Lesson 3 - Business Activities

Transcription

1 Lesson 3 - Business Activities Lesson 3 Intro p1 (PM) Many personal lines clients are actively engaged in a home-based business activity. According to statistics: Home-based business is a $427,000,000 a year industry. Over 12 percent of U.S. households operate a full or part-time home-based business. In addition, between 34 and 36 million households have an active home office. Refer to Lesson 3 Intro p1 (PM) to view a chart of Common In-Home Businesses. Lesson 3 Intro p2 (PM) Lesson 3: In-Home Business Exposures You undoubtedly have clients with an In-Home Business. It is also likely that you have clients involved in an activity that they would never think could possibly be considered a business but it is! The question is: Do these clients have adequate insurance protection? This section will explore: The coverage provided, limited or excluded by the Homeowners Policy for the business exposure. Endorsements to the Homeowners Policy to provide some coverage for the business exposure. The coverage provided, limited or excluded by the Personal Auto Policy for the business exposure. Lesson 3 Intro p3 (PM) Lesson 3: Learning Objectives After completing this lesson, you will be able to: 1. Determine if a described activity is a business as defined in the Homeowners Policy. 2. Determine if there is an exclusion or limitation in the Homeowners Policy for an Other Structure used for business. 3. Determine if there is an appropriate endorsement to the Homeowners Policy to provide coverage Personal Lines - Miscellaneous Course Print

2 for an Other Structure that is excluded because of a "business" exposure. 4. Determine if there is an exclusion or limitation in the Homeowners Policy for personal property used for business. 5. Determine if there is an appropriate endorsement to the Homeowners Policy to provide coverage for personal property that is otherwise limited because of a specific "business" activity. 6. Determine if a business activity is excluded in Section II Liability Coverages of the Homeowners Policy. 7. Determine if there is an appropriate endorsement to the Homeowners Policy to provide liability coverage for a specific "business" activity. 8. Determine whether or not a given person or organization is an insured for Liability Coverage in the Personal Auto Policy. 9. Determine if a business is an insured for liability in the Personal Auto Policy. 10. Determine whether or not "business" use of an auto is covered by the Personal Auto Policy. Lesson 3 Intro p4 (PM) Forms that you need to print for this lesson: HO Business Pursuits HO Home Business Insurance Coverage HO Increased Limits On Business Property HO Permitted Incidental Occupancies Residence Premises HO Structures Rented To Others Residence Premises Forms you have printed and will need for this lesson: HO Homeowners 3 - Special Form PP Personal Auto Policy Personal Lines - Miscellaneous Course Print

3 Lesson 3 Topic A - Business Activities p1 (PM) Lesson 3 Topic A - Business Activities Learning Objective: Determine if a described activity is a business as defined in the Homeowners Policy. There are many sources of activities that your clients are involved in that could be considered a business, as defined by the Homeowners Policy. Some business activities are certainly more obvious than others. Yet this exposure can easily go unidentified, leaving a client uninsured or inadequately insured. Business activities can occur whether a person is an employee of others or has his or her own business. A revenue-generating hobby may also be considered a business activity. And, business activities can also be conducted by your clients children. Employed by others Own or financially control a business Business Activity Full-time or Part Time Revenue generating hobby Children s activities (babysitting, lawn care, newspaper delivery, etc.) Lesson 3 Topic A - Business Activities p2 (PM) Learning Objective: Determine if a described activity is a business as defined in the Homeowners Policy. What is a Business Activity? Is it always easy to determine if an insured s activity is a business? Not at all. At times it can be complicated. Example: Mac is retired and as a hobby has taken up refinishing furniture. He goes to second-hand stores and garage sales, looking for that beat up table or chair to transform into a beautiful piece of furniture. He then puts the refinished furniture in his own home or gives it away to friends and relatives. A friend wants a dining room table refinished and pays Mac to do it. Then another friend has a similar request. All of a sudden Mac realizes his hobby can provide him with extra spending money. Is this a business? Maybe, depending on how the Homeowners Policy defines the word business. Personal Lines - Miscellaneous Course Print

4 Lesson 3 Topic A - Business Activities p3 (PM) Learning Objective: Determine if a described activity is a business as defined in the Homeowners Policy. Business Activities: Three Categories Let s continue our discussion by placing business activities into one of three categories: (1) those individuals that are an employee of others, (2) those individuals that are self-employed, and (3) those individuals that have no idea that their activities may be considered a business activity. While the exposures to loss will differ among those clients who are employees of others, those who are selfemployed and those who are otherwise engaged in a business activity, they have one thing in common. Losses can take place at their home or away from their home. Employee Self-Employed Unaware of a Business Activity Lesson 3 Topic A - Business Activities p4 (PM) Learning Objective: Determine if a described activity is a business as defined in the Homeowners Policy. Business Activities Individuals, in any of these three categories, have exposures to loss created solely by their business activities. According to a study, the majority of these individuals do not understand they need commercial insurance because they think their Homeowner Policy provides all the insurance protection they need. These exposures can include the following: Owned Property (On & Away From Premises) Owned Property - Property used primarily for their business. For example: computer, printer, file cabinets, desk, lawn mower, cell phone, etc. Property of Others in the Insured s Care, Custody or Control Property of Others - Electronics being repaired by the insured or clothing being altered by the insured Time Element Insurance (Business Income & Extra Expense) Time Element - The purpose of time element insurance is to reimburse a business its continuing expenses Personal Lines - Miscellaneous Course Print

