Summary: Insurance Services Office (ISO) has developed an endorsement, HO 07 01 05 11, that may be used to insure a home business. When this endorsement is attached to a homeowners coverage form, Section II liability is expanded to address the majority of situations the home business owner may encounter. Definitions are amended or added in accordance with the coverage provided. .
Following is a discussion of the liability coverages, the conditions applicable to the liability coverages, and the conditions applicable to the entire form. For a discussion of the property coverages, see ISO Home Business Insurance Coverage – Property.
Topics covered:
Introduction
The ISO Home Business Insurance Coverage endorsement, HO 07 01 05 11, is designed to be attached to a standard homeowners policy, such as the HO 00 02 05 11, HO 00 03 05 11, HO 00 04 05 11, HO 00 05 05 11, or HO 00 06 05 11. It is therefore important to remember that the liability coverages and exclusions of the underlying homeowners policy continue to apply, although, of course, many definitions are amended and coverages are expanded so that the described home business is covered. Therefore, when examining the following coverages and exclusions, keep in mind that for the most they are in addition to, not instead of, the underlying homeowners coverages and exclusions.
In many instances the exclusions are similar—even identical to—those found in the Commercial General Liability form (CGL). However, since the CGL is intended to cover much greater exposures than those of the home business endorsement, there are differences. Although reference is made in this discussion to some of the CGL form's exclusions, this is for comparison only.
It is important to keep in mind that, when the HO 07 01 is attached to the homeowners, the amount of liability and medical payments to others coverages may need to be reviewed and possibly increased. In the homeowners forms, liability coverage limits are restored to the full amount following an occurrence. For example, say an insured homeowner carries $100,000 comprehensive personal liability. If he is sued due to a covered loss and, as a result, $25,000 is paid, the limits are not diminished to $75,000; they are restored to the full $100,000. This is not the case with the HO 07 01. There are two aggregates: the first of these is the same as the coverage E limit, which applies to products-completed operations. The second aggregate, which is twice the amount of coverage E plus coverage F, applies to all other business liability exposures. Although medical payments to others (coverage F) is a separate sublimit of liability, it is included within the second aggregate. Following a covered occurrence, the limits are decreased accordingly by any payments made.
"Bodily injury" means bodily harm, sickness or disease, including required care, loss of services and death that results.
"Property damage" means physical injury to, destruction of, or loss of use of tangible property.
3. Definition 3. which defines "business" [in the underlying ISO homeowners form] is replaced by the following:
3. "Business" means the trade, profession, occupation or activity 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.
Analysis
The description of the ownership of the insured business can be misleading. According to the definition, the business must be owned by the named insured or an organization made up of resident relatives. However, in definition 5. insured, discussed in the next section, a household resident who is not a relative, but is a partner, member, or stockholder of the insured business, qualifies as an insured. The homeowners 2011 program allows a resident who is not a relative to be given insured status for both property and liability coverage, so this change in the current home-based business coverage form is in keeping with that change.
4. Definition 4. which defines "employee" is replaced by the following:
4. "Employee" includes a "leased worker". "Employee" does not include a "temporary worker".
Analysis
The definition includes leased workers. The word employee can thus mean any other employed person, other than a temporary worker.
5. Definition 5. which defines "insured" is replaced by the following:
5. "Insured" means:
a. You;
b. Residents of your household who are your relatives, but only if they are partners, members or stockholders in your "business";
c. A resident of your household, who is not a relative, but is a partner, member or stockholder of the covered "business" or;
d. Under Section II of this endorsement, "insured" also means:
(1) With respect to the conduct of your "business", any partnership, joint venture or other organization provided those persons described in a. or b. above are the only partners, members or stockholders;
(2) Your "employees", but only for acts within the scope of their employment by you or while performing duties related to the conduct of your "business". However, no "employee" is an "insured" for:
(a) "Bodily injury" or "personal and advertising injury":
(i) To you, to your partners or members (if you are a partnership or joint venture), or to a co-"employee" while that co-"employee" is either in the course of his or her employment by you or performing duties related to the conduct of your "business";
(ii) To the spouse, child, parent or sibling of the co-"employee" as a consequence of (i) above;
(iii) For which there is any obligation to share damages with or repay someone else who must pay damages because of the injury described in (i) or (ii) above; or
(iv) Arising out of the "employee's" providing, or failing to provide, professional health care services; or
(b) "Property damage" to "business" property:
(i) Owned, occupied or used by; or
(ii) Rented to, in the care of, or over which physical control is being exercised for any purpose by;
you, any of your "employees" or, if you are a partnership or joint venture, by any partner or member; and
(3) Any person (other than your "employee") or any organization while acting as your real estate manager.
Under both Sections I and II, when the word an immediately precedes the word "insured", the words an "insured" together mean one or more "insureds".
Analysis
The homeowners definition of insured is amended with respect to the insured business. In addition to the named insured (you), resident relatives are insured but only if they are partners, members, or stockholders in the business. Remember that the definition is amended only with respect to the insured business, so that a resident relative who is not a partner, member, or stockholder is still an insured under the homeowners definition. But if a resident relative who is not a partner, member, or stockholder in the business performs some business function resulting in bodily injury or property damage, that relative is not an insured for business coverage purposes. As previously noted, a resident who is not a relative, but who is partner, member, or stockholder of the insured business, is also an insured.
The definition of insured is expanded to include the business's employees (eligibility requirements allow only up to three). The employees are insureds for acts within the scope of their employment but not for bodily injury or personal and advertising injury to the named insured, partners, or members of the insured business, or to a fellow employee. The wording is similar to Section II, Who Is an Insured, of the CGL form in that employees by definition are not insureds for bodily injury or personal and advertising injury to a co-employee, or for a consequential claim of a spouse, child, parent, or sibling of the injured co-employee.
