Insurance Community University Business In The Home The webinar will begin shortly. There is no audio at this time. This presentation is being recorded for your viewing pleasure at a future date. The attendance and proctor forms are available under ‘Materials’ in the Webinar’s Console to the right. The PowerPoint presentation is also available under ‘Materials’. You will receive the course number for your state near the end of class. Use the ‘chat’ window for questions on the content. Good things you should know…

Insurance Community University Welcome to your Insurance Community University All of you are currently on mute – Un-mute your own system – Telephone Option Select Telephone on your screen Dial in the PIN number so that your number becomes active – Microphone and/or Speaker Option You can use this option if you have a headset that you use with your computer 2 Audio

Insurance Community University Participation & Chat Window You will receive information from the monitor via the ‘Chat’ window. – Please locate window in the control panel Q & A is welcomed during the presentation and at the end of the presentation You will find the question box on your control panel – Write your question in that box and send it to the presenter/organizer The presenter will take those questions in the order submitted 3

Insurance Community University DOI Requirements When you see a slide with the hand up symbol, touch the “hand” icon on your control panel – Click ONCE only If you do not raise your hand, the monitor will be in contact with you in the chat box If you are in a group, the designated proctor is responsible to make certain you are all in attendance at all times 4 = Hand is down

Insurance Community University Polling Throughout the class we will be conducting periodic polls We need 100% participation on the polls The polls are intended to check participation but also to create discussion topics throughout the presentation 5

Insurance Community University Forms To Complete for CE After class ends – Return attendance form – Proctors – return your form to address address is in chat window or in sent to you today 6

Insurance Community University DOI Requirements We will file your hours with the DOI after the completion of this webinar and we have received the attendance form. You have 48 hours to return the form You will be sent a Certificate of Attendance/Completion by . Please retain this for your records for five years. 7

Insurance Community University Your Instructor Today Casey Roberts, CIC, AFIS, ACSR President, Laurus Insurance Consulting, LLC

Insurance Community University Learning Objectives Background on Home Based Businesses in the United States Exposures and Issues for the Home Based Business Insurance exposures and insurance solutions for the home based business Business Endorsements to be added to the Homeowners Policy AND BOP Approach

Insurance Community University Learning Objectives This course will be based on ISO Homeowner language as of the most current edition date 5/11. Endorsement cited will be the most current edition date filed Individual states have amendatory endorsements Always check the specific insurance company forms

Insurance Community University Learning Objective #1 Background on Home Based Businesses in the United States

Insurance Community University Background What do Apple Computer, Hershey's, Mary Kay Cosmetics, and the Ford Motor Company have in common? All started out as home based businesses

Insurance Community University Background Over two-thirds of all sole proprietorships, partnerships, and “s” corporations are home-based. Over 90 percent of home-based businesses are sole proprietorships. s%20and%20Government%20Regulation.pdf

Insurance Community University Background Home-based businesses are concentrated in relatively few industries Over 60 percent of home-based businesses are in the service and construction sectors Over 80 percent are in fifteen 2-digit SIC industries; and one quarter are in just six 3-digit SIC industries. 0and%20Government%20Regulation.pdf 0and%20Government%20Regulation.pdf

Insurance Community University Background--Employment 6.9 percent of these home-based businesses had $250,000 or more in receipts 57.1 percent of home-based businesses brought in less than $25,000. Over 90 percent of home-based businesses had no employees Reference 2011 Census figures

Insurance Community University Regulations for Home Based Business

Insurance Community University Taxes Treats “home office” as commercial real estate Deductibility of equipment, e tc IRS State uses registration to get home based businesses into system State Tax Sales tax does not apply to most home based business based on type of business Sales, Use, Excise Tax

Insurance Community University Home Occupation Tax Home occupation taxes are the exception They can be a significant revenue source. This has provided a beneficial incentive for local jurisdictions to draft ordinances that legalize home-based businesses, so that they can collect the taxes.

Insurance Community University Building Codes Apply principally to new construction or to renovations Regulate design, materials, quality of construction and systems

Insurance Community University Zoning Authority Local jurisdictions enact zoning codes to separate land uses and maintain the distinctive character of each type of neighborhood. Over the last decade or so, there has been a very broad movement to adopt provisions that would allow home-based businesses in residential zones.

Insurance Community University Zoning Authority The authority to enact zoning codes is an authority delegated to local governments by states. States can enact home occupation legislation that is supportive of home- based businesses.

