With very few exceptions, a typical Homeowners insurance policy provides no coverage involving “business” under the Personal Liability and Medical Payments to Others.
Business risks, even for part-time activities, present vastly higher risk than personal type activities. Many home-based businesses have the added risk of claims from customers who visit the residence premises. Rather than charge an additional premium on all Homeowners policies for business risks, the policy provides the following coverage limitations:
SECTION II - LIABILITY COVERAGES
E. COVERAGE E – Personal Liability and COVERAGE F – Medical Payments to Others
Coverages E and F do not apply to the following:
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”.
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”
b. This Exclusion E.2. 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.
“Business” as broadly defined in the policy, is excluded for Personal Liability and Medical Payments to Others. Because Personal Liability and Medical Payments coverage is not limited to an insured location this exclusion extends to all “Business” regardless of where it is located or how you are involved in the business, even as an employee. This exclusion attempts to be absolute for any and all business exposures with only minor exceptions.
Exceptions: The activity of taking money as rent for part of your house or a detached other structure (like an apartment over the garage) is not excluded as a “Business” activity. The rental must be as a residence, not for any other purpose (like renting your garage as an auto repair shop). Your personal liability for rental activities is covered for up to two renters. Three or more renters makes the activity turn into a business so liability coverage would no longer apply. This narrow exception also allows you to rent space as an office, school, studio or private garage.
An “insured”, (you, if you are under 21 - but most likely your children), may mow lawns, babysit, have a lemonade stand, and the like and still have coverage for Personal Liability and Medical Payments to Others.
Note: You may obtain Business Liability for a variety of home-based business ventures by endorsement to your Homeowners Policy. However, many home-based businesses must purchase separate Commercial General Liability to obtain the coverage needed. Consult with your agent.
For a list of related questions see:
Does my Homeowners policy exclude business activities?