Coverage for third-party actions, where an injured employee sues another entity for his injuries, who in turn sues the insured business, is excluded. Excluded is coverage for an employee's providing or failing to provide professional healthcare services. Note, the services must be professional in nature. So if an employee who is not a professional healthcare provider is sued for applying heat to a sprain instead of ice, that action is covered. The insured business, however, should be covered even if the employee actually was a professional healthcare provider, since the exclusion refers to the employee.
The form excludes coverage for property damage to business property owned by or in the insured's or employee's care, custody, or control. This highlights the fact that the business is conducted at or from within the insured residence. Property damage involving nonbusiness property is therefore covered. If an employee accidentally caused damage to the residence premises other than the portion occupied by the business, this exclusion should not serve to bar coverage. Remember, though, that this is a liability coverage. There is coverage for damage to property of others in section I (see ISO Home Business Insurance Coverage—Property). There is also an additional coverage for damage to property of others, which will be discussed later.
Finally, a person (other than an employee) or organization is an insured while acting as the named insured's property or real estate manager.
12. Additional Definitions
The following definitions are added:
a. "Advertisement" means a notice that is broadcast or published to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters.
Analysis
This definition was added in the 2000 edition of the form. Advertising is included in the definition (and coverage) for personal and advertising injury, which will be discussed later.
c. "Coverage Territory" means:
(1) The United States of America (including its territories and possessions), Puerto Rico and Canada ;
(2) Under Section II of this endorsement, "coverage territory" also means:
(a) International waters or airspace, provided the "bodily injury", "personal and advertising injury", or "property damage" does not occur in the course of travel or transportation to or from any place not included in c.(1) above; or
(b) All parts of the world if:
(i) The "bodily injury", "personal and advertising injury", or "property damage" arises out of:
i. Goods or products made or sold by you in the territory described in c.(1) above; or
ii. The activities of a person whose home is in the territory described in c.(1) above when such person is away for less than one month on your "business"; and
(ii) An "insured's" responsibility to pay damages is determined in a "suit" on the merits in the territory described in c.(1) above or in a settlement we agree to.
Analysis
There is worldwide coverage if bodily injury, personal injury, property damage, or advertising injury arises out of goods or products made or sold by the insured within the coverage territory, and a suit is brought within the territory described in c.(1) Similarly, there is worldwide coverage for the activities of a person away from home on the insured's business for a period not exceeding one month, provided the person's home is within the territory described in c.(1), and suit is brought within that territory. For example, an employee, who resides in the United States, might travel to England to set up local distribution of the insured's ceramics. If, while there, he accidentally damages the hoped-for distributor's shop, there is coverage.
There is also coverage in international waters provided the incident occurs during travel or transportation to or from the territory described in 3.a.
e. "Impaired Property" means tangible "business" property, other than "your product" or "your work":
(1) That cannot be used or is less useful because:
(a) It incorporates "your product" or "your work" that is known or thought to be defective, deficient, inadequate or dangerous; or
(b) You have failed to fulfill the terms of a contract or agreement; or
(2) If such property can be restored to use by:
(a) The repair, replacement, adjustment or removal of "your product" or "your work"; or
(b) Your fulfilling the terms of the contract or agreement.
Analysis
The definition for impaired property is virtually identical to that found in the CGL form, except that impaired property means tangible business property other than the insured's work or product. The coverage is therefore distinguished from that in the underlying homeowners policy. For example, a homeowners insured might repair a recliner for a neighbor. Should the recliner malfunction and cause an injury, the homeowners provides coverage. The same insured might operate a small upholstery and furniture repair shop business as described on the declarations of the HO 07 01; in this case, the impaired property definition could become important.
Say, for example, the insured businessowner agrees to reupholster a sofa using cotton canvas and instead decides to economize and use polyester. The sofa can be restored to use by the insured's fulfilling the terms of the contract.
f. "Leased worker" means a person leased to you by a labor leasing firm under an agreement between you and the labor leasing firm, to perform duties related to the conduct of your "business". "Leased worker" does not include a "temporary worker".
Analysis
Although, for coverage purposes, employees include leased employees, the same is not true of temporary workers. A temporary worker is someone whose employer is not the insured businessowner, but, for example, an employment agency. It is the employment agency that directs the temporary worker and controls the employment, although, of course, the temporary worker may take orders during the day from the insured. For purposes of the co-employee and employers liability exclusions the difference is important. If an employee, acting within the course of his duties, negligently injures a temporary worker, then the exclusion for bodily injury to a co-employee would not apply, and the employee would be covered. The employer's liability exclusion for bodily injury to an employee would not apply, since the temporary worker is not an employee.
g. "Loading or unloading" means the handling of property:
(1) After it is moved from the place where it is accepted for movement into or onto a "motor vehicle", aircraft, hovercraft or watercraft;
(2) While it is in or on a "motor vehicle", aircraft, hovercraft or watercraft; or
(3) While it is being moved from a "motor vehicle", aircraft, hovercraft or watercraft to the place where it is finally delivered;
but "loading or unloading" does not include the movement of property by means of a mechanical device, other than a hand truck, that is not attached to the "motor vehicle", aircraft, hovercraft or watercraft.
Analysis
The HO 07 01 definition of loading or unloading is similar to that found in the CGL form, except that, in keeping with the Homeowners program, hovercraft have been added. The definition is important to the products-completed operations hazard.