5 and net income (as defined) due to a direct loss from an insured peril. It may be thought of as disability insurance for a business. The goal is to provide for an uninterrupted flow of income and to provide an appropriate amount for a sufficient length of time. In other words, it is designed to do for the named insured what the named insured would have done for itself if a direct damage loss had not occurred. Liability Premises, Operations, Products and Completed Operations Liability - Kallie's Interior Design has a liability exposure as a result of any customers who come to her home. Likewise, Kallie must be concerned with her operations or activities that can cause liability, such as injuring customers while at their homes. Business operations such as installation or service can also cause liability. For every product sold, there is potential for product liability. If Kallie sells and installs window treatments, the installation could fail later and injure the customer or cause property damage. Personal & Advertising Injury Personal & Advertising Injury - Kallie may use various types of advertisements as part of her operations to attract customers. There is the possibility of an injury arising out of an offense associated with this type of exposure such as libel, slander, copyright infringement, etc. Professional Liability Professional Liability - Chantel has a beauty shop in her home. She is a professional as someone who has special training, skills and experience, someone who has to know more than another person do to her job. She has an exposure for legal liability arising out of her wrongful conduct, including the failure to perform to the expected standard of care of her profession. Crime & Employee Dishonesty Crime and Employee Dishonesty - A loss due to the unlawful taking of items of value including money whether from outside intruders or embezzled by trusted employees. Workers Compensations Workers Compensation - To protect workers who become injured or are afflicted with an occupational disease. Employment-Related Exposures Employment Related Exposures - This exposure includes sexual harassment, wrongful termination, hostile work environment, discrimination, etc. Life Insurance While this is an important coverage for a business owner, it will not be covered in this course. This topic is covered in other CISR courses. Personal Lines - Miscellaneous Course Print

6 Medical Insurance While this is an important coverage for a business owner, it will not be covered in this course. This topic is covered in other CISR courses. Disability Insurance While this is an important coverage for a business owner, it will not be covered in this course. This topic is covered in other CISR courses. For your clients who are an employee of another and working from home, the exposures to loss are less than those who own and operate their own business. For example, the employer is typically legally responsible for the exposures in the black-shaded boxes. In addition, the employer is more than likely going to provide the liability coverage listed in the blue-shaded box. (Refer to Lesson 3 Topic A - Business Activities p4 (PM) to view these boxes) Clients may still have a premises liability exposure, which we will discuss a little later in this course. But, what about your clients own personal property that they use when working for their employer? Providing insurance coverage for this property is not typically the employer's responsibility, leaving your clients responsible for any loss to their owned property used primarily to conduct business for their employer. Personal Lines - Miscellaneous Course Print

7 Lesson 3 Topic B - Business Activities and Homeowners 3 - Special Form Lesson 3 Topic B - Business Activities and the Homeowners 3 - Special Form p1 (PM) Learning Objective: Determine if a described activity is a business as defined in the Homeowners Policy. Definition of "Business" Activity Now that we have discussed the types of business activities your clients may be involved in and the resulting exposures to loss, let s look at the coverage provided for a business by the Homeowners 3 Special Form policy. 1. HO 3 Special Form Determining Coverage for a Business 2. How is Business Defined? 3. Property: Coverage B Other Structures: Limitations & Exclusions 4. Property: Coverage C Personal Property: Limitations & Exclusions 5. Section II Liability: Limitations & Exclusions Lesson 3 Topic B - Business Activities and the Homeowners 2 Special Form p2 (PM) Learning Objective: Determine if a described activity is a business as defined in the Homeowners Policy. Business Activities and Homeowners 3 - Special Form continued The first step in determining coverage for a client s business exposure is to understand how business is defined in the Homeowners Policy. Any activity that falls within the definition of business is subject to the property and liability limitations and exclusions that apply to a business. Therefore, it is important to understand the definition so you can help your clients identify whether or not they have a business exposure. "Business" "Business " limitations and exclusions apply Not a "Business" "Business " limitations and exclusions do not apply Policy Language: 1. Business Means Personal Lines - Miscellaneous Course Print

8 a. A trade, profession or occupation engaged in on a full-time, part-time or occasional basis; or b. Any other activity engaged in for money or other compensation, except the following: 1) One or more activities, not described in (2) through (4) below, for which no insured receives more than $2,000 in total compensation for the 12 months before the beginning of the policy period; 2) Volunteer activities for which no money is received other than payment for expenses incurred to perform the activity; 3) Providing home day care services for which no compensation is received other than the mutual exchange of such services; or 4) The rendering of home day care services to a relative of an insured. Lesson 3 Topic B - Business Activities and the Homeowners 3 Special Form p3 (PM) Learning Objective: Determine if a described activity is a business as defined in the Homeowners Policy. HO 3 Definitions Before we discuss the definition of business, we first need to review the definition of you and insured as these terms are used in the definition of business. "You" and "Your" A "you" is: 1. The person named in the Declarations. 2. If a spouse is not named in the declarations, he or she is still a "you" as long as he or she resides in the same household as the person named in the Declarations. Lesson 3 Topic B - Business Activities and the Homeowners 3 Special Form p4 (PM) Learning Objective: Determine if a described activity is a business as defined in the Homeowners Policy. Definitions continued Definition of Insured To be an insured a person must fit one of the following three criteria. An insured has the best coverage provided by the Homeowners Policy. The Homeowners Policy provides Personal Lines - Miscellaneous Course Print

