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Homeowners Section II Exclusion

Summary: The homeowners business pursuits liability exclusion, which also appears in the dwellings program personal liability supplement, excludes coverage for liability arising out of business activities of the insured. This provision has given rise to much dispute regarding its application, due to varying interpretations of the word business. Questions regarding whether an activity must have an element of continuity, or a profit motive have been presented to courts, with varying answers. Is a hobby a business? What about a part-time endeavor? There is no ready answer regarding the application of the business pursuits exclusion.

Dispute particularly arises as to whether an activity is directly related to the business activity, or is incidental to the business. Each fact pattern will be examined in view of the particular circumstances and the position taken by the particular jurisdiction.

The Insurance Services Office (ISO) homeowners 2000 program now gives some coverage for certain activities, as do the current American Association of Insurance Services (AAIS) homeowners forms. The forms’ will be examined in the following discussion.

Topics covered: Evolution of the business pursuits exclusion What are business pursuits? The element of continuity The profit motive Exception to the business pursuits exclusion Other business activities on residence premises Current ISO and AAIS exclusions and exceptions Hobbies Social activities related to business Workplace activities Farming Rental of premises to others Outside directors Political activities Foster care Vacant land The final word

Evolution of the Business Pursuits Exclusion

Personal liability insurance—whether written as part of a homeowners package, or as a separate comprehensive liability policy—is designed to protect the insured and family members from negligence claims they might incur in their private (as opposed to business or professional) activities. Coverage encompasses claims arising out of conditions at the insured’s residence or out of personal, nonbusiness activities of an insured away from the residence.

The Insurance Services Office homeowners (ISO) and American Association of Insurance Services (AAIS) forms (and virtually all other homeowners forms) contain specific exclusions of liability for bodily injury or property damage arising out of any business engaged in by an insured. (We will look at the current wording of the forms later under the heading Current ISO and AAIS Exclusions and Exceptions.)

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