This was originally published in the 'Legal Alert', an internal DeWolfe Companies publication. The target audience was realtors with a home office.
By Mark E. Buckley, CPCU, AIM, AU, API; Technical Specialist - DeWolfe Insurance Agency
Wise men don't need advice. Fools won't take it. -Benjamin Franklin
This third installment on insurance topics will delve into liability exposures. The first article centered on automobile insurance, including property and liability issues. The second article addressed property issues in the Homeowner Policy. This third article will again focus on the Homeowner Policy, specifically how your liability is affected by a business exposure in the home. Some options, as well as the limitations of those options, will be discussed.
The standard Homeowner Policy defines business as a 'trade, profession or occupation.' The policy excludes several types of business liability coverage. The most relevant exclusions are:
Any liability arising from a business conducted by an insured is excluded. This exclusion applies whether the activity is an incidental use of the home or not. If you invite your customer into your kitchen in between appointments, there would potentially be no coverage if they slipped and fell on your walkway.
Professional liability is also excluded. This includes the rendering or failing to render professional services. Professional activities refer to the performance of your profession, e.g. giving advice, completing forms, negotiations, etc.
As was stated in the previous articles, a personal lines policy is not designed for business exposures. It is designed for a typical homeowner. The assumption is that most homeowners do not have any business exposures in their home.
The business exclusion can be addressed in several ways. There are two common endorsements. If you are an employee, the HO71 Business Pursuits endorsement removes the business exclusion for the business named in the endorsement. This will provide you premises liability and protection for your personal activities related to that business. However, professional liability is still excluded. Also excluded are business activities of a business not named in the endorsement, corporal punishment and vicarious or direct liability involving vehicles or animals.
If you are a business owner or independent contractor, the HO 42 Permitted Incidental Occupancies endorsement should be added to your policy. The coverage provided includes property and liability. It provides coverage for business property and other structures as was discussed in the last article. This endorsement also provides limited liability coverage for the business named in the endorsement. However, while premises liability is covered, off premises business activities are excluded. Also, the professional liability exclusion in the Homeowner Policy still applies.
Each of these two endorsements has its limitations. While the Business Pursuits endorsement addresses the business liability exclusion it does not provide an business property coverage. While the Permitted Incidental Occupancy endorsement provides property and liability coverage, the business liability coverage is limited to on premises. Neither endorsement provides any professional liability coverage.
Another option is the Home Business Insurance Coverage endorsement. This is a comprehensive endorsement that mirrors the Business Owners Policy available from commercial insurance companies. The coverage includes property, liability and business interruption. These are the coverages most needed by small business owners. However this endorsement is not available from all insurance companies. Also, when it is available the underwriting guidelines are very restrictive.
The Homeowner Policy has significant limitations if you conduct your business in your home. If you are an employee, the Business Pursuits endorsement should be added. If you are an independent contractor, the Permitted Incidental Occupancies should be added. Neither endorsement covers all exposures and situations.
Each of us has varying insurance needs. Your independent agent will be able to derive the best possible solution.