An attorney from our Arizona office recently asked me for a recommendation for an insurance expert on a matter they are handling. A photo from our Arizona office party is shown above. I often spend time asking those I feel are experts if they know of other experts in other areas of the country. So, I thought about calling Bill Wilson to get a referral.

Since the request from our Arizona office was on the day after Christmas, I recalled a recent discussion in Wilson’s Insurance Commentary about whether making toys for others would be considered a business.

In his commentary, HO HO HOmeowners Questions, Wilson noted:

When I was with the Big “I” several years ago, the Virtual University’s “Ask an Expert” service received the following question from an agent acting on behalf of his customer:

‘Two questions, please:

I have an in-home ‘business’ involving the manufacturing and distribution of toys for children. I do not charge for these toys and earn no income from them. I have both on- and off-premises exposures for damage to the toys, my personal property, and my liability. Does my HO-3 cover me?’

Wilson referred to the Big I website for the answer:

The writer calls this a ‘business’ but then states that no income is earned from the activity. As long as there is no other compensation (such as ‘I’ll make these toys for you and you give me an annual membership in a country club valued at $3,500’), then I don’t see a coverage problem. Perhaps this is better viewed as a hobby and there are no unique coverage exclusions for a hobby.

I’d caution though…I read an FC&S article where they cited a court case similar to this. The insured claimed the activity of raising and breeding dogs was a hobby, but the court records showed that her tax return showed a Schedule C — Profit or Loss From a Business. The court ruled, ‘If you call it a business on your tax return it’s a business here too…no coverage when a dog bit someone.’ So be very cautious that there really is no compensation of any type. If that’s the case, then the full Coverage C limit applies anywhere in the world, as long as you don’t usually leave some of the toys at another residence such as a mountain cottage in which case the 10% limit applies.

Do yourself a favor and subscribe to Bill Wilson’s Insurance Commentary as well as to this blog if you are an insurance coverage nerd. Here is one of his post, Welcome to My Blog, where he explains how to subscribe and what you will receive,

Thought For The Day

Happy, happy Christmas, that can win us back to the delusions of our childhood days, recall to the old man the pleasures of his youth, and transport the traveler back to his own fireside and quiet home!
—Charles Dickens