August 18, 2023 – COVID lockdowns temporarily forced the world to adapt to a work-from-home environment. But for a significant percentage of the workforce, working from home is not at all temporary. It is now a way of life.
Working from home has its advantages. The short commute is the most glaring. Others see convenience, comfort, and the physical absence of difficult co-workers near the top of their lists.
But putting aside the increasingly popular debate over whether work-from-home is the “right” long-term solution, can there actually be risks to working from home?
Take the following example, in which Harry and his friend have recently started an LLC together. They are excited to be working together and to be able to work from home so easily in the post-COVID world. One day, they are sitting in Harry’s kitchen having coffee and discussing their plan to win over a major customer, but unfortunately, as Harry sets the mugs down, one slips and spills scalding coffee onto his friend (who suffers serious burns).
After several skin grafts, the friend sues, and Harry reports the lawsuit to his insurer. To Harry’s surprise, he receives a letter from his insurer stating that although the injury was an in-home accident, his homeowners policy does not cover the lawsuit. The policy’s business pursuits exclusion applies because the suit arises out of Harry’s LLC and its business activity.
Homeowners insurance policies almost universally have a “business” or “business pursuits” exclusion barring coverage for certain liabilities arising out of, in connection with, or during the course of any business or business pursuit of any insured. Interpretation of a “business” exclusion may depend on how broadly “business” is defined in the policy, in addition to the specific facts. Sometimes, “business” exclusions may apply to liabilities arising from the insured’s employment.
Homeowners policies exclude business activities because a business or business owner is expected to carry separate insurance for the risks the business creates. In a pre-COVID world, business was less commonly conducted at home. In the post-COVID world, insureds turning to their homeowners policy could be surprised to learn that it may not cover business activities conducted from their home, as the distinction between work and business is increasingly blurred.
In the 1975 New York appellate case, Shapiro v. Glen Falls Ins. Co., a “business” exclusion was applied to the insured’s “side” real estate venture, even though it was not his primary livelihood. Similarly, in the 1979 Florida appellate case, Gaynor v. Williams, a “business” exclusion barred coverage for a lawsuit arising from the insured’s ownership of an apartment complex, even though it was not his primary source of income. The court reasoned that for purposes of the exclusion, the excluded business activity is not limited to an insured’s sole occupation or employment, noting that the insured was a limited partner, not a mere corporate stockholder.
Consider the example in which Harry has launched a business with his friend and hosts his friend for coffee at home to discuss the business, but now assume Harry and his friend both also have full-time jobs and meet for coffee at one of their homes every Saturday. Does the “business” exclusion in Harry’s policy bar coverage for his friend’s lawsuit (or does it depend on the purpose of the get-together, or what they were discussing when the coffee spilled)? Depending on the language of the business exclusion and the specific facts of the incident, the purpose of the meeting and subject of discussion could be determinative as to whether this was a business activity.
The need for additional insurance, or a special endorsement covering a home business, could prove to be an important consideration for Harry. If Harry plans to conduct business at home, it may be prudent for him to inform his agent or broker and ask about available business insurance policies or the availability of an endorsement for his homeowners policy that could extend coverage to specific at-home business activities.
Take another example, in which Bob, a full-time motorcycle repair business owner, has decided to close down his shop to save money and enjoy the recent adaptation to a work-from-home culture. Bob now works out of his garage. One day, while making a motorcycle parts delivery at Bob’s home, the delivery person slips and falls in Bob’s driveway, and files suit against Bob and his business.
Bob is surprised when his homeowners insurer denies coverage for him individually. Under the 1987 California appellate court case, West American Insurance Company v. California Mutual Insurance Company, business activities conducted from the business owner’s home can be within a homeowners policy’s business pursuits exclusion, even if the business is primarily operated from an office, or some other location (and even if the business encounter has a partly social element). Courts have focused on the nature of the activity, not the location where the activity takes place or whether the activity also involves some social aspect, in determining whether a business exclusion applies.
Similarly, the 2017 Connecticut Supreme Court case, Nationwide Mut. Ins. Co. v. Pasiak, held that a “business” exclusion could apply to bar coverage for a civil lawsuit where a recently hired employee was working alone in the business owner insured’s home when she was attacked by an armed intruder and held against her will during and after the attack.
The court focused on the language of the exclusion, which applied to certain liabilities “arising out of” the insured’s business pursuit. Finding that “arising out of” should be interpreted broadly, the court reasoned that, because the intruder was going after the business, the purpose of the employee’s imprisonment was related to the insured’s business activity and therefore could be determined to have arisen out of his business pursuits.
In each of the above cases, although the underlying incident took place at the business owner insured’s home, as opposed to the office or worksite, “business” exclusions in the insureds’ homeowners policies barred coverage.
Consider a third example in which Sally frequents garage sales to buy old goods she thinks she can sell at her local swap meet once a month. One Sunday afternoon, Sally has a friend come over to help her load up her truck. As the friend is helping load the truck, he slips on her driveway and is injured when the box of resale goods he was carrying falls on him.
Here, although the friend was doing Sally a favor, the purpose of the activity related to her business pursuit. In the 1992 case Smyth v. USAA Property & Casualty Insurance Company, a California appellate court held that “business” exclusions apply even to volunteer work for a business, irrespective of profit or profit motive.
The 1989 New Jersey district court case, Fitchburg Mutual Insurance Company v. Diamond, involved similar facts to Sally’s case. In Diamond, because the “injury was associated with the insured’s business pursuits,” the policy’s “business” exclusion precluded coverage. In the 1986 California appellate court case, Fire Insurance Exchange v. Jiminez, the court rejected an insured’s argument that a one-time, isolated business event can take a liability arising from a business activity outside of a “business” exclusion.
Business owners like Harry, Bob, and Sally should consider their business insurance needs, even when the business is part-time, or mostly conducted from their homes. This has become a particularly relevant issue in the post-COVID world. For example, in both 2021 and 2022, over 5 million new businesses were started in the United States. See, “Interactive Map: New Business Applications Across the Country,” U.S. Chamber of Commerce, Feb. 14, 2023; “New businesses soared to record highs in 2021. Here’s a taste of one of them,” npr, Jan. 12, 2022.
The exact wording of a “business” or “business pursuits” exclusion can be significant. Some exclusions or “business” definitions exempt certain kinds of activities, such as rental activity or babysitting, and other exclusions may have an exception for “activities which are ordinarily incident to non-business pursuits.” Either way, those conducting business from their homes will want to think through the possible risks and consult with an experienced insurance broker.
In the post-pandemic era, we are used to working from home, at least sometimes. For those working from home full-time or choosing to ditch an office or workspace for an at-home business, the homeowners or renters insurance policies’ “business” exclusions could mean the difference between having insurance coverage or facing expensive and risky litigation that causes your business to fail. Working from home is still serious business — so treat the corresponding insurance issues the same way.
Erin Mindoro Ezra is a regular contributing columnist on insurance coverage for Reuters Legal News and Westlaw Today.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias. Westlaw Today is owned by Thomson Reuters and operates independently of Reuters News.
Based in New York, Stephen Freeman is a Senior Editor at Trending Insurance News. Previously he has worked for Forbes and The Huffington Post. Steven is a graduate of Risk Management at the University of New York.