The intent of this definition is to shift coverage for much of this activity onto an underlying auto policy. But, if the loading or unloading is done by a mechanical device that is not attached to the motor vehicle, aircraft, hovercraft, or watercraft, then there is coverage.
h. "Operations" means your "business" activities occurring at the "residence premises".
j. "Personal and Advertising Injury" means injury, including consequential "bodily injury", arising out of one or more of the following offenses:
(1) False arrest, detention or imprisonment;
(2) Malicious prosecution;
(3) Invasion of privacy, wrongful eviction or wrongful entry;
(4) Oral or written publication, in any manner, of material that:
(a) Slanders or libels a person or organization; or
(b) Disparages a person's or organization's goods, products or services;
(5) Oral or written publication of material, in any manner, that violates a person's right of privacy.
(6) The use of another's advertising idea in your "advertisement"; or
(7) Infringing upon an other's copyright, trade, dress or slogan in your "advertisement".
Analysis
Although personal injury is included in the home business insurance coverage, it is important to remember that this coverage is not provided on the unendorsed underlying homeowners policy. To prevent possible coverage gaps, coverage for personal injury should probably be added to the underlying policy.
Consequential bodily injury arising from personal injury is considered to fall within the definition. Previously, the definition for personal injury stated that it meant other than bodily injury. This could cause a problem since many of the included offenses are intentional and can result in bodily injury. For example, if an insured businessowner grabbed a presumed shoplifter by the arm, causing injury, previously coverage might be denied. The change in the wording eliminates that interpretation.
k. "Pollutants" means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.
Analysis
The definition of pollutants is the same as that contained in the underlying homeowners forms. As will be discussed, there is very little coverage for any bodily injury or property damage arising out of pollutants.
l. "Products-Completed Operations Hazard":
(1) Includes all "bodily injury" and "property damage" occurring away from the "residence premises" and arising out of "your product" or "your work" except:
(a) Products that are still in your physical possession; or
(b) Work that has not yet been completed or abandoned. However, "your work" will be deemed completed at the earliest of the following times:
(i) When all of the work called for in your contract has been completed;
(ii) When all of the work to be done at the job site has been completed if your contract calls for work at more than one job site; or
(iii) When that part of the work done at the job site has been put to its intended use by any person or organization other than another contractor or subcontractor working on the same project.
Work that may need service, maintenance, correction, repair or replacement, but which is otherwise complete, will be treated as completed.
(2) Does not include "bodily injury" or "property damage" arising out of:
(a) The transportation of property, unless the injury or damage arises out of a condition in or on a "motor vehicle" not owned or operated by you, and that condition was created by the "loading or unloading" of that "motor vehicle" by an "insured"; or
(b) The existence of tools, uninstalled equipment or abandoned or unused materials.
Analysis
The products-completed operations hazard is subject to its own aggregate limit of insurance, which is the same as the limit for coverage E shown on the homeowners declarations. The definition advises what is and is not included within the definition, which in turn clarifies the extent of certain exclusions, such as damage to your work and damage to particular property.
The definition of the products completed operations hazard is similar to that found in the CGL form. It is, however, tailored to the home business in that it specifically refers to bodily injury and property damage that occurs away from the residence premises, rather than away from premises the insured owns or rents, as in the CGL form.
In order for coverage to apply, the bodily injury or property damage must occur away from the residence premises. The bodily injury or property damage must arise out of the insured's product (as defined below), and the product causing the injury or damage cannot be in the insured's possession at the time of the occurrence. Or, if the bodily injury or property damage arises out of the insured's completed operation, then the injury or damage must arise out of the insured's work (as defined below). The work out of which injury or damage arises must be completed or abandoned at the time of the occurrence.
The insured's work is deemed completed at the earliest of when all the work called for in a contract has been completed, when all the work is done at a particular job site if the contract calls for work at more than one site, or when the part of the work at the site is put to its intended use by any other person or organization (other than a subcontractor working for the insured).
Not included within the products-completed operations hazard (and therefore not subject to the products-completed operations hazard aggregate) is bodily injury or property damage arising out of the transportation of property, unless an insured, through loading or unloading a vehicle neither owned nor operated by an insured, created the condition causing the injury or damage.
Also not included within the hazard is bodily injury or property damage arising out of the existence of tools, uninstalled materials, or abandoned or unused materials. Therefore, it may be argued that bodily injury or property damage arising from these items is covered as premises and operations.
m. "Suit" means a civil proceeding in which damages because of "bodily injury", "property damage", or "personal and advertising injury" are alleged. "Suit" includes:
(1) An arbitration proceeding in which such damages are claimed and to which an "insured" must submit or does submit with our consent; or
(2) Any other alternative dispute resolution proceeding in which such damages are claimed and to which an "insured" submits with our consent.
Analysis
The definition of a suit includes dispute resolution beyond the courtroom. The insurer must consent to the alternative dispute resolution proceedings.
n. "Temporary worker" means a person who is furnished to you to:
(1) Substitute for a permanent "employee" on leave; or
(2) Meet seasonal or short-term workload conditions.
Analysis
Although, for coverage purposes, employees include leased employees, the same is not true of temporary workers. A temporary worker is someone whose employer is not the insured business owner, but, for example, an employment agency. It is the employment agency that directs the temporary worker and controls the employment, although, of course, the temporary worker may take orders during the day from the insured. For purposes of the co-employee and employers liability exclusions the difference is important. If an employee, acting within the course of his or her duties, negligently injures a temporary worker, then the exclusion for bodily injury to a co-employee would not apply, and the employee would be covered. The employer's liability exclusion for bodily injury to an employee would not apply, since the temporary worker is not an employee.
p. "Your Product":
(1) Means:
(a) Any goods or products, other than real property, manufactured, sold, handled, distributed or disposed of by:
(i) You;
(ii) Others trading under your name; or
(iii) A person or organization whose business or assets you have acquired; or
(b) Containers (other than "motor vehicles"), materials, parts or equipment furnished in connection with such goods or products; and
(2) Includes:
(a) Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of "your product"; or
(b) The providing of, or failure to provide, warnings or instructions; but
(3) Does not include:
(1) Vending machines; or
(2) Other property rented to or located for the use of others but not sold.
