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Liability issues Any suit brought must be in the insured's name. Liability arising out of a "business" is excluded. Rental of any premises is excluded unless defined as an "insured location". Liability arising out of professional services is excluded. Employment related practices are not covered unless due to a covered peril (Bodily Injury or Personal Injury). There is no liability or medical payments coverage for "Bodily Injury" to anyone eligible to receive any type of workers compensation benefits provided under the law. Under Section II--Liability Coverage--the insurance provided is Coverage E, Personal Liability and Coverage F--Medical Payment to Others. Under Section II Exclusions (b) it states that coverage does not apply to Bodily Injury or Property Damage arising out of business pursuits of an insured. There are two endorsements that give back limited coverage for this exclusion. They are: HO 2471 Business Pursuits Endorsement This endorsement provides coverage for an insured who is an employee of someone else. The endorsement has some serious restrictions. When a hobby becomes a "business" Many insureds have hobbies that gradually evolve into a business liability exposure. These hobbies could include photography, music, painting, ceramics, woodworking, or other activities. The insured may sell hobby items on a regular basis with the expectation of earning a profit or may receive income or fees for paid instruction on a regular basis. Once again, the two tests of profit and continuity can be applied. If both tests are met, the "business pursuits exclusion" applies. When youth employment becomes a "business" Many youths work part time and earn income by delivering newspapers, baby-sitting children, mowing lawns, shoveling snow, etc. Does the business pursuits exclusion apply to these activities? The various court decisions are inconsistent with respect to the exclusion. As a general principle, part-time or casual employment by youths would not be considered a business pursuit and, therefore, coverage would apply. The key here is the issue of "incidental" business as opposed to "engaged in", which implies a more permanent venture. In one case, the court ruled that the Business Pursuits Exclusion applied to a fifteen year old boy who operated a lawn care business, devoted twenty to twenty-five hours a week to the business, adopted a trade name that was advertised in the local newspaper and purchased several pieces of lawn care equipment. Ingress and egress There appears to be little judicial consistency on the issue of individual sustaining bodily injury upon entering or leaving an insured's premises for purposes of conducting any type of business transaction with the insured. New York Central Mutual Fire Insurance Co. v. Basch This case concerned an individual who was injured upon entering a private residence to get a piano lesson from the owner of the home. The court ruled that "...the piano lessons may have been business, but arriving at and leaving the premises were ordinarily incidental to a non-business pursuit..." Callahan v. American Motorists Insurance Company The insured is a real estate agent who conducted his business from his home. Another real estate agent came to the insured's home to pick up the key to a house that was listed for sale. The visiting real estate agent was injured in a fall on the insured's porch. The court held that the injury was due to a business pursuit of the insured and no coverage applied under the insured's Homeowner's Policy. Premises liability In the eyes of the law, a person entering a home as a social guest is different from a business person. A social guest is referred to as a "Licensee". The licensee takes the premises as they find them assuming the risks that they would ordinarily associate with such premises. They can expect that the owner will not intentionally cause them injury and that they will be warned of any hidden dangers that they might reasonably encounter. A business visitor is referred to as an "Invitee". The owner of a business owes a higher degree of care to the invitee in the maintenance of the premises and protection from injury due to any known defect or for that matter any defect that the businessman should have knowledge of with the exercise of reasonable care. HO 0442 Permitted Incidental Occupancies Residence Premises / HO 2443 Other Residences This endorsement charges a premium for the business that is described and then under Section II it excludes Personal Liability and Medical Payments to Others arising out or in connection with a business engaged in by an insured. It goes on to state that this exclusion does not apply to the necessary or incidental use of the premises to conduct the business described. The liability section of the policy only addresses Bodily Injury and Property Damage. Personal Injury Coverage is not included automatically, which addresses libel, slander, or defamation of character. There is a Personal Injury endorsement available (HO 2482), however it excludes injury arising out of the business pursuits of an insured. Professional exclusion Example 1: A client comes to your home for a meeting. Your son has left his bike on the sidewalk (again), and the client trips on it and breaks his leg. This would normally be covered for a visiting guest, but since he's a client on business purposes, there is no coverage. Example 2: You re-wire a client's computer in your home-based computer repair shop. The computer later overheats and burns your client's home down. The cause: you wired it improperly. There is no coverage. Example 3: As a home-based CPA, you advise your client to take some deductions on his taxes. A lot of deductions. The IRS later audits your client, disallows the deductions, assigns penalties and interest, and puts your client out of business. This would be a professional liability claim, so no coverage under the Homeowner's Policy. HO 0497 Home Day Care The HO 0497 endorsement (a.k.a. Home Day Care endorsement) is used to provide liability and property coverages for a home day care business. This endorsement gives you up to $2,500 of your personal property limit for property used in the day care business. This coverage is on-premises only. It also allows you to schedule property coverages on an "other structure", getting rid of that nasty Coverage B business use exclusion in the standard HO-3 form. Beware that the number of persons cared for must be stated on this endorsement, and most companies will only allow up to 3 persons cared for. Some companies will use three total, and some will use up to three at any one time. It makes a big difference, so make sure you know how your company interprets that rule. Workers Compensation Concerning a "Residence Employee", the "twin threshold" requirement must be met for Workers Compensation coverage. This entails casual and household employees who: (a) Work a minimum of 52 hours (b) Earn $100 from the same employer Both (a) and (b) must occur 90 days before an injury. The twin threshold requirement effectively eliminates coverage for incidental employees such as a baby sitter, occasional gardener, etc. HO 0590 Home Business Insurance Coverage This is a fairly new endorsement from ISO. This endorsement attempts to basically attach a standard Business Owners policy onto the HO-3 Homeowner's form. The coverages provided by this endorsement are really too numerous to go into here. Suffice it to say, if you have a home based business, and your insurance company offers it, this is the way to go. You will have the option to provide for all the exclusions and limitations under an HO-3 policy, plus you will pick up coverages not available on any other endorsement. These additional coverages include Personal and Advertising Liability, professional liability (for barbers and beauticians), off-premises coverage, loss of income, and others. The home business endorsement is relatively new, so your company may not have it available yet. Some companies have been reluctant to adopt this endorsement because their personal lines underwriters have limited experience underwriting business exposures. Note too that not all types of businesses are eligible to be covered by this endorsement. Refer to your company's rules for eligibility. |
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Not only are policy forms, clauses, rules and court decisions constantly changing, but forms vary from company to company and state to state. This material is intended as a general guideline and might not apply to a specific situation. The authors, LunchTimeCE, Inc., CEfreedom, and Insurance Skills Center, and any organization for whom this course is administered will have neither liability nor responsibility to any person or entity with respect to any loss or damage alleged to be caused directly or indirectly as a result of information contained in this course.
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