COMPENSATED AND COVERED? AN HO POLICY’S TAKE

By Kevin C. Amrhein, CIC

The pandemic forced millions to adjust work routines. For too many, it removed work altogether. Some lost full-time jobs. Others gave up lucrative side-gigs due to insufficient demand.

Folks will do what it takes to earn. Data show a rise in self-employment efforts and side-gigs that for some will last indefinitely. A few may consider insurance coverage for claims stemming from such activities, most will not. A few will be protected by another entity’s insurance policy, some will not. For those with nowhere to turn, to what extent if any will personal insurance provide cover? In this article, I’ll review ISO’s HO policy forms. THE BEST-CASE SCENARIO

The insured divulged to you the nature of the income-producing activity and requested commercial insurance which you were able to secure, and now everyone’s happy and could care less about personal lines insurance.

Okay, there, I had to say that. Time to move on.

THE LIKELY SCENARIO

The insured doesn’t tell you squat about what anyone in his/her household is doing. The insured has not secured nor has access to separate cover for the incomeproducing activity. A claim alleging bodily injury, property damage, and/ or personal injury stemming from an income-producing activity is filed against the insured. Now what?

The search for coverage begins with the policy’s definition of “business.” In the ISO world, this definition is the same across all HO policy forms. Understanding the two parts of this definition is essential.

And now, let us all rise for the reading of ISO HO form language:

3. “Business” means:

a. A trade, profession or occupation engaged in on a full-time, parttime 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”.

Part a. of the definition is where most work-from-home (WFH) exposures are captured. Claims stemming from such activities, whether compensated or not, are subject to any policy limitation resulting from “business.” (The good news for many WFHers is that their actions may still be addressed by an employer’s commercial insurance.)

Insurers may use broad interpretations of trade, profession, and occupation to capture virtually any incomeproducing activity. However, such terms are not defined in the policy and will cause disagreement. For example, say the insured is an unemployed restaurant manager (an industry hammered by the pandemic) who agrees to provide a friend with childcare a few days a week in exchange for a few hundred bucks. Does this childcare qualify as that insured’s trade, profession, or occupation? If not, then it’s not a “business” according to part a. Part b. is where it gets interesting.

PART B.(1) … WHAT THE $%&? Most humans scan first and read later. Thus, your human brain likely scanned Part b.(1) and saw what everyone else sees: $2,000. This earnings threshold is not new – it’s been an ISO standard for years. However, to assume this threshold applies to all income-producing activities is dangerous.

Notice that this threshold is connected to activities that took place before the beginning of the policy period. This presents important questions: Was the insured receiving compensation for the activity – childcare, pet care, lawn care, personal care, home care, etc. – in the year prior to the current policy’s effective date? If so, did the insured receive more than $2,000 in compensation for such? If not, part b.(1) does not apply.

Further, did such activity begin in the current policy term? If so, then part b.(1) does not apply. (Note that there are other exceptions created in part b. that I won’t address in this article.)

In summary, any activity that is not captured in part a. or part b. of this definition is not a “business.” Thus, any limitation in the policy stemming from the term “business” would not apply.

THE “BUSINESS” LIABILITY EXCLUSION AND EXCEPTIONS In the September 2020 edition of Primary Agent, I wrote an article that addresses some HO property coverage concerns when a “business” is involved. You can access that article at issuu.com/primary_agent. is the primary exclusion for a claim stemming from a “business.” I won’t include the full text of exclusion E.2. here, but unlike the definition of “business,” most agree that this exclusion is clear and broad in its application. There are exceptions worth noting. First, exceptions are made for certain rental exposures. Second, the exclusion does not apply to a “business” that is part-time or occasional and engaged in by a selfemployed insured who is under 21.

CONCLUSION

Even if coverage is available through the HO policy, better options exist. Personal lines agents should include in all client-communications the need to disclose and examine all income-producing activities by anyone in the household to ensure the best coverage available is reviewed.

That’s all for now. Until the next round … cheers!

Kevin C Amrhein, CIC, is IA&B‘s education consultant. He works with our CISR and CIC programs, as well as our special topic seminars and live webinars. Catch him at one of our upcoming professional training offerings: IABforME.com/education.