Analysis
The definition of your product is identical to that found in the CGL form. The definition includes warranties or representations as to the quality, fitness, or performance of the product, and also providing or failing to provide instructions. Vending machines or other property that is not sold, but is rented to or located for the use of others, is not covered as your product.
That is not to say that there is no liability coverage for such property. The use of the defined term your product becomes important for purposes of the products-completed operations hazard. It is conceivable, therefore, that coverage for vending machines or other property rented to or located for others is intended to fall under premises and operations coverage.
q. "Your Work":
(1) Means:
(a) Work or operations performed by you or on your behalf; or
(b) Materials, parts or equipment furnished in connection with such work or operations; and
(2) Includes:
(a) Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of "your work"; and
(b) The providing of or failure to provide warnings or instructions.
Analysis
The definition in the Home Business Insurance Coverage form is identical to that for your work found in the CGL form. The work may be either performed by the named insured or on the named insured's behalf, so that the work performed by a subcontractor for the insured business qualifies as the insured's work. The definition includes warranties and representations, and materials or parts furnished in connection with the insured's operations or work.
A. Coverage E – Personal Liability
If a claim is made or a suit is brought against an "insured" for damages because of "bodily injury" or "property damage" caused by an "occurrence" to which this coverage applies, we will:
1. Pay up to our limit of liability for the damages for which an "insured" is legally liable. Damages include prejudgment interest awarded against an "insured", and
2. Provide a defense at our expense by counsel of our choice, even if the suit is groundless, false or fraudulent. We may investigate and settle any claim or suit that we decide is appropriate. Our duty to settle or defend ends when our limit of liability for the "occurrence" has been exhausted by payment of a judgment or settlement.
B. Coverage F – Medical Payments To Others
We will pay the necessary medical expenses that are incurred or medically ascertained within three years from the date of an accident causing "bodily injury". Medical expenses means reasonable charges for medical, surgical, x-ray, dental, ambulance, hospital, professional nursing, prosthetic devices and funeral services. This coverage does not apply to you or regular residents of your household except "residence employees". As to others, this coverage applies only:
1. To a person on the "insured location" with the permission of an "insured"; or
2. To a person off the "insured location", if the "bodily injury":
a. Arises out of a condition on the "insured location" or the ways immediately adjoining;
b. Is caused by the activities of an "insured";
c. Is caused by a "residence employee" in the course of the "residence employee's" employment by an "insured"; or
d. Is caused by an animal owned by or in the care of an "insured".
Analysis
The insurer thus promises to pay damages up to the limit of liability for which the insured is legally liable. The insurer promises to defend even if the suit is false, groundless, or fraudulent. The insurer promises to pay necessary medical expenses for bodily injury to others arising out of the insured location or caused by the activities of an insured. The form builds on these insuring agreements in the following manner:
A. Coverage E – Personal Liability
1. With respect to the coverage provided by this endorsement, the following is added to Coverage E:
Coverage E applies to "bodily injury" and "property damage" only if the "bodily injury" or "property damage" is caused by an "occurrence" that takes place in the "coverage territory" and during the policy period.
2. Coverage E is extended to include "personal and advertising injury" caused by an offense arising out of your "business", but only if the offense was committed in the "coverage territory" during the policy period.
B. Coverage F – Medical Payments To Others
Coverage F is extended to apply to "bodily injury" caused by an accident because of your "business" activities, but only if the accident takes place in the "coverage territory" during the policy period.
Analysis
In regards to the insured business, coverage for bodily injury and property damage applies only to such bodily injury or property damage caused by an occurrence that takes place in the coverage territory and during the policy period. The definition of coverage territory was provided earlier. Contrast it with the homeowners liability coverage that applies, during the policy period, anywhere in the world.)
As we will discuss later, liability and medical payments to others coverage begin with broad insuring agreements, which are then bounded by exclusions.
E. Coverage E – Personal Liability And Coverage F – Medical Payments To Others
2. Exclusion E.2. "Business" is replaced by the following:
2. "Business"
a. "Bodily injury", "personal and advertising injury" and "property damage" arising out of or in connection with a trade, profession or occupation or any other activity engaged in for money or other compensation by 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 such trade, profession, occupation or activity.
b. This exclusion does not apply to:
(1) The necessary or incidental use of the "residence premises" to conduct your "business";
(2) "Your product"; or
(3) "Your work".
Analysis
The underlying homeowners exclusion that must first be amended is that for business activities. If this were not done, the coverage form would be meaningless. By excepting the incidental use of the premises to conduct the business, the insured's product, and the insured's work from the exclusion, coverage is thus afforded for operations and premises liability and products and completed operations.
3. Exclusion E.3. Professional Services is replaced by the following:
3. Professional Services
"Bodily injury" and "property damage" arising out of the rendering of or failure to render professional services. This includes but is not limited to:
a. Legal, insurance, accounting or advertising services;
b. Preparing, approving, or failing to prepare or approve maps, drawings, opinions, reports, surveys, change orders, designs or specifications;
c. Supervisory, inspection or engineering services;
d. Medical, surgical, dental, x-ray or nursing services, treatment, advice or instruction;
e. Any health or therapeutic service, treatment, advice or instruction;
f. Any service, treatment, advice or instruction for the purpose of appearance or skin enhancement, hair removal or replacement or personal grooming;
g. Optometry or optical or hearing aid services including the prescribing, preparation, fitting, demonstration or distribution of ophthalmic lenses and similar products or hearing aid devices;
h. Body piercing services; and
i. Services in the practice of pharmacy.