9 both property and liability coverage for an insured. To be an insured, a person must be: 1. A You 2. A person who is a resident of the household of a "you" and either related to "you" or under the age of 21 and in the care of a "you" or a resident relative. 3. A full time student, who was a resident of "your" household before moving out to attend school, and is either under the age of 24 and related to "you" or under the age of 21 and in the care of a "you" or a resident relative. Please refer to Lesson 3 Topic B - Business Activities and the Homeowners 3 Special Form p5 (PM) to complete the Knowledge Check at this time. Lesson 3 Topic B - Business Activities and the Homeowners 3 Special Form p6 (PM) Learning Objective: Determine if a described activity is a business as defined in the Homeowners Policy. Definition of Business Now let's look at the definition of "business". The definition of "business" is a 2-part definition. The first part states a "business" includes a trade, profession or occupation. If the business activity is a trade, profession or occupation, it is a "business" and is subject to the limitations and exclusions for a "business". Trade: Skilled manual or mechanical work. Examples include painter, carpenter, electrician, etc. Profession: The Oxford English Dictionary defines a profession as "a paid occupation, especially one that involves prolonged training and a formal qualification" and in its definition of a professional uses the words "competent, skillful, or assured". Examples include physician, dentist, attorney, veterinarian, etc. Occupation: Everyday tasks and activities in which people are actively engaged as part of their work or business. Lesson 3 Topic B - Business Activities and the Homeowners 3 Special Form p7 (PM) Learning Objective: Determine if a described activity is a business as defined in the Homeowners Policy. Definition of Business continued Can a person have more than one trade, profession or occupation? Personal Lines - Miscellaneous Course Print

10 Example: Sandy works at the library as a Library Technician. That is her occupation. She is also a consultant for kitchen products sold through home parties. She attends 2 to 3 parties a week where she demonstrates how to use the products and takes sales orders. Several other days during the week she is preparing her orders and completing the required paperwork. Is the home party activity a trade, profession or occupation? It could be according to the courts. Lesson 3 Topic B - Business Activities and the Homeowners 3 Special Form p8 (PM) Learning Objective: Determine if a described activity is a business as defined in the Homeowners Policy. Definition of Business continued If Part 1 of the business definition applies, we can not go to Part 2 and try to unmake it a business. Only when the activity does not fall within Part 1 of the business definition can Part 2 even be considered. Part 2 clearly states that any other activity, engaged in for money or other compensation is a business UNLESS it is one of the four cited activities. 1. Activities from which $2,000 or less was received in the 12 months prior to the beginning of the policy period. 2. Volunteer activities where no compensation is received other than reimbursement of expenses. 3. Home daycare provided without compensation even if there is a mutual exchange of daycare services. 4. Home daycare to a relative of an insured even if receiving compensation for the services. Lesson 3 Topic B - Business Activities and the Homeowners 3 Special Form p9 (PM) Learning Objective: Determine if a described activity is a business as defined in the Homeowners Policy. Definition of Business continued Activities from which $2,000 or less was received in the 12 months prior to the beginning of the policy Personal Lines - Miscellaneous Course Print

11 period. You are writing Jay's Homeowner Policy effective July 1, has a woodworking hobby. Sometimes he sells some of his handiwork. Last year he received $1,000. Not a business: he earned $2,000 or less the year before. For the past few years, Brian has supplemented his teacher's salary by buying items at garage sales and second hand stores, reselling them on Ebay. He makes about $5,000 a year from his Ebay sales. A business: he earned more than $2,000 in the 12 months prior to his policy period. Lesson 3 Topic B - Business Activities and the Homeowners 3 Special Form p10 (PM) Learning Objective: Determine if a described activity is a business as defined in the Homeowners Policy. Definition of Business continued Activities from which $2,000 or less was received in the 12 months prior to the beginning of the policy period. Three months after you write Miranda's Homeowners Policy she becomes a consultant for a home party company to earn a little extra money. She is very successful, earning $2,500 her first four months. Not a business: she did not earn $2,000 the year before and it is not her occupation. However, it could be argued this is her occupation and therefore a "business". Mirandas Homeowner Policy renews next year. She is still a home party consultant with the same company. A business: she earned more than $2,000 in the 12 months prior to the beginning of her policy period. Tip: Remember, this exception to the definition does not apply to the insured that has a new trade, profession or occupation and has earned less than $2,000. If the activity is a trade, profession or occupation, Part 1 of the definition applies and it is a "business", regardless of how little or how much was earned. Lesson 3 Topic B - Business Activities and the Homeowners 3 Special Form p11 (PM) Learning Objective: Determine if a described activity is a business as defined in the Homeowners Policy. Definition of Business continued Volunteer activities where no compensation is received other than reimbursement of expenses. The second exception to the definition of "business" is for the insured who volunteers and receives no Personal Lines - Miscellaneous Course Print

