HO HO HOmeowners: Even Santa Needs Insurance

An individual has an in-home “business” involving manufacturing and distributing toys for children. He does not charge for these toys, nor does he earn any income from them. He has both on- and off-premises exposures for damage to the toys, his personal property and his liability.

He also operates a vehicle that travels mostly by air, but with very frequent ground stops. The vehicle is unlicensed and, while it can be used on public roads, it was not designed as such nor is it used that way.

Q: “Does my HO-3 cover my in-home business? In terms of my vehicle, will a personal auto policy protect me, is my homeowners insurance sufficient or do I need a recreational vehicle policy? If possible, please respond before Dec. 24. Merry Christmas!”

A: “I ran your questions by the Big ‘I’ Virtual University (VU) faculty, and their responses are listed below. I hope they're helpful.

P.S. With regard to that other list I sent you in late summer, please change the Dell 8100 to a Dell 8300. Thanks!”

Response 1: “Although you have a number of uncovered exposures no insurance company is willing to underwrite, you are probably beyond the jurisdiction of any court—as someone without assets, you are judgment proof.

P.S. I will leave you the hot chocolate and cookies as usual.”

Response 2: “This doesn't sound like a business, but rather a charitable effort, and the HO policy contains no exclusion for doing charitable things. As for your vehicle exposures, the PAP won't do you any good unless it has at least four wheels. I suggest you check with Arctic Mutual to see if it has a special artisan program that suits your unique operations.”

Response 3: “Here's how the HO2000 program defines ‘business’:

‘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:
(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

It’s not a ‘business’ if you earn no income from the activity. As long as you receive no other compensation—‘I'll make these toys for you, and you give me an annual membership at a country club valued at $3,500’—then I don't see a coverage problem. Perhaps this is better viewed as a hobby, and there are no unique coverage exclusions for a hobby.

A word of caution, though: I read about a relevant court case in which an insured claimed the activity of raising and breeding dogs was a hobby, but the court records showed that her tax return showed a Schedule C – Profit or Loss From a Business. The court ruled, ‘If you call it a business on your tax return, it's a business here too...no coverage when a dog bit someone.’ Make sure you really receive no compensation of any type. If that's truly the case, the full Coverage C limit applies anywhere in the world—as long as you don't usually store some of the toys at another residence, such as a mountain cottage, in which case the 10% limit applies.

Regarding the air/ground vehicle/craft: Without knowing exactly what the vehicle/craft is, it's hard to say. Under the PAP, I don't see any liability coverage. The writer says it's not designed for use on public roads. Here's the exclusion:

We do not provide Liability Coverage for the ownership, maintenance or use of:
1. Any vehicle which:
a. Has fewer than four wheels; or
b. Is designed mainly for use off public roads.
This Exclusion (B.1.) does not apply:
a. While such vehicle is being used by an ‘insured’ in a medical emergency

 Under the HO policy, here's some applicable wording which I believe kills coverage:

1. ‘Aircraft Liability’, ‘Hovercraft Liability’, ‘Motor Vehicle Liability’ and ‘Watercraft Liability’, subject to the provisions in b. below, mean the following:

Hovercraft means a self-propelled motorized ground effect vehicle and includes, but is not limited to, flarecraft and air cushion vehicles


D. ‘Hovercraft Liability’

This policy does not cover ‘hovercraft liability’

Based on the above, I'd opt for no HO liability or property coverage. Instead, look for coverage elsewhere.”

Response 4: “You may need the following coverages if this is truly a business:

  • A commercial general liability policy with as high a limit as you can afford, plus an umbrella with a limit about the size of the net worth of Bill Gates. Can you imagine if you crash into the Sears Tower? Note that the CGL policy excludes aircraft, but you still need it for product liability and completed operations.
  • The vehicle is a not an ‘auto’ or ‘mobile equipment,’ so you must secure aviation coverage. Again, high limits will be in order in case you collide with a jumbo jet liner or the Sears Tower.
  • You’ll also need coverage for crime, employment practices liability (for those elves), terrorism, life insurance, health care, long-term disability and workers comp.

I'd stay home, and forget this ‘in-home business.’”

