When Does a Home-Based Hobby Become a Business?

Over 40 million people work full or part time out of their home. Many of these people do not realize that they have no homeowners insurance liability coverage if they were to have a business guest come to their home, and that guest suffered an injury claim as a result of being on the premises. Examples may include the homeowner’s business guest was bitten by the homeowners dog, or the business guest tripped over the hose left on the front yard etc.

Many people have hobbies and never consider their hobby as a business. Perhaps the hobby started out small and someone suggested they should start selling the product produced from their hobby. When does a persons’ hobby have an effect on their homeowners insurance and negate their liability for a claim associated with the hobby?

Most homeowner policies use either the following words or very similar words to define a 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:” There are four very narrow exceptions. The one exception this article concerns itself with is number the number one exception stated in a homeowner policy. In this exception, a homeowner policy states an insured cannot receive more than $2,000 in compensation in 12 months or the insurance company will consider the activity a business. A hobby is now considered an activity, so the insurance company no longer consider the hobby a hobby as a person might consider but rather the insurance company will consider the hobby a business if more than $2,000 revenue is produced in a twelve-month period.

The following exclusion is found in most homeowner policies: “Business” “Bodily injury” or “property damage” arising out of or in connection with a ““business”” conducted from an ““insured location”” or engaged by an ““insured”” whether or not the ““business”” is owned or operated by an ““insured”” or employs an “insured”

If a person is operating a hobby out of the home and it has grown and is now producing $2,000 or more in revenue per year it is time to talk to an insurance producer and make some adjustments. Either a homeowners policy will need to be endorsed or a general liability policy will need to be written to cover this insurance exposure. If this sounds like something you need to be concerned about contact your insurance producer or insurance company and have them advise you.