12 compensation except the reimbursement of expenses. Bert volunteers at the Boys and Girls Club. He is reimbursed for his automobile and other miscellaneous expenses. Not A business: as he is only reimbursed for his expenses. Lesson 3 Topic B - Business Activities and the Homeowners 3 Special Form p12 (PM) Learning Objective: Determine if a described activity is a business as defined in the Homeowners Policy. Definition of Business continued Home daycare provided without compensation even if there is a mutual exchange of daycare services. The third exception to the definition of "business" is for the insured who provides daycare without charging for it. This also includes mutual exchange of daycare. Marilyn watches her friend's children four days a week. She does not charge her friend. Not a business: she receives no compensation. Nicole and Kimberly are good friends. To save on daycare expenses, Nicole watches Kimberly's daughter two days a week and Kimberly watches Nicole's daughter the other three days. Not a business: mutual exchange of day care services. Cindy has agreed to watch the neighbor's 7-year old each afternoon after school for a couple of hours. She charges the neighbor $50 a week. A business: she is providing daycare for a charge. Lesson 3 Topic B - Business Activities and the Homeowners 3 Special Form p13 (PM) Learning Objective: Determine if a described activity is a business as defined in the Homeowners Policy. Definition of Business continued Home daycare to a relative of an insured even if receiving compensation for the services. The fourth exception to the definition of "business" is for the insured who provides daycare to a relative, even if paid for the daycare services. Deborah watches her grandson, Asher, five days a week while her daughter and son-in-law are at work. They pay her $50 per week. Not a business: providing home day care to her relative. Personal Lines - Miscellaneous Course Print

13 Lesson 3 Topic B - Business Activities and the Homeowners 3 Special Form p14 (PM) Commentary Many activities fall within the definition of business that your clients may not consider a business. Therefore, it is important to help your clients understand the types of activities that could be considered a business. This can be accomplished by asking the right questions. For example: Do you or anyone who lives with you do anything from your home that generates revenue, including a hobby? Do you ever work from your home? Personal Lines - Miscellaneous Course Print

14 Lesson 3 Topic C - Homeowners 3 Special Form & the Business Exposure Lesson 3 Topic C - HO 3 Coverage B Limitations and Exclusions for "Business" Use p1 (PM) Eligibility vs. Coverage Eligibility refers to the facts that exist at the time the Homeowners Policy is written. Clients that do not meet the requirements are not eligible to have a Homeowners Policy. It is important to remember that eligibility only dictates whether or not a Homeowners Policy can be written for a client; it does not determine coverage. Coverage, on the other hand, is determined by the facts that exist at the time of the loss. Those facts will be used to determine whether or not the Homeowners Policy covers, limits or excludes the loss. Coverage is the primary focus of this course. For example, A dwelling with an incidental business use as an office, school or studio is eligible to be written on a Homeowners Policy. However, there may not be coverage for the exposures created by the office, school, or studio. Underwriting also plays an important role when writing a Homeowners Policy. Underwriting is the insurance company s process of determining whether or not it wants to issue the Homeowners Policy for the client. Underwriting differs among insurance companies, geographic regions and can be based on the companyagency relationship. Underwriting is not discussed in this course. Lesson 3 Topic C - HO 3 Coverage B Limitations and Exclusions for "Business" Use p2 (PM) Homeowners 3 Special Form Coverage Limitations and Exclusions for "Business" Use Now let s look at the coverage for the dwelling with a business exposure. Coverage A Dwelling Coverage for a loss to the dwelling itself is not affected by business use. There is not an exclusion for a dwelling with a business exposure. Refer to Lesson 3 Topic C - HO 3 Coverage B Limitations and Exclusions for "Business" Use p2 (PM) to view the policy language. Example: Chantel has a beauty shop in her house. A curling iron is left plugged in and causes a fire. This is a covered Personal Lines - Miscellaneous Course Print

15 loss as there is no exclusion or limitation for damage to the dwelling caused by a business exposure. Lesson 3 Topic C - HO 3 Coverage B Limitations and Exclusions for "Business" Use p3 (PM) Learning Objective: Determine if there is an exclusion or limitation in the Homeowners Policy for an Other Structure used for business. Coverage B - Other Structures The Homeowners 3 Special Form policy automatically includes Coverage B Other Structures coverage up to 10 percent of the Coverage A Dwelling limit. However, there are three business exclusions that apply to Coverage B Other Structures: Rented or held for rental to anyone not a tenant of the dwelling unless for use as a private garage From which a "business" is conducted Used to store "business" property unless solely owned by an insured or a tenant of the dwelling. The property cannot be gaseous or liquid fuel unless in a permanently installed fuel tank of a vehicle or craft parked or stored in the structure. We will take a closer look at each of these now. Refer to Lesson 3 Topic C - HO 3 Coverage B Limitations and Exclusions for "Business" Use p3 (PM) to view the policy language. Lesson 3 Topic C - HO 3 Coverage B Limitations and Exclusions for "Business" Use p4 (PM) Learning Objective: Determine if there is an exclusion or limitation in the Homeowners Policy for an Other Structure used for business. Exclusions and Limitations for an Other Structure Rented or held for rental to anyone not a tenant of the dwelling unless for use as a private garage. This exclusion takes away all coverage for an Other Structure if it is rented to anyone else for use other than a private garage. It is important to understand that this exclusion applies even if the cause of loss is not related to the business use. Example: Your client rents his detached garage to his neighbor for use as a repair shop. A windstorm damages the roof. There is NO coverage for the detached garage because of this exclusion, even though the repair shop had nothing to do with the windstorm. Personal Lines - Miscellaneous Course Print

