Although they typically insure personal property owned or used by insureds while it is anywhere in the world, most homeowner insurance policies contain a special limitation of liability for “business” personal property. For example, under the 2011 edition of the ISO Homeowners 3-Special Form, property on the residence premises used primarily for business purposes is limited to $2,500, while property off the residence premises used primarily for business purposes is limited to $500. The form defines “business” as

  1. a trade, profession or occupation engaged in on a full-time, part-time or occasional basis or
  2. any other activity engaged in for money or other compensation subject to certain exceptions.1

Much of the case law addressing the business personal property special limitation involves property once used in a business. Consider the following scenario. An insured owned and operated an antique furniture retail business for ten years. After the business ceased operations, he kept some of the inventory for personal use, stored some of it in a warehouse, and liquidated the rest. Five years later, a fire broke out in the warehouse, damaging and/or destroying most of the personal property. The insured notified his homeowner’s insurer of the loss and submitted a claim for the replacement value of the property, which was in excess of $200,000. The insurance company paid $500, the policy’s special limit of liability for personal property away from the residence premises “used or intended for use in a business”, the term “business” defined as “any full or part time activity of any kind engaged in for economic gain.” Since the dissolution of the business, the insured has been employed in a line of work totally unrelated to the antique furniture retail business.

Should the business property special limitation apply to the above-described loss? Based on the language of the policy, no. The special limitation for “business” property under this policy is triggered only if, at the time of loss, the property is

  1. “used” in “any full or part time activity of any kind engaged in for economic gain” or
  2. “intended for use” in “any full or part time activity of any kind engaged in for economic gain”.

As this language states, the special limitation for business personal property plainly depends on the insured’s use of the property at issue at the time of loss. In other words, it is the manner in which it is used by the insured and not the nature of the personal property stored in the warehouse that is determinative whether it falls under the special limitation.2

But, like the 1991 edition of the ISO Homeowners 3-Special Form, many insurers have drafted the special limitation to apply to personal property “used at any time or in any manner for any business purpose,”—language which attempts to clearly and unambiguously limit the recovery of personal property if it was ever used in a business or for a business purpose.3 Absent such language, the special limitation does not apply to personal property merely because it once held the status of “business” property if, as in the fact pattern above, none of the personal property was used or intended for use by the insured in any business at the time of the loss.4

The moral of the story for an insured: Don’t take for granted that personal property previously used in a business loses its status as business personal property for purposes of a homeowner insurance policy special limitation of liability once the business ceases to operate or the insured no longer uses the property in any employment or occupation he or she was habitually engaged in for livelihood or economic gain. Read your insurance policy; but, more importantly, consult your insurance agent and inquire how to properly and fully insure such properly.

1 Unlike the 2011 edition, the business personal property special limits under the 1991 edition of the ISO Homeowners 3-Special Form apply to property “used at any time or in any manner for any ‘business’ purpose.”
2 See Tell v. Cambridge Mut. Fire Ins. Co., 375 A.2d 315 (N.J. Super. 1977); Gulf Ins. Co. v. Olson, 469 S.W.2d 715 (Tex. App. 1971); Jerrell v. Hartford Fire Ins. Co., 103 N.W.2d 83 (Iowa 1969).
3 See Kennedy v. Lumbermen’s Mut. Cas. Ins. Co., 593 N.Y.S.2d 659 ((N.Y. App. Div. 2005); Zawierucha v. Philadelphia Contributorship Ins. Co., 740 A.2d 738 (Pa. Super. 1999); Shadoan; v. Liberty Mut. Fire Ins. Co., 894 P.2d 1140 (Okla. Civ. App. 1994); State Auto Mut. Ins. Co. v. Cawley, 514 N.E.2d 935 (Ohio Ct. App. 1986).
4 See Pepper v. Allstate Ins. Co., 799 N.Y.S.2d 292, 295 (N.Y. App. Div. 2005) (“[T]he average person could interpret the phrase [‘used or intended for use in a business’] as only referring to items currently being used for business purposes.”).

  • Karl Muller

    Thanks for this post. This is a great analysis of personal property coverage issues I run into all the time.

    Love the blog.

    Karl Muller