Warning on SME home business

Recently you may have seen the article on the ABC News in respect of a home claim being denied by an insurer due to the fact the insured was running a business from their home. In this case, selling eggs.

With rising living costs more and more people are looking for a side hustle, or in other cases, a person starts up a new business venture from the kitchen table. Thinking about it, LMI started from the kitchen table in my home back in February 1999 and operated from there until May 2000.

While many insurers will allow an office risk to be included under the home and/or contents policy many do not allow any other sort of business activity. For example, one broker’s wife runs a dry flower arrangement business from their home. On hearing of the claim being denied on the news, he checked with his own home and contents insurer and was advised that they would not honour any claim once the full use of the home was known to them.

I want to stress that this was not a claim arising out of the business activity but any claim including say storm damage to the roof.

How can they do this do you ask?

If an underwriter can demonstrate that the occupation of the risk is something that is not acceptable in their underwriting manual and they would never have accepted the risk had they known that the risk was greater (in their mind) than a normal home and contents risk then they are entitled to cancel the policy ab initio (from the beginning) and refund the premium.

If, on the other hand, the insurer would have accepted the risk then they are only entitled to impose the same conditions they would have had they known of the true occupation. For example, an increase in premium or a higher deductible.

In most cases of home businesses, but not all, the risk to the physical property is not increased. I doubt it would be for someone with a chicken coup or with a small amount of dried flowers. Many home owners would have this for their own consumption. On the other hand, someone doing spray painting or welding on a commercial basis may well be increasing the property risk.

The bigger risk is in public and products liability.

I therefore recommend all brokers just check with their clients as to whether they are doing any sort of home business including Airbnb, renting out clothing or other goods, providing storage for cars, boats or other property, or any other type of business. If they are then the insurer needs to be advised to ensure that genuine cover is in place BEFORE a loss occurs.

Thinking back to when I started my career if we discovered something like the egg selling on a small scale or dry flower arranging as a home business at the time of a claim which was in no way connected with the loss, we would have honoured the claim for say storm damage but not met any claim for business contents. We would have then warned the insured to obtain separate coverage, particularly public and products liability coverage for the business if they did not already have it. If the occupation did not increase the property risk we would have continued coverage and noted the file accordingly.

Oh how things have changed in my working life.