16 Lesson 3 Topic C - HO 3 Coverage B Limitations and Exclusions for "Business" Use p5 (PM) Learning Objective: Determine if there is an exclusion or limitation in the Homeowners Policy for an Other Structure used for business. Exclusions and Limitations for an Other Structure continued Rented or held for rental to anyone not a tenant of the dwelling unless for use as a private garage. Brad rents his detached garage to his neighbor. The neighbor will park his 1957 Ford T-Bird in the garage. Not Excluded: as rented to others for use as a private garage. Pete has a detached structure on his premises. The bottom floor is a garage for his personal use. There is a small apartment above the garage that he rents to a college student. Excluded: as rented to others for use other than a private garage. Lesson 3 Topic C - HO 3 Coverage B Limitations and Exclusions for "Business" Use p6 (PM) Learning Objective: Determine if there is an exclusion or limitation in the Homeowners Policy for an Other Structure used for business. From which a "business" is conducted. This exclusion takes away all coverage for an Other Structure if there is a business conducted in it, regardless of what caused the loss. Example: Your client is a contractor. His office is in his 3-car detached garage. He also uses the garage space when repairing and maintaining his truck and equipment. A fire burns down the garage. There is NO coverage for the detached garage because of this exclusion. Lesson 3 Topic C - HO 3 Coverage B Limitations and Exclusions for "Business" Use p7 (PM) Learning Objective: Determine if there is an exclusion or limitation in the Homeowners Policy for an Other Structure used for business. Exclusions and Limitations for an Other Structure continued Used to store business property unless owned solely owned by an insured or a tenant of the dwelling. The property cannot be gaseous or liquid fuel unless in a permanently installed fuel tank of a vehicle or Personal Lines - Miscellaneous Course Print

17 craft parked or stored in the structure. This exclusion takes away all coverage for an Other Structure if there is business property stored in it. However, there is an exception to this exclusion; therefore, there IS coverage if the business property is: 1. Owned solely by an insured or tenant of the dwelling and is: 2. Not a gaseous or liquid fuel unless it is contained in the permanently installed fuel tank of a vehicle or craft parked or stored in the other structure. Example: Dan Stacey is a sole proprietor. He stores the equipment he uses in his landscaping business in an outbuilding on his premises. This exclusion would appear not to apply as the property is owned solely by Dan. Before knowing for sure, you would need to make sure Dan isn t storing anything that is gaseous or liquid fuel unless it is in the fuel tank of his equipment. Lesson 3 Topic C - HO 3 Coverage B Limitations and Exclusions for "Business" Use p8 (PM) Learning Objective: Determine if there is an exclusion or limitation in the Homeowners Policy for an Other Structure used for business. Exclusions and Limitations for an Other Structure continued Carrie is the owner of Lyons CPA, Inc. She stores old business records from her CPA practice in a detached shed. A fire bums down the building. Excluded: as the business property is owned by Lyons CPA, Inc. and is not owned solely by Carrie. Daniel owns and operates a horseshoeing business, Burnson Horseshoeing. He parks his truck, registered to him, in his detached garage. Not excluded: the truck is solely owned by Daniel and the only gaseous or liquid fuel is in the gas tank of his truck. Lesson 3 Topic C - HO 3 Coverage B Limitations and Exclusions for "Business" Use p9 (PM) Learning Objective: Determine if there is an appropriate endorsement to the Homeowners Policy to provide coverage for an Other Structure that is excluded because of a "business" exposure. We have just seen that Coverage B Other Structures has several exclusions for other structures with a business exposure. Now we will look at three endorsements that might provide coverage for an otherwise excluded other structure due to its business exposure. Personal Lines - Miscellaneous Course Print

18 Lesson 3 Topic C - HO 3 Coverage B Limitations and Exclusions for "Business" Use p10 (PM) Structures Rented To Others - Residence Premises (HO 04 40) We saw earlier that the Homeowners Policy excludes an other structure that is rented to others unless it is used as a private garage. Refer to Lesson 3 Topic C - HO 3 Coverage B Limitations and Exclusions for "Business" Use p10 (PM) to view this endorsement. Lesson 3 Topic C - HO 3 Coverage B Limitations and Exclusions for "Business" Use p11 (PM) Permitted Incidental Occupancies HO The Homeowners Policy also excludes an other structure from which a "business" is conducted. The Permitted Incidental Occupancies - Residence Premises endorsement (HO 04 42) may be used to obtain coverage for an other structure that has a "business" in it. To be eligible for this endorsement: (1) The premises has to be occupied principally for private residential purposes. (2) Typical occupancies are Offices, Schools or Studios meaning offices for business or professional purposes and private schools or studios for music, dance, photography and other instructional purposes. The "business" must be an incidental occupancy that is permitted by the insurance company writing the policy. Refer to Lesson 3 Topic C - HO 3 Coverage B Limitations and Exclusions for "Business" Use p11 (PM) to view this endorsement. Lesson 3 Topic C - HO 3 Coverage B Limitations and Exclusions for "Business" Use p12 (PM) Learning Objective: Determine if there is an appropriate endorsement to the Homeowners Policy to provide coverage for an Other Structure that is excluded because of a "business" exposure. Permitted Incidental Occupancies HO continued Coverage is provided for a "business" of the named insured, described in the Schedule and conducted at or from the "residence premises." This endorsement provides three coverages that are otherwise excluded in the Homeowners Policy. Personal Lines - Miscellaneous Course Print