Insurance Community University Zoning Restrictions Physical Changes and Visibility. Zoning codes often: – Prohibit exterior physical changes, – Prohibit outside business activities, storage, or displays, and/or – Restrict or prohibit signage or commercial vehicles

Insurance Community University Zoning Traffic Most zoning codes: – Restrict the numbers of visitors to a business – Restrict the number of employees or prohibit employees altogether, and/or – Restrict business parking or require that additional parking be provided

Insurance Community University Zoning—External Effects Most zoning codes: – Restrict or prohibit nuisance impacts (e.g., noise, odors, glare), and/or – Prohibit use or storage of hazardous materials

Insurance Community University Child Care Child care is the most consistently and extensively regulated type of home- based business. State regulations typically cover most aspects of operations and facilities. States, however, have multiple classes of licenses, at least one of which is designed specifically for a single care- giver providing care in his/her residence.

Insurance Community University Learning Objective #2 Exposures and Issues for the Home Based Business

Insurance Community University Exposures and Issues Location of business in a home Industry concentrations of home-based businesses Type of business organization The presence of employees; and Size of the business

Insurance Community University General Business Categories Business is NON Owned; has other location; Satellite office Limited coverage--Endorsements Business may have coverage Solely Operated in “another” name than the Homeowner Typically Can Not Add NameSome endorsements available Solely Operated in the Name of the Homeowner Some coverage available on HO and endorsements available

Insurance Community University Exposures and Issues Business is incidental to the home as a residence Business is a majority of the space of the home residence Home is converted solely to a business (lawyers office)

Insurance Community University Exposures and Issues Business is conducted out of the main residence Business is conducted out of a detached structure (garage; pool; guest house; other building)

Insurance Community University 31 Exposures and Issues Issue of who is the “insured” The Homeowners Policy is written for an owner/occupant wherein the owner/occupant is using their homes “principally” for dwelling purposes.

Insurance Community University 32 Exposures and Issues As an owner/occupant the definition of “named insured” is “you” as it appears on the declarations including a spouse in residence even if they are not named on the declarations. An “insured” also includes relatives and other persons under 21 in the care of the insured if in residence. Often time the “business” is being conducted in a name other than the insured as it appears on the declarations.

Insurance Community University 33 Business Definition Prior to 2000 series (5/91)“Business” includes trade, profession or occupation (Definitions of HO form)

Insurance Community University Current “Business” Definition HO "Business" means: 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:

Insurance Community University Current “Business” Definition HO (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;

Insurance Community University Current “Business” Definition HO (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".

Insurance Community University Business Definition from a “court perspective” Most courts who have examined the issue of defining “business” and “business pursuits” agree that two criteria must be satisfied for a business to exist: – a) Expectation of gain – (b) At least some degree of continuity

Insurance Community University Business Definition from a “court perspective” The test of “continuity” or customary engagement in any business coupled with a “profit motive” of sufficient a means of livelihood has been adopted as standard by most courts.

Insurance Community University 39 Home Insurance Company V. Aurigemma The insured had a Homeowner’s policy and he was not an electrician by trade However, he installed some outdoor electric lights and wiring for a friend’s private residential swimming pool The insured received reimbursement from his friend for only the cost of material and the labor for one man the insured hired

Insurance Community University 40 Home Insurance Company V. Aurigemma Sometime later a swimmer was electrocuted The cause of the death was alleged to be due to the negligent installation of the lights Suit was filed against the neighbor who installed the lights who submitted it to his Homeowner’s carrier

Insurance Community University Home Insurance Company V. Aurigemma Need Results

Insurance Community University Learning Objective #3 Insurance exposures and insurance solutions for the home based business

Insurance Community University Unique property and liability exposures and insurance solutions for the home based business 43 PropertyLiabilityOther

Insurance Community University This could happen to you A Client is injured in your home Your “business” laptop is stolen in the airport Your home office is destroyed by a fire leaving you without records to collect accounts receivable All of your samples are stolen from your garage Your safe is broken into and all cash earned from the business is stolen

Insurance Community University Property Issues Dwelling Other Structures Business Personal Property Equipment/Machinery Valuable Records Money

Insurance Community University 46 Dwelling Underwriting guidelines of the insurance companies are specific in their eligibility section that homes do not qualify for Homeowners Coverage if the home is actually a business occupancy such as a converted home used as a law office.

Insurance Community University 47 Dwelling Implicit in the definition of the word “dwelling” is the intent of the home to be used “principally” as a “residence”. While the word “principally” is not defined since the l984 forms it did appear in the previous form series and the intent remains the same.

Insurance Community University Other Structures We do not cover: Other structures from which any "business" is conducted; or d. Other structures used to store "business" property. However, we do cover a structure that contains "business" property solely owned by an "insured" or a tenant of the dwelling, provided that "business" property does not include gaseous or liquid fuel, other than fuel in a permanently

Insurance Community University 49 As Relates Other Structures Example 1: You have a detached garage onto which you have added an office for your business. Under this form, there is NO COVERAGE for your garage. Example 2: You run a small retail operation, or a beauty salon, or a repair service, or ANY business out of a structure that is not attached to your home. Under this form, you will NOT have any coverage for losses that occur to the structure.

