Mark E. Buckley

Legal Alert I

January 2002

This was originally published in the 'Legal Alert', an internal DeWolfe Companies publication. The target audience was realtors with a home office.

Insurance Implication of Business Exposures

By Mark E. Buckley, CPCU, AIM, AU, API; Technical Specialist - DeWolfe Insurance Agency

All perception of truth is the detection of an analogy - Henry David Thoreau

As I attended last month's leadership conference in Newport, I was struck several times by the similarities between the real estate business and the insurance industry.

The need to focus on our customers is paramount, but must be done through the efforts of our agents. Another distinction in both industries is the dichotomy between commercial and personal business. REALTORS can either excel at commercial or at residential real estate.

Likewise, insurance companies can focus their efforts on either commercial or personal insurance. Of course in our world of conglomeration, most large insurance companies own subsidiaries that are involved in each major area of insurance coverage. Having only been with DeWolfe for six months, these are some of the analogies I have detected. I look forward to finding more in the future.

I thought it would be beneficial to discuss the insurance implications of being either an employee or a associate of DeWolfe. In general, when you purchase a homeowner or automobile policy you are buying a personal lines policy. If you owned property as a corporation, you would need to purchase commercial insurance. What must you do if you own your home, auto and other personal property, but use it in the course of your business? That is precisely what will be discussed in this article and two other articles that will be written for The Legal Alert. This article will briefly explore automobile insurance.

The second article will discuss your property coverage under a homeowner policy. The third article will discuss liability coverage, primarily under a homeowner policy, but also the importance of an umbrella policy. Getting your Automobile policy into gear Several pages could be spent discussing the personal auto policy. However, I want to focus on four important items for those who use their vehicle for business purposes:

  • Right Classification
  • Right Liability
  • Right Coverage
  • Right Price
  • Right Classification

The classification or rating system used by insurance companies varies from state to state. The rate class of the car is determined by who is the principal operator of the vehicle, the age of the driver, how long they have been licensed, whether the driver has driver training, the sex of the driver, and the usage of the car. Each state uses these factors differently. For instance, the sex of the driver is not used in Massachusetts. The usage of the vehicle is either: Farm use, Pleasure Use, Commuting less than 15 miles, Commuting more than 15 miles, or Business Use. Once again, Massachusetts only has Business Use or Non-Business Use.

When should you classify your vehicle as Business Use? If you need the vehicle to do your business, then it should be Business Use. If your spouse could drop you off at work and you could get through the day without your car, then it is not Business Use. A carpenter generally needs a vehicle to get from job site to job site. Therefore she should classify her car as Business Use. A real estate agent probably could not have his customers walk from listing to listing. Even if he offered to pay bus fare, the customers would probably not go along. Therefore a real estate agent should classify his car as Business Use.

Why is this so important? The insurance company has a right to deny claims if the customer has provided misleading information. The usage of the car is a material fact and must be declared truthfully to the insurance company.

Right Liability

Liability coverage includes Bodily Injury and Property Damage. The amount of coverage you need to carry depends on the amount of assets you have to protect. The amount that you could potentially be sued for is unlimited. I can not advise you that a certain amount will satisfy any contingency. A client that is injured as a passenger in your car will sue you and DeWolfe. Because you drive a nice car and wear a suit every day, their perception of your net worth is probably inflated. However, perception is often more important than reality.

I would recommend that you have Bodily Injury limits of at least $250,000 per person and $500,000 per accident and Property Damage limits of $100,000. Some states offer a combined limit for Bodily Injury and Property Damage. In this case a $500,000 limit would be recommended. Beyond that I would recommend the purchase of a Personal Umbrella policy, which will be discussed in the third insurance article.

Right Coverage

An optional coverage that you might consider is Substitute Transportation. If your car is out of service due to an accident, this coverage will pay for a rental car. If you have an extra car in the driveway that is not being used, then this coverage might not be necessary. If you do not have an extra car and you need a vehicle in which to drive your clients, this would be an important coverage to have.

Right Price

So far I have either increased your anxiety or simply increased your insurance premium. One tenet in insurance is: Do not risk a lot to save a little. With regards to the Business Classification, the cost is not overwhelming. In Massachusetts, the Business Use Class only increases your premium by 5% to 7%. This might amount to an extra $50 per year. in other states, the Business Classification is 25% to 30% higher than a Pleasure Classification. This is a nominal cost compared to having a claim denied. With regards to your liability limits, the cost can be significant. Contact your insurance agent to quote your policy with different options. The cost will vary depending on your current coverage, where you live, and several rating factors.

With regard to Substitute Transportation, the cost varies from $20 to $300 depending on the amount of coverage that you buy. This coverage is less significant than liability coverage. However, if you retain this exposure and you need to rent a car for two weeks because your car was in an accident, this coverage seems like a bargain. Hindsight is always twenty-twenty.

Ask an Expert

As always, rely on your insurance agent. They have a duty to be honest with you and provide the best possible advice. Pose them the question: 'I use my vehicle for business. Do I have the right coverage on my policy?' The insurance transaction is very complex. Even those who have studied policies for years learn something new every day. It is unwise to undertake the process without the help of a professional and knowledgeable broker or agent. Does this sound familiar?


A personal lines automobile policy contains standard coverage for the typical consumer. By using your auto in your profession, a few additional steps are warranted. Please discuss your insurance program with your agent. They will guide you in getting the best policy at a reasonable price. The true value of an insurance policy is how it will react at the time of a claim. Make sure to inform your agent that you use your auto for business; otherwise you may be jeopardizing your coverage.

More Questions

Please contact the DeWolfe Group Coordinator, Alice L...., at ###-###-#### to answer any questions about your policy. Alice and the other members of our agency have significant experience addressing the exposures that have been discussed in this article.