19 Refer to Lesson 3 Topic C - HO 3 Coverage B Limitations and Exclusions for "Business" Use p12 (PM) to view a sample schedule. Lesson 3 Topic C - HO 3 Coverage B Limitations and Exclusions for "Business" Use p13 (PM) Learning Objective: Determine if there is an appropriate endorsement to the Homeowners Policy to provide coverage for an Other Structure that is excluded because of a "business" exposure. Home Business Insurance Coverage (HO 07 01) The Home Business Insurance Coverage endorsement (HO 07 01) may also be used to obtain coverage for an other structure with a "business" conducted from it. This 14-page endorsement can be used to provide Section I Property and Section II Liability coverages for an eligible business. The business must be a business of the named insured that is conducted on or from the residence premises. There are four principal classifications of eligible businesses, subject to the insurance company s underwriting guidelines: Office Service Sales Crafts The Limit of Liability and Description of Other Structure(s) must be shown in the Schedule. Tip: This endorsement also provides coverage for exposures not otherwise covered by the Homeowners Policy. For example, Products & Completed Operations, Accounts Receivables, Valuable Papers and Records, Business Income and Extra Expense. Lesson 3 Topic C - HO 3 Coverage B Limitations and Exclusions for "Business" Use p14 (PM) Commentary As you have just seen, the Homeowners Policy is very limiting when it comes to a business in an other structure. This should reinforce the importance of identifying clients with a business exposure so that proper coverage can be obtained either by endorsement to the Homeowners Policy or by writing a separate Commercial Policy. Personal Lines - Miscellaneous Course Print

20 Lesson 3 Topic D - Coverage C - Personal Property Lesson 3 Topic D - HO 3 Coverage C Limitations and Exclusions for "Business" Personal Property p1 (PM) Learning Objective: Determine if there is an exclusion or limitation in the Homeowners Policy for personal property used for business. The Homeowners Policy begins by providing coverage for personal property owned or used by an insured anywhere in the world. The policy later limits and excludes certain personal property. Limitations There are two limitations that apply to business property. 1. $2,500 Special Limit of Liability for property used primarily for business while on the residence premises. 2. $1,500 Special Limit of Liability for property used primarily for business while away from the residence premises. Refer to Lesson 3 Topic D - HO 3 Coverage C Limitations and Exclusions for "Business" Personal Property p1 (PM) to view the policy language. Lesson 3 Topic D - HO 3 Coverage C Limitations and Exclusions for "Business" Personal Property p2 (PM) Learning Objective: Determine if there is an exclusion or limitation in the Homeowners Policy for personal property used for business. Personal Property continued The key word is this limitation is the word primarily. It does not mean the same as occasionally or solely. Primarily means for the most part. Examples: Nicole will occasionally use her personal laptop computer to work on projects she brings home from work. Nicole s laptop is not used primarily for business, so her laptop would not be subject to either the $2,500 Special Limit of Liability for business property at the residence premises or the $1,500 Special Limit of Liability for business property away from the residence premises. Amy works from her home for a large corporation. The furniture, automation equipment, reference books, etc. are owned by Amy and used by her primarily for her job. Personal Lines - Miscellaneous Course Print

21 This personal property would be subject to both the $2,500 Special Limit of Liability for business property at the residence premises and the $1,500 Special Limit of Liability for business property away from the residence premises. Lesson 3 Topic D - HO 3 Coverage C Limitations and Exclusions for "Business" Personal Property p3 (PM) Learning Objective: Determine if there is an appropriate endorsement to the Homeowners Policy to provide coverage for personal property that is otherwise limited because of a specific "business activity. Special Limits of Liability What is the special limit of liability? Rodney is employed as an auto mechanic. Over the weekend, thieves broke into his place of employment and took his tools valued at $10,000. Answer is $1,500 as property used primarily for "business" and away from the "residence premises". A fire destroys Chantel's home. She operates a beauty shop out of her home and all of the beauty shop furniture, fixtures, and supplies were destroyed. Answer is $2,500 as property used primarily for "business" and on the "residence premises". Mary is on a business trip. While she was out to dinner, someone took some of her belongings from her hotel room. Missing are her expensive workout shoes, a $500 bracelet, and her prescription medication. Answer is Not Subject as the listed property is not used primarily for "business". Dan is a customer service representative for an insurance agency. He works full-time from his home, using his own computer and office furniture. A covered water loss damages his computer and office furniture. Answer is $2,500 as property used primarily for "business" and on the "residence premises" Lesson 3 Topic D - HO 3 Coverage C Limitations and Exclusions for "Business" Personal Property p4 (PM) Learning Objective: Determine if there is an appropriate endorsement to the Homeowners Policy to provide coverage for personal property that is otherwise limited because of a specific "business activity. Increased Limits on Business Property HO For the insured with personal property used primarily for business, there may or may not be an endorsement available to provide additional coverage. Let s examine some of the previous examples to see if an endorsement could have provided the needed coverage. Personal Lines - Miscellaneous Course Print