Response 5: “Your HO policy might cover you, but you do have a definite personal injury exposure since you drop down chimneys unannounced. Invasion of privacy is a concern. You may also have a workers comp exposure for the elves. I understand they have recently unionized, which gives you the possible business risk of a strike.

The vehicle which travels through the air is an aircraft. Is it a licensed vehicle? Do you ever use it to service your residence premises? It might actually qualify as mobile equipment on a CGL policy, but I’d need more details.

You might be in trouble with the Environmental Protection Agency due to the hazardous waste your reindeers produce. This might not be a pollution exposure, but rather a ‘falling objects’ exposure—clearly covered by named perils, but perhaps not by named exclusions coverage. Either way, liability could be a concern—frozen waste striking someone at a high rate of speed is dangerous.

I would consult with both an attorney and a competent insurance agent. You know how litigious our society has become.”

Response 6: “First of all, your operation does not appear to be a business as defined by either the current HO policy or the PAP. However, as we know, most insurance policies contain many exclusions:

Under a PAP, the liability insuring agreement first requires you to be ‘legally responsible.’ Is there any chance you could have diplomatic immunity? If so, liability coverage might not be an issue. There is also a concern about coverage for your elves, since they probably don’t qualify as ‘family members.’ Keep in mind: There is no coverage for damage to property under the PAP while you are transporting it, nor for any property in your care.

I'm concerned about the workers compensation exposure for your elves. Are they exempt as ‘domestic employees’ or is workers compensation required? That may vary by the jurisdiction in which they are injured. I recommend that you consult with a good attorney who is well versed in these types of laws around the world.

Another issue under your PAP is whether you are operating a public or livery conveyance. Since you will deliver goods to any child in the world who has been nice—not naughty—that exclusion may apply.

More important, the PAP only covers vehicles with at least four wheels. You have not fully described your vehicle, but I assume it has no wheels. The PAP also excludes coverage for any vehicle designed mainly for use off public roads. That certainly appears to be the case here, and I would implore you not to operate your vehicle on the freeways of New York City, Los Angeles or Boston in particular.

Finally, the PAP coverage territory only includes the U.S., its territories and possessions, Puerto Rico and Canada, so you would be out of luck elsewhere.

In conclusion, the PAP is not the proper policy for your exposure. I would check with an excess & surplus lines carrier that specializes in your unique exposures. If you are able to obtain coverage, be sure to insure your vehicle on a valued policy basis, since the depreciation can be a killer.

With regard to the vehicle exposure, you're out of luck under an HO policy as well, because it excludes ‘Aircraft Liability’ defined as ‘any contrivance used or designed for flight except model or hobby aircraft not used or designed to carry people or cargo’. That would preclude coverage for you. Sorry.

The business exclusion in the HO policy is much lengthier than the PAP’s, but it still appears that you are operating a ‘volunteer activity,’ which the HO policy covers. You still have a problem with coverage for the elves, unless they are under the age of 21 and in your care. My understanding is that most of these rascals are several hundred years old. While the elves may not be ‘insureds,’ they could still have limited coverage as ‘residence employees’ for bodily injury they cause to themselves and others, though I'd still look into the workers compensation issues I cite above.

As for damage to your personal property, it is generally covered anywhere in the world. But be mindful of special liability limits that apply for certain types of property or losses. Some types of property are not covered at all, such as your reindeer. Personal property is usually covered on a named perils basis, so you might want to look into procuring broader coverage. For most losses, named perils coverage is probably adequate since it includes things like lightning, aircraft, vehicles, smoke (such as from a chimney), falling objects and so on.

A number of other general exclusions might apply, such as government confiscation, so be very careful. I would also consider adding personal injury protection to your HO policy because of the potential for invasion of privacy claims. Unfortunately, sexual harassment coverage is not something you can endorse onto the HO policy. You might consider purchasing EPLI coverage since one child has already alleged that he saw his mother kissing you.

Boy, don't you just hate it when prospects and insureds ask these questions at the last minute?”

This question was originally submitted by an agent through the Big “I” Virtual University’s Ask an Expert Service. Answers to other coverage questions are available on the VU website. If you need help accessing the website, email logon@iiaba.net to request login information.