Analysis
Remember that, by providing property, liability, and business income coverage, the form fills the needs of many home-based business owners. However, there are many activities that require specialized coverage.
Therefore, in keeping with the underwriting intent to exclude certain businesses that might conceivably be conducted in the home, exclusion E.3 (excluding bodily injury or property damage arising out of the rendering or failure to render professional services) is expanded. Activities that are properly covered under professional liability insurance, such as legal services, healthcare, cosmetic sales, and engineering or accounting services, are excluded.
Coverage E – Personal Liability
The following exclusions are added:
7. Damage To Impaired Property Or Property Not Physically Injured
"Property damage" to "impaired property" or property that has not been physically injured, arising out of:
a. A defect, deficiency, inadequacy or dangerous condition in "your product" or "your work"; or
b. A delay or failure by you or anyone else acting on your behalf to perform a contract or agreement in accordance with its terms.
This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to "your product" or "your work" after it has been put to its intended use.
Analysis
This exclusion is identical to exclusion m. in the CGL form. Impaired property is tangible property that can be restored to use by the repair, replacement, adjustment, or removal of the insured's product or work. It need not necessarily be physically damaged; for example, think of a room painted with the wrong color of paint. The owner may have wanted off-white; the painting contractor elected to use bright yellow. The walls are not damaged, but they are not the desired color, and so are less useful. Thus, coverage is excluded for claims where, but for the insured's defective product or work, there would be no property damage.
However, there is an exception to the exclusion. If there is sudden and accidental physical damage to the insured's product or work after the product or work has been put to its intended use, and loss of use of other property results, that loss of use is covered.
8. Damage To Particular Property
"Property damage" to:
a. Premises you sell, give away or abandon, if the "property damage" arises out of any part of those premises;
b. That particular part of real property on which you or any contractor or subcontractor working directly or indirectly on your behalf is performing operations, if the "property damage" arises out of those operations; or
c. That particular part of any property that must be restored, repaired or replaced because "your work" was incorrectly performed on it.
Paragraph a. of this exclusion does not apply if the premises are "your work" and were never occupied, rented or held for rental by you.
Paragraph c. of this exclusion does not apply to "property damage" included in the "products-completed operations hazard".
Analysis
Although the damage to particular property exclusion is similar to exclusion j. in the CGL form, there are differences. For example, the CGL form eliminates coverage for property damage to property the named insured owns, rents, or occupies (j.(1)). Since the insured business owner resides in the dwelling in which the business is located, to exclude coverage in this manner would be extreme. Coverage for such acts as, say, accidentally setting the house in which the business is located on fire in an attempt to clean the chimney would be excluded by the HO 07 01 but covered by the peril of fire on the homeowners form. Therefore, to avoid confusion, the exclusion is eliminated. Also lacking in the HO 07 01 are exclusions of coverage for property damage to property loaned to the insured (j.(3)), or to personal property in the insured's care, custody, or control (j.(4)). These exclusions would be in conflict with the coverages granted by the HO 07 01 property coverages, which amend Coverage C – Personal Property to include property of others that is in the insured's care.
There is no coverage for property damage to premises the insured sells, gives away, or abandons if the property damage arises out of any part of the premises. But if the premises are the insured's work and never occupied, rented, or held for rental, then this exclusion does not apply.
There is no coverage for a particular part of real property on which the insured or a subcontractor is performing operations if the property damage arises out of those operations. The insured business owner is presumed to know what he is doing. However, if in the act of performing the operations, real property is damaged that is not that particular part, presumably such resulting damage is covered. So, for example, the insured, a woodworker, may be installing a built-in bookcase. In an attempt to force a screw into a stud, he causes a large chunk of plaster to fall. There is no coverage. However, if the woodworker is hammering the bookcase into place and in so doing causes a chandelier in another room to crash down and break, the breakage is covered.
Finally, there is no coverage for any property that must be restored, repaired, or replaced because the insured's work was incorrectly performed. This exclusion does not apply to property damage included in the products-completed operations hazard, so the exclusion refers to damage occurring while operations are in process. For example, an upholsterer may be in the middle of reupholstering a sofa. The sofa's owner stops by to inspect the work, only to find that the fabric being used is not what was chosen, and the work is shoddily done. There is no coverage for the cost to replace the fabric and redo the work.
Although the exception to this exclusion states that it does not apply to property damage included in the products-completed operations hazard, that is not to say that there would be coverage for such an event as described once the sofa was re-upholstered. Doubtless the insurer would use the damage to your work exclusion to deny coverage.
9. Damage To Your Product
"Property damage" to "your product" arising out of it or any part of it.
10. Damage To Your Work
"Property damage" to "your work" arising out of it or any part of it and included in the "products-completed operations hazard".
This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.
Analysis
The purpose of the damage to your product exclusion is to prevent the insurer from paying for repair or replacement of the insured's product because the insured's product itself was faulty or defective. Of course, if the product itself causes bodily injury or property damage, there is coverage for that loss.
Likewise, the exclusion for damage to your work is to prevent the insurer from having to pay to have the insured's faulty work redone. The exclusion applies to property damage included in the products-completed operations hazard; that is, to operations that have been completed. Exclusion 8. damage to particular property applies to property damage arising out of the insured's work while the work is in progress.
The damage to your work exclusion does not apply if the work was performed for the insured by a subcontractor.
11. Employer's Liability
a. "Bodily injury" to:
(1) An "employee" of the "insured" arising out of and in the course of:
(a) Employment by the "insured"; or
(b) Performing duties related to the conduct of the "insured's" "business"; or
(2) The spouse, child, parent or sibling of that "employee" as a consequence of a.(1) above.
b. This exclusion applies:
(1) Whether the "insured" may be liable as an employer or in any other capacity; and
(2) To any obligation to share damages with or repay someone else who must pay damages because of the injury.
