Part 2 - Section I Property Coverages & Additional Coverages

Part 3 - Section I Exclusions & Conditions

Part 4 - Section II Liability Coverages & Exclusions

Part 5 - Section II Additional Coverages, Conditions & Endorsements

Topics covered:

Section I - Property Coverages

Additional Coverages

Section I - Property Coverages

To be eligible, the home based business must be operated from the insured dwelling building or unit or an other structure on or at the residence premises. There are no exclusions pertaining to incidental use of the dwelling for business purposes, but there are exclusions applicable to other structures.

B. Coverage B — Other Structures

Coverage B does not apply to an other structure described in the Schedule of this endorsement.

We cover an other structure:

1. Used for "business"; and

2. Described in the Schedule of this endorsement;

for direct physical loss by a Peril Insured Against. Our limit of liability will not be more than the Limit of Liability that applies to the other structure, as shown in the Schedule.

(Coverage B — Other Structures does not apply to Form HO 00 04 or HO 00 06.)

Analysis

The base, unendorsed homeowners form precludes coverage for an other structure from which any business is conducted, and for other structures used to store business property unless the business property is solely owned by an insured or a tenant of the dwelling. However, the business property cannot include gaseous or liquid fuel, other than what is in a permanently installed fuel take of a vehicle or craft parked in the structure.

When endorsement HO 07 01 is added to the policy, coverage is given to the "other structure" that is described on the home business schedule, along with a limit of liability. When the endorsement is attached, the insured may conduct the insured business from the other structure, or may use it to store business property that he does not solely own (such as leased property), and coverage will apply.

C. Coverage C — Personal Property

(This is Paragraph A. in Form HO 00 04 and Paragraph B. in Form HO 00 06.)

1. Covered Property

The following "business" personal property is also covered under Coverage C:

a. Property of others that is in your care; and

b. Leased personal property for which you have a contractual responsibility to insure.

3. Special Limits of Liability

Under 3. Special Limits Of Liability:

a. Category a. is replaced by the following:

a. $1,000 on money, bank notes, bullion, gold other than goldware, silver other than silverware, platinum other than platinumware, coins, medals, scrip, stored value cards and smart cards.

b. The last paragraph in Category b. is replaced by the following:

This limit does not apply to the cost to research, replace or restore the information from lost or damaged material pertaining to your "business". Refer to Section I Additional Coverage E.13.b.(1) below for the limit that applies.

h. Category h. is deleted with respect to property pertaining to your "business".

(This is Category e. in Form HO 00 08.)

i.. Category i. is replaced by the following:

i.. $5,000 on property other than money, scrip, stored value cards, smart cards and securities, away from the "residence premises", used primarily for purposes related to your "business". However, this limit does not apply to loss to antennas, tapes, wires, records, disks or other media that are:

(1) Used with electronic equipment that reproduces, receives or transmits audio, visual or data signals; and

(2) In or upon a "motor vehicle".

(Category i. is Category f.. in Form HO 00 08.)

4. Property Not Covered

Under 4. Property Not Covered, the following is added:

l. Contraband, or property in the course of illegal transportation or trade.

Analysis

The home business insurance coverage form amends the provisions of the underlying homeowners form for personal property. Adding the HO 07 01 extends coverage to property of others in the insured's care for business purposes and leased personal property for which the insured has a contractual responsibility to insure. For example, if a fire on the insured premises damages a bicycle the insured is repairing as part of their home business, the bicycle is covered as property of others in the insured's care. The endorsement responds to the same perils insured against for Coverage C that the underlying policy covers.

Some of the special limits of liability for certain classes of property are amended by the endorsement. The homeowners standard limit of $300 for money and like property is increased to $1,000 in the HO 07 01. The limit for $2,000 on securities, accounts, deeds, and personal records, which includes the cost to research and restore information from this lost or damaged material, is changed so that the limit does not apply to the cost of research or to replace or restore information from lost or damaged material pertaining to the insured business. That business coverage is subject to a separate limit of liability, discussed later.