22 Rodney is employed as an auto mechanic. Over the weekend, thieves broke into his place of employment and took his tools valued at $10,000 We saw previously that Rodney only had $1,500 coverage for his business property away from his residence premises. The only endorsement that could have provided Rodney with more coverage is the Increased Limits On Business Property HO However, even this endorsement would not have provided him with the $10,000 coverage he needed for this loss. Let s see why. Lesson 3 Topic D - HO 3 Coverage C Limitations and Exclusions for "Business" Personal Property p5 (PM) Increased Limits on Business Property HO continued By its name, the Increased Limits On Business Property HO sounds like an endorsement that could be used to increase "business" property limits. And it can, but only for: Situations that meet the eligibility requirements; Property that is not otherwise excluded in the endorsement; Insureds needing up to a maximum of $10,000 for "business" property on the "residence premises" Insureds needing only up to $6,000 for "business" property off the "residence premises" (60% of the Total Limit Of Liability shown in the Schedule.) This endorsement excludes "business" property that pertains to a "business" actually conducted on the "residence premises". "Business" property in storage or held as a sample or for sale or delivery after a sale is also excluded. Lesson 3 Topic D - HO 3 Coverage C Limitations and Exclusions for "Business" Personal Property p6 (PM) Learning Objective: Determine if there is an appropriate endorsement to the Homeowners Policy to provide coverage for personal property that is otherwise limited because of a specific "business activity. Increased Limits on Business Property HO continued In the earlier example, Rodney is employed as an auto mechanic. Since the business is not conducted on his residence premises, the Increased Limits On Business Property HO endorsement could be used. The Increase In Limit Of Liability shown on the Schedule is for business property on the residence premises. This limit would not help Rodney with additional coverage for his tools since they were off his Personal Lines - Miscellaneous Course Print

23 residence premises. This endorsement also increases the Coverage C Special Limit of Liability for business property away from the residence premises to 60 percent of the Total Limit Of Liability shown in the Schedule. This endorsement would only benefit Rodney if he was able to purchase an Increase In Limit Of Liability that resulted in 60 percent of the Total Limit Of Liability being sufficient to cover his business property away from his residence premises. Unfortunately, the maximum coverage for business property away from the residence premises is $6,000 (60% of $10,000). This leaves Rodney underinsured by $4,000. There is not any other solution to Rodney s situation in the personal lines market. He may need to consider insuring his tools on a commercial policy. Lesson 3 Topic D - HO 3 Coverage C Limitations and Exclusions for "Business" Personal Property p7 (PM) Learning Objective: Determine if there is an appropriate endorsement to the Homeowners Policy to provide coverage for personal property that is otherwise limited because of a specific "business activity. Increased Limits on Business Property HO continued Recall Dan's situation from our previous example: Dan is a customer service representative for an insurance agency. He works full-time from his home, using his own computer and office furniture. A fire destroys his office. Dan could use this endorsement since the business is not conducted on the residence premises. The property Dan uses primarily for "business" purposes and located on his "residence premises" could be covered up to $10,000 with this endorsement. Lesson 3 Topic D - HO 3 Coverage C Limitations and Exclusions for "Business" Personal Property p8 (PM) Commentary This coverage provided by the Increased Limits On Business Property endorsement is often misunderstood because of its name. We have just seen that the endorsement excludes business property if the business is actually conducted on the residence premises. So for the clients that operate a business out of their homes, this endorsement will not work. Personal Lines - Miscellaneous Course Print

24 What about using this endorsement for the client that sells products such as Avon, Pampered Chef, Tupperware, or any of the other home party businesses? The business is typically conducted in peoples homes, away from the residence premises. However, for this type of business, the value of samples and undelivered orders can be substantial. The problem now is that this endorsement excludes samples or orders that have not yet been delivered. As with all endorsements, it is important for you to understand the coverage this endorsement provides, limits or excludes to determine whether or not it will meet the needs of your client. Lesson 3 Topic D - HO 3 Coverage C Limitations and Exclusions for "Business" Personal Property p9 (PM) Learning Objective: Determine if there is an appropriate endorsement to the Homeowners Policy to provide coverage for personal property that is otherwise limited because of a specific "business activity. The next example we previously looked at was for Chantel, who provided beauty salon services in her home. Her business property was also limited to $2,500 while on the residence premises. A fire destroys Chantel's home. She operates a beauty shop out of her home and all of the beauty shop furniture, fixtures, and supplies were destroyed. The Increased Limits On Business Property HO endorsement we just looked at will not work for Chantel as the beauty shop - her business - is conducted on her residence premises. There are two endorsements that could remove Chantel s $2,500 limit for business property while on the residence premises : Permitted Incidental Occupancies Residence Premises HO Home Business Insurance Coverage HO The question becomes whether or not the insurance company is willing to allow either of these endorsements to be used for a beauty shop. Lesson 3 Topic D - HO 3 Coverage C Limitations and Exclusions for "Business" Personal Property p10 (PM) Permitted Incidental Occupancies - Residence Premises While this endorsement would remove the limitation for Chantal s "business" property, eligibility for the endorsement must be considered. Typical occupancies eligible for this endorsement are Offices, Schools or Personal Lines - Miscellaneous Course Print