Insurance Community University Personal Property We cover personal property owned or used by an "insured" Refer to Definition of “insured”

Insurance Community University Special Limits $2500 on property on the “residence premises” used primarily for “business” purposes $1500 on property away from the “residence premises” used primarily for “business purposes”. However this limit does not apply to antennas, tapes, wires, records, discs or other media …in or upon a motor vehicle

Insurance Community University Property Not Covered Business data including such data stored. Books of accounts, drawings, or other paper records Computers or related equipment Property in an apartment regularily rented or held for rental to others by an “insured”

Insurance Community University Property Not Covered Property of roomers, boarders and other tenants; except property of roomers and boarders related to an “insured” Property in an apartment regularly rented or held for rental to others by an “insured” Property rented or held for rental to others off the “residence premises”

Insurance Community University Loss of Use Additional Living Expense Fair Rental Value Civil Authority Prohibits Use NOTE: No Business Income/Extra Expense

Insurance Community University Fair Rental Value If a loss covered under Section I makes that part of the "residence premises" rented to others or held for rental by you not fit to live in, we cover the fair rental value of such premises less any expenses that do not continue while it is not fit to live in. NOTE: in “residence premises”

Insurance Community University Additional Coverages Credit Card, Electronic Fund Transfer Card Or Access Device, Forgery And Counterfeit Money – We will pay up to $500 We do not cover – Loss arising out of "business" use or dishonesty of an "insured".

Insurance Community University Additional Coverages Landlords Furnishings We will pay up to $2,500 for your appliances, carpeting and other household furnishings, in each apartment on the "residence premises" regularly rented or held for rental to others by an "insured", for loss caused by a Peril Insured Against in Coverage C, other than Theft.

Insurance Community University Causes of Loss We insure against direct physical loss to property described in Coverages A and B B. Coverage C – Personal Property We insure for direct physical loss to the property described in Coverage C caused by any of the following perils unless the loss is excluded in Section I – Exclusions

Insurance Community University Liability Coverage E: Personal Liability Coverage F: Medical Payments

Insurance Community University 60 Premises Liability “ingress/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.

Insurance Community University 61 Premises Liability In the eyes of the law, a person entering a home as a social guest is different from a business person. – Excerpt from The Business Pursuits Exclusion by James Werterstone

Insurance Community University 62 Premises Liability “ingress/egress” 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….”

Insurance Community University 63 Premises Liability “ingress/egress” 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 Homeowners policy.

Insurance Community University 64 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.

Insurance Community University 65 Overview of 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.

Insurance Community University 66 Liability Issues Employment related practices are not covered unless due to a covered peril (Bodily Injury or Personal Injury) No liability or medical payments coverage for “Bodily Injury” to anyone eligible to receive any type of workers compensation benefits provided under the law.

Insurance Community University Liability Coverage E – Personal Liability And Coverage F – Medical Payments To Others Coverages E and F do not apply to the following:

Insurance Community University “Business” a. "Bodily injury" or "property damage" arising out of or in connection with a "business" conducted from an "insured location" or engaged in by an "insured", whether or not the "business" is owned or operated by an "insured" or employs an "insured".

Insurance Community University Workers Compensation 4. "Bodily injury" to any person eligible to receive any benefits voluntarily provided or required to be provided by an "insured" under any: a.Workers' compensation law; b.Non-occupational disability law; or c.Occupational disease law;

Insurance Community University “Business” This Exclusion E.2. applies but is not limited to an act or omission, regardless of its nature or circumstance, involving a service or duty rendered, promised, owed, or implied to be provided because of the nature of the "business".

Insurance Community University 71 Liability Issues 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.

Insurance Community University 72 Liability Issues Professional Exclusion You rewire 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. – No coverage.

Insurance Community University 73 Liability Issues Professional Exclusion As a home-based CPA, you advise your client to take some deductions on his taxes. A lot of them. 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 homeowners.