The limit of $1,500 on property away from the residence premises and used primarily for business is increased to $5,000. This limit can be further increased to $10,000 by indicating the new amount on the home business insurance schedule. However, this limit still does not apply to antennas and other media that are in a motor vehicle as described in categories j. and k. on the underlying homeowners policy. See Homeowners HO 00 03 03 22 Revisions Section I Property Coverages A-C Analysis Part 2 for a description and discussion.

The most important change to the special limits for certain classes of property is the deletion of category h., property on the residence premises used primarily for business purposes. The unendorsed homeowners policy has a special limit of $3,000 for this type of property. The deletion of the sublimit allows the full coverage C limit of liability to be applied to this property. The insured should carefully select the coverage limit since a total loss could mean that the limit may not be adequate enough to cover both personal and business property.

Finally, contraband, or property in the course of illegal transportation or trade is added under property not covered.

Additional Coverages

E. Additional Coverages

(This is Paragraph C. in Form HO 00 04 and Paragraph D. in Form HO 00 06.)

3. Trees, Shrubs And Other Plants

The preclusion of coverage for property grown for commercial purposes does not apply to trees, shrubs, plants or lawns grown for purposes of your "business".

Analysis

The homeowners additional coverage 3. for trees, shrubs, and other plants is amended so that the exclusion for this type of property grown for business purposes is deleted. However, since other provisions of the policy apply, only loss caused by the listed perils of fire or lightning, explosion, riot or civil commotion, aircraft, vehicles not owned or operated by a resident of the residence premises, vandalism or malicious mischief, or theft is covered. The 5 percent of the limit of liability that applies to the dwelling still applies to this coverage, as well as the limit of $1,500 for any one tree, shrub, or plant.

The 2022 revision of this endorsement removed the additional coverage for credit card, electric fund transfer card or access device, forgery and counterfeit money since that coverage was removed from the base homeowners policies.

12. The following Additional Coverages are added:

a. Accounts Receivable

We will pay for:

(1) Amounts due from your customers that you are unable to collect;

(2) Interest charges on any loan required to offset amounts you are unable to collect pending our payment of these amounts;

(3) Collection expenses in excess of your normal collection expenses that are made necessary by loss; and

(4) Other reasonable expenses that you incur to reestablish your records of accounts receivable;

that result from direct physical loss by a Peril Insured Against to your records of accounts receivable. For accounts receivable that are on the "residence premises", the most we will pay is $5,000.

For accounts receivable away from the "residence premises", the most we will pay is $2,500.

This coverage is additional insurance.

Analysis

The HO 07 01 adds an additional coverage not found in the underlying homeowners policy: coverage for accounts receivable. Coverage applies to loss to records of accounts receivable caused by a peril insured against. If the endorsement is attached to an HO 00 03, then the coverage C named perils apply. Some of the homeowners exclusions do not apply to this coverage, which will be discussed later.

Coverage is limited to $5,000 for accounts receivable on the residence premises and $2,500 for accounts receivable away from the residence premises. The coverage will pay amounts the insured is unable to collect from customers because of direct physical loss to records; interest on any loan the insured must obtain to offset the uncollected amounts pending the insurer's payment; collection expenses in excess of normal collection expenses made necessary by the loss; and other reasonable expenses incurred to reestablish the records.

b. Valuable Papers And Records

(1) We will pay, up to $2,500, for direct physical loss to "valuable papers and records" that you own, or that are in your care, caused by or resulting from a Peril Insured Against. This coverage includes the cost to research lost information on "valuable papers and records" for which duplicates do not exist.

(2) This coverage does not apply to:

(a) Property held as samples or for delivery after sale: or

(b) Property in storage away from the "residence premises".

This coverage is additional insurance.

Analysis

The second additional coverage is for valuable papers and records. The insurer will pay up to $2,500 for valuable papers and records lost or damaged by a peril insured against. This includes the cost to research any lost information for which there are no duplicates.

