider a building partially occupied if a single unit in a six-unit property is rented while the remaining units are still under renovation.
From an underwriting perspective, vacancy and partial occupancy are not cosmetic descriptors. They signal loss behavior and policy applicability. Partial occupancy thresholds vary by carrier and program, with some underwriters applying percentage-based benchmarks and others focusing on duration, concentration of vacancy, and trend.
LRO coverage is designed to insure landlords whose exposure is limited to premises ownership and maintenance rather than tenant operations. Apartment risks complicate this distinction because landlords often retain control over common areas, building systems, and safety obligations, which can blur the line between LRO and habitational exposure. These distinctions matter even more in the excess and surplus market, where underwriting flexibility increases but precision becomes essential.
Where Coverage Gaps Commonly Appear
Coverage gaps most often surface when vacancy, partial occupancy, or LRO status does not reflect how the property is actually functioning at the time of loss. A building may be insured under an apartment form, but if occupancy levels or tenant activity fall below underwriting thresholds, vacancy provisions can restrict coverage and create coverage gaps.
For example, a six-unit building insured as habitational may have one occupied unit and five units under renovation. From the owner’s perspective, the building is partially occupied. From an underwriting perspective, tenant activity may be insufficient to avoid vacancy treatment. If a water loss occurs in an unoccupied unit after vacancy conditions apply, the policy may limit or exclude coverage under the vacancy provision.
Common pressure points include water damage, vandalism, theft, and sprinkler-related losses, particularly when a property remains under-occupied longer than anticipated. LRO classifications can create similar exposure when the assumed responsibility between landlord and tenant is not reflected in policy structure and lease language.
Why Vacancy & LRO Confusion Push Apartment Risks Into E&S
When vacancy, partial occupancy, or LRO status is unclear, underwriters face greater uncertainty. For admitted carriers, that uncertainty often results in tighter terms, restricted coverage, or declinations. As a result, risks that fall outside clean program parameters increasingly qualify as hard-to-place insurance risks.
This is where excess and surplus (E&S) property insurance plays a critical role. E&S lines insurance allows underwriters greater flexibility to evaluate risks that do not meet rigid occupancy or classification thresholds, including properties undergoing renovation, transitioning between tenants, or operating with uneven occupancy.
That flexibility does not eliminate the need for clarity. E&S underwriters rely heavily on detailed, accurate information to structure appropriate property and casualty insurance products that align with actual exposure. When brokers present risks clearly, E&S placement becomes a strategy rather than a last resort.
Vacancy Status Drives Coverage Outcomes
Vacancy, partial occupancy, and LRO are underwriting classifications, not static labels. Conditions at the time of loss shape coverage outcomes, not intent at placement. When occupancy levels shift or control over a property changes, underwriting assumptions may no longer reflect reality. Brokers who track those changes and communicate them clearly protect coverage integrity and reduce surprises during claims review.
More effective translation between real estate clients and underwriters leads to clearer risk evaluation and fewer delays and surprises in coverage placement. This translation plays a critical role in commercial property and casualty insurance, where policy provisions respond differently as occupancy conditions evolve.
Work With Cochrane & Company
Vacancy, partial occupancy, and LRO classifications often place apartment risks outside standard program guidelines. Cochrane & Company works with brokers to evaluate these exposures, clarify underwriting assumptions, and place apartment risks that no longer fit traditional markets. Connect with our property team to navigate transitional occupancy and E&S placement with confidence.
FAQ About Vacancy, Partial Occupancy & LRO
What is the difference between vacancy and occupancy in insurance?
In insurance, occupancy is evaluated based on how a property is used at a specific point in time, not how it appears or how the owner describes it. A building may feel occupied operationally but still meet a policy’s definition of vacant if tenant activity falls below underwriting thresholds or space is not being used for its customary purpose.
What is an LRO insurance policy?
Lessor’s risk only (LRO) coverage is intended for property owners whose exposure is limited to ownership of the premises, not tenant operations. Underwriters evaluate LRO status based on control, use, and responsibility.
Do you need insurance on vacant property?
Yes. Vacant property still presents exposure, often with increased severity due to the potential for delayed detection of water damage, vandalism, theft, or fire. Coverage for vacant buildings is often restricted or written on modified forms.
What is LRO exposure in insurance?
LRO exposure refers to the landlord’s liability and property risk arising from ownership and maintenance of the premises, including structural components, building systems, and premises liability.
About Cochrane & Company
For more than six decades, Cochrane & Company has been proudly at the forefront of the insurance industry. Our experience has enabled us to innovate in powerful ways, reimagining the E&S market, and providing technology solutions that make it easy to do business with us. Licensed in all 50 states, we proudly serve clients across the nation, providing personalized and powerful solutions to help you become an even better partner for your clients. Speak to one of our experienced professionals today by calling (855) 967-0069.