An Explanation of Insurance Company Squeamishness about Home Businesses

In response to yesterday’s post about difficulties insuring home businesses, Sue Waterman, President of Intercon Insurance Services Limited in Vancouver, was kind enough to send a clear explanation. The following are her (lightly edited) remarks.

As you’ve discovered, with a few very limited exceptions homeowners’ policies normally exclude home based businesses, though some simple arts and crafts type businesses can be added for a small additional premium. But professionals of any kind consulting from home are a challenge.

As professionals they’re liable for the work they do and defending professional liability claims in today’s legal climate is seriously expensive even if you win (think $50,000 to $100,000 and much more if it goes to court). So they need professional liability or Errors and Omissions insurance – which given the size of legal defence costs is, not surprisingly, also expensive. But my experience over the years has been that many retired or part time professionals simply can’t afford or don’t want to pay the premium required to properly insure themselves, which leaves them operating uninsured.

When a claim is eventually made against them, their defence counsel immediately sends it in to their homeowners insurer because that’s the only policy they have, and that insurer then incurs serious defence costs to prove that it wasn’t really insuring an engineer or lawyer’s professional liability worth thousands of dollars as part of a $500 or $600 homeowners policy.

So homeowners insurers now take the not totally unreasonable position that unless there is professional liability in place they don’t want to provide homeowners coverage to professionals.

An additional wrinkle is that many professionals have also set up personal service corporations for tax reasons, and anyone operating through a corporate entity should as a bare minimum be carrying commercial general liability as well as professional liability insurance.

That no-one called you back to explain this is unforgiveable though and on behalf of my industry I apologise - if you ever have any property and liability insurance questions I’ll be happy to try to help.

And for the record, no insurer has ever offered to send me on an exotic vacation (though when I push them for lower premiums for my clients they have occasionally suggested other places I could go) and they charge me to play in their golf tournaments and expect me to buy lunch.

The part of this that surprises me is that professional liability claims made against home insurance companies aren’t immediately laughed out of court by judges. Given that they aren’t, it makes perfect sense that insurance companies treat home-based professionals like the plague.

For the record, when I was trying to replace my house insurance and no broker would call me back, I only mentioned that I was looking for home insurance in most of the messages I left. They didn’t even know about my consulting work. Something big must have been going on at the time to busy out all the insurance brokers.