Analysis
Workers compensation is the appropriate insurance coverage for employees who are injured on the job. Some employees fall outside the workers compensation laws, and if they are injured on the job they might conceivably make a claim. Coverage in this event is properly found in the employers liability section of the standard workers compensation policy.
The employers liability section of a workers compensation policy also provides coverage for dual capacity claims, as when an employee sues the employer as a manufacturer of a defective product rather than as an employer. Coverage also applies to third party over claims (a worker is injured while delivering a re-upholstered sofa; sues the homeowner, who in turn sues the employer), and consequential bodily injury such as care and loss of services. It is important that the home businessowner be aware of these exclusions in the HO 07 01, and arrange for workers compensation and employers liability coverage.
Remember, though, that a temporary worker is not an employee. Therefore, if such a worker was accidentally injured while in the course of working at the insured business, this exclusion would not apply to bar coverage for the insured businessowner.
12. Personal And Advertising Injury
"Personal and advertising injury":
a. Caused by or at the direction of an "insured" with the knowledge that the act would violate the rights of another and would inflict "personal and advertising injury";
b. Arising out of oral or written publication of material, if done by or at the direction of an "insured" with knowledge of its falsity;
c. Arising out of oral or written publication of material whose first publication took place before the beginning of the policy period;
d. Arising out of a criminal act committed by or at the direction of an "insured";
e. For which an "insured" has assumed liability under a contract or agreement. This exclusion does not apply to liability for damages that the "insured" would have in the absence of the contract or agreement.
f. Arising out of breach of contract, except an implied contract to use an other's advertising idea in your "advertisement";
g. Arising out of the failure of goods, products or services to conform with any statement of quality or performance made in your "advertisement";
h. Arising out of the wrong description of the price of goods, products or services stated in your "advertisement";
i. Committed by an "insured" whose "business" is advertising, broadcasting, publishing or telecasting. However, this exclusion does not apply to Paragraphs j.(1), (2), and (3) of "personal and advertising injury" under 12. Additional Definitions; or
j. Resulting in "bodily injury".
Analysis
The first exclusion voids coverage if the injury is caused by or at the direction of an insured when the perpetrator knows that the act would violate the rights of another. With the use of an insured, which refers to one or more insureds, coverage is thereby precluded for all insureds.
Exclusion b. applies to personal or advertising injury caused by an insured's knowingly publishing false material. There is no coverage for injury arising out of oral or written publication of material done prior to the policy period (exclusion c.). Exclusion d. has been changed. The earlier wording eliminated coverage for injury arising out of willful violation of a penal statute or ordinance by or with the consent of the insured. Since much of the coverage for advertising and personal injury is for intentional offenses, the current wording suggests the intent.
There is no coverage for personal or advertising injury if the insured has assumed liability under a contract, unless the insured would have been liable had no such contract existed.
The next exclusions (f., g., h., and i.) parallel the CGL form's exclusions a.(6), a.(7), a.(8), and a.(9) for personal and advertising injury. The first three exclude business risks; insurance for risks such as breach of contract is not easily available. Exclusion i., for an offense committed by an insured whose business is advertising, broadcasting, publishing, or telecasting, eliminates coverage for actions that would more properly be covered under advertising liability insurance. This latter exclusion is important to note. A common home business is desktop publishing; the owner of such a business must be made aware that there is no coverage for advertising injury. The exception to this exclusion is that there is coverage for false arrest, detention, imprisonment, malicious prosecution, or invasion of privacy, wrongful eviction, or wrongful entry.
The final for bodily injury is misleading in that the definition of personal and advertising injury includes consequential bodily injury. The intent is probably to transfer all coverage for bodily injury except that which is a direct consequence into another area of coverage, such as premises and operations or products-completed operations.
13. Pollution
a. "Bodily injury" or "property damage" arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of "pollutants":
(1) At or from any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to, any "insured";
(2) At or from any premises, site or location which is or was at any time used by or for any "insured" or others for the handling, storage, disposal, processing or treatment of waste;
(3) Which are or were at any time transported, handled, stored, treated, disposed of, or processed as waste by or for any "insured" or any person or organization for whom you may be legally responsible; or
(4) At or from any premises, site or location on which any "insured" or any contractors or subcontractors working directly or indirectly on any "insured's" behalf are performing operations:
(a) If the "pollutants" are brought on or to the premises, site or location in connection with such operations by such "insured", contractor or subcontractor; or
(b) If the operations are to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of "pollutants".
Paragraphs a.(1) and (4)(a) above do not apply to "bodily injury" or "property damage" arising out of heat, smoke or fumes from a hostile fire.
As used in this exclusion, a hostile fire means one which becomes uncontrollable or breaks out from where it was intended to be.
b. Any loss, cost or expense arising out of any:
(1) Request, demand or order that any "insured" or others test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of, "pollutants"; or
(2) Claim or "suit" by or on behalf of a governmental authority for damages because of testing for, monitoring, cleaning up, removing, containing, treating, detoxifying or neutralizing, or in any way responding to, or assessing the effects of, "pollutants".
Analysis
The current ISO homeowners forms do not contain an exclusion of liability coverage for pollution losses unless added by endorsement. Therefore, the addition of the HO 07 01 could lead to confusion should an event occur. Presumably, the provisions apply only to the described business.