Certain exclusions apply. Property held as samples or for delivery following a sale and property held in storage away from the residence premises are not covered. The underlying homeowners exclusions apply to this coverage if applicable.

c. Business Income

(1) We will pay for the actual loss of "business income" you sustain due to the necessary suspension of your "operations" during the "period of restoration". The suspension must be caused by direct physical loss to property at the "residence premises". The loss must be caused by or result from a Peril Insured Against. With respect to loss to "business" personal property in the open or "business" personal property in a "motor vehicle", the "residence premises" includes the area within 100 feet of the site at which the "residence premises" is located.

(2) We will only pay for loss of "business income" that:

(a) You sustain during the "period of restoration"; and

(b) Occurs within 12 consecutive months after the date of direct physical loss.

We will only pay for ordinary payroll expenses for 60 days following the date of direct physical loss.

(3) Ordinary payroll expenses mean payroll expenses for all your "employees" except:

(a) Officers;

(b) Executives;

(c) Managers; and

(d) "Employees" under contract.

(4) Ordinary payroll expenses include:

(a) Payroll;

(b) "Employee" benefits, if directly related to payroll;

(c) FICA payments you pay;

(d) Union dues you pay; and

(e) Workers' compensation premiums.

This coverage is additional insurance. No deductible applies to this coverage.

Analysis

The third additional coverage is for business income. This is the first of the coverages that apply to loss of revenue or to the extra expenses the insured business generates. Business income is the net income plus continuing normal operating expenses, including payroll, that is lost because of suspension of operations resulting from a covered loss.

Business income does not include prospective net income based on favorable conditions. For example, if because of a covered windstorm loss the insured now owns the only remaining small appliance repair shop in town, the anticipated increase in business is not covered.

HO 07 01 provides coverage for actual loss of business income sustained because of the suspension of operations during the period of restoration following a loss caused by a peril insured against. The perils insured against are only those on the underlying homeowners forms. If a flood damages the insured premises and results in a loss of business income, there is no coverage since flood is not a peril insured against. But the loss need not be to business property; a covered loss to any property at the residence premises that causes an interruption will trigger coverage.

Coverage starts during the “period of restoration”, which begins seventy-two hours following the direct physical loss. The loss or damage must occur to property at the "residence premises," although business personal property in the open or in a motor vehicle within 100 feet of the site at which the residence premises is located is included. If, for example, the insured has business personal property stored at a neighbor's house, and the property is destroyed by fire, there is no coverage for loss of business income unless the property was in the open or in a motor vehicle within 100 feet of the residence premises.

There are two limitations of coverage. The first is that the business income loss must be sustained during the period of restoration; the second is that the loss must occur within 12 consecutive months following the date of direct physical loss. Payment is not limited to the expiration of the policy, although the trigger for coverage must occur during the policy period.

Coverage for ordinary payroll expenses stops 60 days after the direct physical loss. Included in ordinary payroll expenses are payroll; employee benefits if directly related to payroll; FICA payments the insured pays; union dues the insured pays; and workers’ compensation premiums. Not included in ordinary payroll expenses are payroll expenses for officers, executives, managers, and employees under contract.

d. Extended Business Income

(1) If the necessary suspension of your "operations" produces a "business income" loss payable under this endorsement, we will pay for the actual loss of "business income" you incur during the period that:

(a) Begins on the date property, except finished stock, is actually repaired, rebuilt or replaced and "operations" are resumed; and

(b) Ends on the earlier of:

(i) The date you could restore your "operations", with reasonable speed, to the level which would generate the "business income" amount that would have existed if no direct physical loss or damage had occurred; or

(ii) 30 consecutive days after the date determined in (1)(a) above.

(2) Loss of "business income" must be caused by direct physical loss at the "residence premises" caused by or resulting from a Peril Insured Against.

