Expert: Kristen Mulcahy, CIC - 12/4/2006

Question
Kristen,

Thank You..I do understand what you are saying.
I don't think I was being clear with my question.
I understand that I will have to get my own insurance that will be responsible for any damages caused be me as a renter or my business etc...Also, I will need renters insurance for my personal belongings...

What I meant to ask is...
Pretend I am the landlord(my mother) asking these questions:

I have a duplex which I am living in one side of while renting out the other...
My renter wants to run a manufacturing business out of his garage.

1. Provided the renter obtains all neccessary insurance coverage for liability, property damage etc...
Will there likely be any effect on my Homeowners Policy
due to the precense of such a business being run from my rental property?

2. Do I need to inform my insurance company that my renter will be running a business on my property?

3. Is it possible my insurance company will cancel my policy if I inform them of such a business taking place on my property?

4. Is it possible my insurance company will require me to add exclusions to my current policy or up my premium after I inform them of the business?


Thanks Again for your help in this matter.
I really really appreciate your time and help.
Happy Holidays,
Brandon

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-----Question-----
Kristen,

Thank You so much.
That is a very informative answer.
Yes, my Mother does live in the other side of the duplex.
She should still have a "Dwelling Policy"?Instead of a "Homeowners"policy?

I will be starting a LLC.

If there is an exclusion in her policy that means she would have to pay for that exclusion which would raise her monthly premium correct?
One of the things she is worried about when it comes to letting me do this is that she doesn't want her insurance to go sky high as a result.

Thanks,
Brandon

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-----Question-----
Greetings,

Thank You for your help.

I am considering running an electronics manufacturing business out of my garage.
I rent my home.
Actually it is a Duplex which my Mother owns.
I need to know what impact my business will have in regards to her homeowners insurance.

Specifically, in the event the house catches fire or is damaged severely due to my business can her homeowners insurance refuse to cover the damage if they were unaware that a business was being ran from the residence?

Does her homeowners ins. provider need to be informed of my business? Do they need to be informed of chemicals I may be using? Will her homeowners ins. premium increase due to my business?
What types of ins. should my Mother and I obtain in this scenario to cover both her assets and liabilities as well as my businesses assets and liabilities.

Thanks,
Brandon
-----Answer-----
Brandon,

Congrats on being an entrepreneur! I wish you all the success in the world. As for your insurance situation, you have several issues. As a rented dwelling that your mother owns, she shouldn't have a "homeowners policy" because that implies she lives there, which she doesn't. She should have a "dwelling policy". Even if she lives in the other half of the duplex. Tell her to speak to her agent as soon as possible because she could have huge gaps in coverage. The fact that you're related doesn't change the insurance that's required. Additionally, she needs to ask her agent if there are any exclusions if a business is run on the premise. If there are, and you do damage to the building as a result of your business, she may have no coverage. Truthfully, if your business causes damage to her building, your business should be the one that pays and I'll address that in a minute. Even if her agent answers the question about exclusions, tell her to read her policy herself to make sure.
As for you, unless you have a "renters policy", you presently have no coverage for your belongings, furniture, etc... zero, nada, zilch. Again, just because you're related doesn't give you any coverage on your mom's policy. Good thing is, renters insurance is EXTREMELY inexpensive.
Now for the business, most renters policies are not going to give you liability for a business, for that, you'll have to purchase a Commercial General Liability Policy. Under this policy, there is a coverage area called Fire Legal Liability, what that's for is if your business causes a fire and damages a structure that you rent and do not own, it will pay to repair the damages. Additionally, you may need to consider what is called a Business Owners Policy, or a BOP, which is a package of liability and property coverage for small businesses because most likely, a renters policy is not going to cover tools and machinery that you use in a business.
Also, keep in mind the way you structure your business, if you operate as a Sole Proprietor (e.g. Brandon Smith doing business as ABC Manufacturing) all of your personal assets are on the line if you have a loss, meaning someone sues your business, you damage their property, etc... Yes, insurance can help but when you're a Sole Proprietor your personal assets are at stake. You might want to consider setting up an LLC or other entity for your business. You can find information through your state website and if you have an accountant, always a good idea to talk to them as well.
Lastly, chances are VERY GOOD that your city or town has ordinances which may prohibit manufacturing in a residential structure or may limit the type and quantity of chemicals that can be used. You need to check into that before you open your doors. Fines are not covered by insurance.