There is an exception to the exclusion for bodily injury or property damage arising out of the heat, smoke, or fumes of a hostile fire. This exception applies, however, only in two situations: first, at a premises, site, or location owned by, occupied by, or rented or loaned to an insured; and second, at a premises or site where the insured or a subcontractor is performing operations if the pollutants are brought onto the site by an insured or the subcontractor in connection with the operations. For example, the insured could be cleaning a house using a standard household cleaner he brought with him. If the house catches on fire because of the cleaner, any resulting bodily injury or property damage caused by heat, smoke or fumes would be covered. The hostile fire exception does not apply at any premises if operations pertaining to waste handling or treatment, transportation, disposal, or storage are carried out at that premises.
14. Recall Of Products, Work Or Impaired Property
Damages claimed for any loss, cost or expense incurred by you or others for the loss of use, withdrawal, recall, inspection, repair, replacement, adjustment, removal or disposal of:
a. "Your product";
b. "Your work"; or
c. "Impaired property";
if such product, work or property is withdrawn or recalled from the market or from use by any person or organization because of a known or suspected defect, deficiency, inadequacy or dangerous condition in it.
Analysis
The HO 07 01 excludes coverage for recall of products, including the insured's work or impaired property. Typically, a recall happens when a product is found to be defective or dangerous, although a recall may occur if a product is only suspected of being dangerous.
Many times a recall may be ordered by the government, but sometimes the business itself may order its own products recalled. The form will not cover the cost of the recall.
15. Employment-Related Practices
a. "Bodily injury" or "personal and advertising injury" to:
(1) A person arising out of any:
(a) Refusal to employ that person;
(b) Termination of that person's employment; or
(c) Employment-related practices, policies, acts or omissions, such as coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation or discrimination directed at that person; or
(2) The spouse, child, parent, brother or sister of that person as a consequence of "bodily injury" or "personal injury" to that person at whom any of the employment-related practices described in a.(1) above is directed.
b. This exclusion applies:
(1) Whether an "insured" may be liable as an employer or in any other capacity; and
(2) To any obligation to share damages with or repay someone else who must pay damages because of the injury.
Analysis
Previously, the form implicitly excluded coverage for employment-practices liability, in that, for example, refusal to employ would generally not be viewed as bodily injury, property damage, or personal injury. With the addition of this explicit exclusion, however, any perceived gap in coverage is closed.
The home-based business owner should be made aware of this if he employs anyone. Coverage for the employment practices exposure is available.
Coverage F – Medical Payments To Others
The following exclusions are added:
We will not pay expenses for "bodily injury":
1. To an "insured";
2. To a person hired to do work for or on behalf of any "insured" or a tenant of any "insured";
3. To a person injured while taking part in athletics;
4. Included within the "products-completed operations hazard"; or
5. Excluded under the Coverage E – Personal Liability exclusions of this endorsement.
Analysis
Medical payments coverage on the homeowners forms responds to injuries that occur on the insured premises to other than a resident of the premises (residence employees being the exception). Medical payments coverage under the HO 07 01 operates in the same way, although additional exclusions clarify that the coverage is not intended for an insured (which, remember, can include an employee of the business), or for any person hired to do work for an insured.
There is no coverage for any person injured while taking part in athletics, although exactly what is encompassed by athletics is not precisely clear. For example, would a pick-up basketball game on the insured premises between the insured's employees and three neighborhood children be considered athletics? If so, then the coverage is more restrictive than the underlying homeowners, which is probably not the intent. Although there would be no coverage for the employees, the neighborhood children should be covered. Webster's Collegiate Dictionary defines athletics as "exercises, sports, or games engaged in by athletes," who are in turn defined as "a person who is trained or skilled in exercises, sports, or games," so unless the participants met this definition there should be coverage.
There is no medical payments coverage for injury included within the products-completed operations hazard. Remember that the products-completed operations hazard applies to products or work that is no longer in the insured's possession. Bodily injury coverage applies to injury occurring after the work or product has been put to its intended use by another, not medical payments coverage. However, presumably if an injury arises out of the activities of an insured away from the residence premises, then there is coverage. For example, if the insured delivers a reupholstered sofa to a customer and accidentally injures the customer, medical payments coverage should apply.
Damage To Property Of Others:
With respect to the coverage provided by this endorsement:
1. Under Paragraph 1. in the Homeowners Form, the limit of liability is revised to $2,500 per "occurrence" but is subject to the aggregate Limit Of Liability shown in A.2. in the Schedule above under Section II – Liability; and
2. Paragraph 2.e.(1) in the Homeowners Form does not apply to your "business".
3. The following paragraph is added:
3. This coverage is subject to all the Coverage E exclusions in this endorsement that apply to "property damage".
Analysis
The additional coverage for damage to property of others is expanded so that replacement cost coverage of up to $2,500 is available. Remember, though, that the property coverages include coverage for property of others in the insured's care. However, a situation might arise where property is damaged and the section I coverage would not apply. This coverage then responds. The exclusion of coverage for damage arising out of a business is deleted in regards to the insured business. The $2,500 is included in the general aggregate amount applying to other than the products-completed operations hazard.
With respect to the coverage provided by this endorsement, Conditions A. Limit Of Liability, B. Severability Of Insurance and I. Policy Period are replaced by the following:
A. Limit Of Liability
1. Aggregate Limits
a. Products-completed Operations Hazards Liability
Our total limit of liability in an annual policy period for the sum of damages because of "bodily injury" and "property damage" included in the "products-completed operations hazard" under Coverage E will not be more than the Annual Aggregate Limit Of Liability for the "products-completed operations hazard" shown in A.1. in the Schedule above under Section II – Liability. This is the most we will pay regardless of the number of "occurrences", "insureds", claims made, "suits" brought, or persons injured.
b. All Other Business Liability
Our total limit of liability in an annual policy period for the sum of:
(1) Damages under Coverage E, not including "bodily injury" and "property damage" included in the "products-completed operations hazard"; and
(2) Medical expense payable under Coverage F;
will not be more than the Annual Aggregate Limit Of Liability for all other "business" liability shown in A.2. in the Schedule of this endorsement under Section II – Liability. This is the most we will pay regardless of the number of "occurrences", accidents, offenses, "insureds", claims made, "suits" brought, or persons injured.