Insurance Community University Learning Objective #4 Business Endorsements to be added to the Homeowners Policy

Insurance Community University Property Endorsements Increased Limits on Business Property (HO ) Permitted Incidental Occupancies (HO ) Structures Rented to Others (HO ) Home Day Care Coverage (HO ) Special Computer Coverage (HO ) Landlords Furnishings (HO ) Home Business Insurance (HO )

Insurance Community University On premises $2500 Off premises $250 HO0003 On premises limit specified Does not increase in storage, samples, for sale or delivery Away is 60% of on premises limit HO0412 $ 2500 on premises for other than furnishings, supplies and equipment Coverage “C” limit for other than listed above $250 limit off premises is not changed HO0442

Insurance Community University Permitted Incidental Occupancy Property Coverages – Other Structure Allows business conducted as described Sets a limit of liability for the structure – Personal Property Deletes special limit of $2500 on the premises Does NOT change off premises limit Increase does not apply to furnishing, supplies, and equipment Coverage “C” limit applies

Insurance Community University Structures Rented to Others HO Covers structures described in the schedule for the limit indicated Structures on the “residence premises” Used as a private residence Rented to any person not a tenant of the dwelling

Insurance Community University 79 Home Day Care HO Provide liability and property coverages for a home day care business. Business must be conducted by an “insured” Allows coverage in Dwelling and Other structure is scheduled This endorsement gives you up to $2,500 of your personal property other than furnishings, supplies and equipment This coverage is on-premises only.

Insurance Community University 80 Special Computer Coverage HO In the absence of this endorsement, the HO0003 covers a computer on premises, bought for business, for up to $ The HO 0003 does not increase the limit of liability under coverage C and does not modify the “special limits of liability” or the provisions of property not covered under coverage C. This endorsement modifies the perils to All Risk

Insurance Community University Liability Endorsements Personal Injury (HO ) Permitted Incidental Occupancies (HO Business Pursuits (HO ) Structures Rented to Others (HO Home Day Care Coverage Endorsement (HO ) Home Business Insurance (HO )

Insurance Community University Permitted Incidental Occupancy Liability Section – Removes business exclusion for described business in “residence premises” Note: did not extend to Other Structures – NOTE: All coverage goes back to “insured” by definition

Insurance Community University Personal Injury Insurance does not apply to: Arising out of or in connection with a "business" conducted from an "insured location" or engaged in by an "insured", whether or not the "business" is owned or operated by an "insured" or employs an "insured". This exclusion applies but is not limited to an act or omission, regardless of its nature or circumstance, involving a service or duty rendered, promised, owed, or implied to be provided because of the nature of the "business".

Insurance Community University Personal Injury This exclusion does not apply to: (1) The rental or holding for rental of an "insured location"; (a) On an occasional basis if used only as a residence; (b) In part for use only as a residence, unless a single- family unit is intended for use by the occupying family to lodge more than two roomers or boarders; or (c) In part, as an office, school, studio or private garage; and (2) An "insured" under the age of 21 years involved in a part-time or occasional, self-employed "business" with no employees;

Insurance Community University Business Pursuits H Indicates name and business of insured Excludes coverage for: – To "bodily injury" or "property damage" arising out of the "business" pursuits of the "insured" in connection with a "business" owned or financially controlled by the "insured" or by a partnership of which the "insured" is a partner or member;

Insurance Community University Business Pursuits H Excludes coverage for: – Professional Liability other than “teaching” – “Bodily Injury” to a fellow employee – When the “insured” is a member of the faculty or teaching staff of any school or college – Vehicles

Insurance Community University Structures Rented to Others HO Removes “business” exclusion when the “residence premises” is rented for dwelling purposes

Insurance Community University 88 Home Day Care HO Provide liability and property coverages for a home day care business. Business must be conducted by an “insured” Removes exclusion for “business” as applies to a Home Day Care Note: 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.

Insurance Community University Home Business Insurance HO Broadest endorsement available for Home Based Business like a BOP Provides both Property and Liability changes The “business name” is on the schedule Form of business can be an individual; joint venture; partnership; or other organization

Insurance Community University Property Modifications Special limits deleted Limited coverage provided for – Accounts Receivable – Valuable Papers – Money – Business Income – Extra Expense

Insurance Community University Liability Modifications Products and Completed Operations is provided for Coverage E limit All other Business Liability is up to twice the combined limits of Coverage E & F “Business” as defined is HO is deleted and replaced by:

Insurance Community University Liability Modifications "Business" means the trade, profession or occupation described in the Schedule of this endorsement that is conducted at or from the "residence premises" and is owned by: – a. You; or – b. A partnership, joint venture or other organization of which you and your resident relatives are the only partners, members or stockholders

Insurance Community University Liability Modifications Adds in coverage for – Personal Injury – Advertising Liability

Insurance Community University Separate BOP A separate BOP can be written separately for a home based business These sometimes are referred to as cottage industry policies These policies can be broader is scope and written as a “business” policy

Insurance Community University 95 Businessowners Package Policy (BOP) A BOP, like the in-home business policy, covers business property and equipment, loss of income and extra expenses, and liability. However, these coverages are on a much broader scale than the in-home business policy.