I hope this has helped and I wish you good luck in your endeavor! If you need more information feel free to email me again.

Kristen
-----Answer-----
Glad this is helpful Brandon but we're still no on the same page exactly. Okay, a homeowners policy is intended to cover the building and personal belongings of the owner, the person who lives on the premise. Unless your name is on the mortgage, you are NOT the homeowner. It also provides some personal liability coverage for the acts of the home owner and ONLY the home owner (with the exception of any minors also in the home). Personal liability are things like throwing a party and someone falls and hurts themselves. A home owner may be held personally liable for their injuries and therefore their homeowners personal liability portion would most likely pay. Now, I don't know who her current insurance policy is with and she may or may not need to make some changes but I can state with almost certainty that whoever the company is, they are NOT going to pay for the personal property that belongs to a renter, there is no liability in the policy for a renter, and there absolutely is NO liability or property coverage for a business owned and operated by a renter. I realize you are related but for business and insurance purposes, you are merely a renter, her tenant. There is no coverage for you, or any business run by you, any where on any of her policies unless you are under the age of 18 and she is your legal guardian. Presuming you're not under 18, her policies can't be altered to cover you either. If you are making dinner in your half of the duplex and accidentally start a fire, her insurance company is not going to pay for the damage, YOUR insurance company would be the one to pay. If you accidentally start a a fire in your business operations, her insurance company is not going to pay for any damage, YOUR insurance company would have to pay. So basically, what I'm trying to say here is her homeowners policy and any exclusions that are or aren't on the policy does not pertain to YOU or your business and never will. If you were in a duplex but the owner was someone you hardly knew, just your landlord, would you expect their homeowners policy to pay for any damages you or a business you own may cause to their property? No, of course not. Just because she's your mother doesn't change things. You need your own renters insurance for your personal belongings and you need your own business insurance. And don't forget, we've been talking in terms of damage to the property primarily but you also need Commercial General Liability coverage. If you manufacture something that is faulty, causes damage of any kind to your customer, (lost data, equipment malfunction, etc...) no personal policy of any kind will respond. You need Commercial Insurance for that, specifically, General Liability with Products and Completed Operations coverage.

I hope this has cleared things up for you. If not, feel free to email me again!

Kristen

Answer
Brandon;

One thing I can tell you for certain, yes, she should inform her insurance company that there will be a business operating from the premise. Any time exposures change, you need to tell the insurance company or your agent. For example, you have a home, it's been insured for years and this winter you finish your basement. Now, the exposure has changed, and the insurance company needs to know. Now what consequences this will have, if any, I can't tell you. Unfortunately, without knowing what exactly your mom's insurance policy says, there's no way I can answer these questions for you. Your mom's best bet is to do 2 things; first, read the exclusions section of her policy. Basic rule of thumb is, if it's not excluded, it's covered. Secondly, contact her agent and pose these exact questions to them. The insurance company could add exclusions to her policy, I don't know. Premium may go up although I would doubt it but it could. Yes, they could cancel her policy not for any reason other than the insurance company may have a policy against insuring buildings that have a manufacturing business operating from them. Only someone from the company or her agent can give her the answer. If everything is permissible, her insurance company will most likely require your mom to provide them with Certificates of Insurance that you provide to her. These are issued by your agent or insurance company and are simply showing proof of insurance for your business and your rented area. They will also probably require that your mom be named on your policies as an "Additional Insured" meaning, she's an "insured" by definition on your policies for any damage to her property caused by you.
I wish I could give you a more concise answer but again, without knowing exactly what her policy says, any thing I said would be pure speculation on my part.
I realize insurance can be confusing, heck, you and I exchanged many emails before getting on the same page! So as this goes forward, if there's anything else I can answer for you just send me another email. Good luck!!

Kristen