(3) Extended "business income" does not apply to loss of "business income" incurred as a result of unfavorable business conditions caused by the impact of the Peril Insured Against in the area where the "residence premises" is located.

This coverage is additional insurance. No deductible applies to this coverage.

Analysis

The fourth additional coverage provided by the HO 07 01 is for extended business income coverage. This coverage extends business income after the date the property (except for finished stock) is actually repaired, replaced, or rebuilt, and operations are resumed. After a loss, the property can be repaired, replaced, or rebuilt, and the operations resume at a different date. Once both occur, coverage begins. Payment is available up to 30 days or until the business income equals the amount that would have existed had no direct physical loss or damage occurred, whichever is earlier.

This coverage gives the insured breathing space to bring operations back to their preloss condition. Similar to business income, this coverage does not apply to loss of business income incurred as a result of unfavorable business conditions by the impact of the peril insured against. No deductible applies to the coverage.

e. Extra Expense

We will pay necessary "extra expense" you incur during the "period of restoration" that you would not have incurred if there had been no direct physical loss to property at the "residence premises". The loss must be caused by or result from a Peril Insured Against. With respect to loss to "business" personal property in the open or "business" personal property in a "motor vehicle", the "residence premises" includes the area within 100 feet of the site at which the "residence premises" is located.

We will only pay for "extra expense" that occurs within 12 consecutive months after the date of direct physical loss.

This coverage is additional insurance. No deductible applies to this coverage.

Analysis

The fifth additional coverage is extra expenses. The definition of "extra expense" includes those additional expenses incurred to minimize the business suspension and continue operations or to minimize the suspension and discontinue operations. The expenses must be necessary; for example, expenses to locate a temporary office, install a phone line, or notify customers that the business has been forced to close. Expenses deemed unnecessary—for example, expenses to purchase decorations for the temporary office—would likely not be reimbursed.

The definition of "extra expense" also includes reimbursement for repairing or replacing any business property or replacing or restoring information on valuable papers and records, but only to the extent this expenditure serves to decrease the business income amount of loss.

For example, if the insured sustains a covered loss but does not have adequate coverage C to apply to both personal and business personal property. The insured may use extra expense to repair or replace the business personal property (perhaps buying new office furniture for a cost of $3,000). However, the purchase must reduce the business income loss. So, if the business income loss would have been $12,000, but purchasing the furniture reduces it by $2,000, the $2,000 is reimbursable as extra expense.

The insurer will pay for extra expenses that occur within 12 consecutive months after the date of loss. The loss must be caused by a peril insured against. No deductible applies to this coverage.

f. Civil Authority Prohibits Use

We will pay for the actual loss of "business income" you sustain and necessary "extra expense" caused by action of a civil authority that prohibits access to the "residence premises" due to direct physical loss of or damage to property, other than at the "residence premises", caused by or resulting from a Peril Insured Against.

The coverage for "business income" will begin seventy-two hours after the time of that action and will apply for a period of up to three consecutive weeks after coverage begins.

The coverage for necessary "extra expense" will begin immediately after the time of that action and ends:

(1) Three consecutive weeks after the time of that action; or

(2) When your "business income" coverage ends;

whichever is later.

This coverage is additional insurance. No deductible applies to this coverage.

Analysis

The final additional coverage is “civil authority prohibits use”. If the insured is unable to access the residence premises because of the action of a civil authority, the insurer will pay for loss of business income and necessary extra expenses for a certain period. Business income coverage begins after a 72 hour time deductible, and for up to three consecutive weeks. Extra expense coverage begins immediately after the time of the action by civil authority and ends the later of three consecutive weeks after the time of the action or when the business income coverage ends.

The action must be the result of a covered cause of loss. For example, if a tornado levels several buildings around the residence premises and civil authority prohibits access to the premises, then there is coverage. But if there is a flood (an excluded cause of loss) that causes access to be blocked, then there is no coverage. No deductible applies for this coverage.

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