25 Studios meaning offices for business or professional purposes and private schools or studios for music, dance, photography and other instructional purposes. Refer to Lesson 3 Topic D - HO 3 Coverage C Limitations and Exclusions for "Business" Personal Property p10 (PM) to view the endorsement. Lesson 3 Topic D - HO 3 Coverage C Limitations and Exclusions for "Business" Personal Property p11 (PM) Home Business Insurance Coverage The Home Business Insurance Coverage endorsement (HO 07 01) may also be used to obtain coverage for "business" property on the "residence premises" in excess of $2,500. This endorsement deletes the Coverage C - Personal Property Special Limit of Liability for "business" property pertaining to the "business" listed on the Schedule. There is also an option to increase the "business" property away from the "residence premises" to $10,000. Just as you just saw with the Permitted Incidental Occupancies Residence Premises HO endorsement, the eligibility for this endorsement must also be determined. While Service is one of the principal classifications of "business" for which this endorsement could be used, each insurance company determines whether or not a "business" is eligible for this endorsement. Lesson 3 Topic D - HO 3 Coverage C Limitations and Exclusions for "Business" Personal Property p12 (PM) Learning Objective: Determine if there is an appropriate endorsement to the Homeowners Policy to provide coverage for personal property that is otherwise limited because of a specific "business activity. Homeowners 3 - Special Form Exclusions Now that you are familiar with the two Special Limits of Liability pertaining to business property, let s look at the three exclusions that apply to business property in the Homeowners 3 Special Form policy. Exclusions 1. Property in an apartment regularly rented or held for rental to others by an insured 2. Business data 3. Credit card, electronic fund transfer card or access device, forgery or counterfeit money loss arising out of business use Personal Lines - Miscellaneous Course Print

26 Lesson 3 Topic D - HO 3 Coverage C Limitations and Exclusions for "Business" Personal Property p13 (PM) Learning Objective: Determine if there is an appropriate endorsement to the Homeowners Policy to provide coverage for personal property that is otherwise limited because of a specific "business activity. Homeowners 3 - Special Form Exclusions continued 1. Property in an apartment regularly rented or held for rental to others by an insured. Chris and Stacey rent the furnished apartment above their garage to a college student. They have added the Structures Rented To Others - Residence Premises HO endorsement to cover this detached structure. A fire damages the apartment and the furnishings. The value of the furnishings is $10,000. This exclusion for property in a rented apartment applies; however, $2,500 is later provided in the Homeowners Policy by Additional Coverage E.10. Landlord s Furnishings. Their Homeowners Policy will pay $2,500 for Landlord s Furnishings under this Additional Coverage. What if the property had been stolen instead of destroyed by a fire? The policy would not have paid the $2,500. The Additional Coverage for Landlord s Furnishings does not include loss by theft. Refer to Lesson 3 Topic D - HO 3 Coverage C Limitations and Exclusions for "Business" Personal Property p13 (PM) to view page 8 of the policy. Lesson 3 Topic D - HO 3 Coverage C Limitations and Exclusions for "Business" Personal Property p14 (PM) Landlord's Furnishings The Landlord's Furnishings HO endorsement can be used to increase the Landlord's Furnishings limit from the $2,500 automatically provided up to $10,000. The description of the rental unit and the Increase In Limit Of Liability must be shown in the Schedule. The Total Limit Of Liability shown in the Schedule is subject to the policy's Coverage C - Personal Property limit and theft coverage is still excluded. Refer to Lesson 3 Topic D - HO 3 Coverage C Limitations and Exclusions for "Business" Personal Property p14 (PM) to view the endorsement. Personal Lines - Miscellaneous Course Print

27 Lesson 3 Topic D - HO 3 Coverage C Limitations and Exclusions for "Business" Personal Property p15 (PM) Homeowners 3 - Special Form Exclusions continued 2. Business data Patty is a self-employed consultant who works out of an office in her condominium. She has a fire and her computer is destroyed along with everything on its hard drive. She wants to be paid for all of the work she lost and will now have to re-create. There is no coverage for the replacement of the "business" data; however, her Homeowners Policy will pay for prerecorded computer software that is available from a retailer. HOMEOWNERS 3 SPECIAL FORM C. Coverage C - Personal Property - 4. Property Not Covered i."business" data, including such data stored in: (1) Books of account, drawings or other paper records; or (2) Computers and related equipment. We do cover the cost of blank recording or storage media and of prerecorded computer programs available on the retail market; Lesson 3 Topic D - HO 3 Coverage C Limitations and Exclusions for "Business" Personal Property p16 (PM) 3. Credit card, electronic fund transfer card or access device, forgery or counterfeit money loss arising out of "business" use Diane owns a dance studio. She returns home from a dance competition in Georgia only to discover someone is making purchases using her corporate credit card. She turns in a claim under her Homeowners Policy. She has no coverage for this loss arising out of the use of her corporate credit card While the Homeowners Policy provides up to $500 credit card coverage, there is an exclusion for "business" use. Refer to Lesson 3 Topic D - HO 3 Coverage C Limitations and Exclusions for "Business" Personal Property p16 (PM) to view the policy language. Refer to the end of Lesson 3 Topic D to complete Self Quiz 5 at this time. Personal Lines - Miscellaneous Course Print