2. Sublimit Of Liability
Subject to the Annual Aggregate Limit Of Liability described in A.1.b. above, our total limit of liability under Coverage F for all medical expense payable for "bodily injury" to one person as the result of one accident will not be more than the Sublimit Of Liability for Coverage F shown in B. of the Schedule above under Section II – Liability. This Sublimit Of Liability does not increase the Annual Aggregate Limit of Liability.
The limits described in A.1. and 2. above apply regardless of any provision to the contrary contained in this endorsement, including the policy Declarations.
Analysis
The HO 07 01 contains two separate aggregate limits of liability. The first of these, which is the coverage E limit of liability, is identical to the limit as shown on the homeowners declarations. It applies to the products-completed operations hazard. The second aggregate, which is twice the sum of coverage E plus coverage F, applies to any other damages because of bodily injury or property damage.
Medical payments to others coverage is subject to the limit shown per person in the homeowners declarations. Also included within this second aggregate limit are any medical expenses payable under the coverage F medical payments to others, and any payment made under the additional coverage of damage to property of others. Remember that although the limits of liability are the same as (or twice) those of the underlying homeowners, they are distinct amounts of coverage from those of the homeowners policy. The home business owner's liability coverage for personal—as opposed to business—activities remains in place.
It is important for the insured business owner to understand that the limits of liability coverage provided by the HO 07 01 do not operate like those in the underlying homeowners policy. For example, under the homeowners forms, following a covered occurrence for which a payment for damages is made, the full liability coverage E limits are restored. Not so, however, with the coverage of the HO 07 01. Following a loss covered by this endorsement, the limits of liability are reduced accordingly by any payment for damages. There does not appear to be a per occurrence limit in the coverage form, so that one claim could use up the total annual aggregate.
And, although medical payments to others is a separate sublimit, it is included within the aggregate limit applying to other than bodily injury or property damage included within the products-completed operations hazard.
Of course, the full limits of liability coverage are restored annually with the policy's renewal.
B. Severability Of Insurance
The coverage provided by this endorsement applies separately to each "insured" except with respect to the limit of liability. Therefore, this condition will not increase the Annual Aggregate Limits of Liability regardless of the number of "insureds".
Analysis
Although the liability coverage applies separately to each insured under the HO 07 01, the aggregate limit does not increase. For example, suppose the insured business owner carries $100,000 coverage E and $1,000 coverage F on her underlying homeowners policy. Therefore, $202,000 is available for claims arising out of bodily injury or property damage other than that contained within the products-completed operations hazard. Further suppose that the insured business owner and two of her employees are named in a suit seeking damages of $600,000 because, while the employees are delivering a reupholstered sofa to a customer, they negligently knock over some burning candles, which immediately set the customer's home on fire. The maximum amount available to cover the loss is still $202,000, even though three persons are named in the suit.
I. Policy Period And " Coverage Territory "
This endorsement applies only to "bodily injury", "personal and advertising injury", and "property damage" which occur during the policy period within the applicable "coverage territory".
Analysis
Remember that, in the underlying homeowners policy, there is worldwide coverage for claims arising out of bodily injury or property damage, unless otherwise excluded. This is not the case with the HO 07 01. Coverage is restricted to loss occurring within the coverage territory, as defined..
The following condition is added:
H. Examination Of Your Books And Records
We may examine and audit your books and records as they relate to this coverage at any time during the policy period and up to three years afterward.
Analysis
As is common with commercial property exposures, the insurer retains the right (but not the obligation) to audit the insured's books and records relating to the insured business. Since the insurer may audit these records at any time up to three years after the termination of a policy period, the insured should remember to retain these records.
Endorsements
ISO has added endorsements that may be used with the Home Business Insurance Coverage form to broaden or restrict liability coverage as the need arises.
The first of these is HO 07 50 05 11, Additional Insured – Managers or Lessors of Premises Leased to an Insured. The definition of insured is extended to include a person or organization, but only with respect to their liability arising out of the ownership, maintenance, or use of premises leased to the insured businessowner. The person or organization and the leased premises must be designated in the schedule. Exclusions are added so that coverage does not apply to any occurrence that takes place before or after an insured occupies the designated premises, to when the insured's business property is no longer at the scheduled premises, to any structural alterations, new construction, or demolition performed by or for the designated person or organization, or to any act or failure to act by the designated additional insured.
Endorsement HO 07 51 10 00, Additional Insured – Vendors, extends the definition of insured to include a vendor who distributes or sells the insured business's products. Liability applies only with respect to bodily injury or property damage arising out of the products. There is no coverage for the vendor's assumption of liability in a contract or agreement; however, liability for damages that the vendor would have had in absence of a contract or agreement is covered. Other exclusions apply, such as the vendor's providing an unauthorized warranty.
Endorsement HO 07 53 10 00, Exclusion – Personal and Advertising Injury, may be attached when, for example, the nature of the business is such that the underwriter perceives an unacceptable exposure for personal and advertising injury. This endorsement deletes all coverage for such injury.
Endorsement HO 07 54 10 00, Liquor Liability Exclusion and Exception for Scheduled Activities, is a compilation of exclusion c. liquor liability on the CGL form, and optional endorsement CG 21 50 amendment of liquor liability exclusion. The endorsement excludes coverage for bodily injury or property damage arising out of the selling, serving, or furnishing of alcoholic beverages except for activities or functions that are described in the schedule.