1. Forms
2. HO
3. HO-04-42

What the form is

The HO 04 42 Permitted Incidental Occupancies – Residence Premises endorsement is designed to modify a standard homeowners insurance policy to provide coverage for an insured who operates a small, incidental business from their home. Standard homeowners policies typically exclude or severely limit coverage for business-related activities and property. This endorsement overrides some of those exclusions for the specific incidental business described in the endorsement's schedule. It can provide coverage for business property (like furnishings, supplies, and equipment) on the residence premises and can extend liability coverage to the described incidental business operations conducted at the residence. It also allows for scheduling coverage for an "other structure" on the residence premises (like a detached garage or shed) if it's used for the incidental business.

Classes of business it applies to

This endorsement is typically used for small-scale, low-risk businesses that are secondary to the insured's primary occupation and conducted from the home. Examples often include:

• Home offices for professions like freelance writing, consulting, or accounting (with limited client visits).
• Private instructional services such as music or dance lessons, or tutoring.
• Craft or hobby businesses with minimal off-premises activity or public exposure.

It is generally not intended for businesses with significant foot traffic, employees, off-premises operations, or high-risk activities. For instance, a full-time retail operation or a manufacturing business would likely require a separate commercial policy.

Special considerations

There are several important considerations when using the HO 04 42:

• Eligibility: The insurer must approve the specific type of incidental business. Not all home-based businesses will qualify. Carriers often have their own lists of acceptable incidental occupancies.
• Scheduled Coverage: The business must be described in the endorsement schedule. If an "other structure" is used for the business, it must also be scheduled with a specific limit of liability.
• Coverage Limitations: While the endorsement provides some business coverage, it's not as comprehensive as a full commercial business policy. For example, off-premises liability related to the business is generally not covered by this endorsement. It also typically doesn't cover things like professional liability (errors and omissions), business income, or workers' compensation.
• Thresholds: If the business use of the home becomes primary rather than incidental (e.g., more than 50% of the home's square footage is used for the business, or it's the insured's primary source of income), a homeowners policy with this endorsement may no longer be appropriate, and a commercial policy might be necessary.
• Alternative Endorsements: For more extensive home-based businesses, endorsement HO 07 01 Home Business Insurance Coverage might be more suitable as it offers broader coverages. If the business activity is performed by an insured working at home for someone else (not their own business), endorsement HO 24 71 Business Pursuits might be the correct choice.

Key information for agents and underwriters

Agents:

• Thoroughly interview clients about any home-based business activities to determine if this endorsement is necessary and adequate.
• Clearly explain the limitations of the HO 04 42 compared to a full commercial policy.
• Ensure the incidental business is accurately described and any other structures used for the business are properly scheduled with appropriate limits.
• Advise clients that if their business grows or changes, their coverage needs may also change.

Underwriters:

• Carefully review the nature and scope of the incidental business described to ensure it meets the company's eligibility guidelines. Key factors include the type of business, number of employees (if any), frequency of client visits, and any physical alterations to the residence.
• Assess the potential liability and property risks associated with the incidental occupancy.
• Determine if the requested limits for business property and any scheduled other structures are appropriate.
• Consider if the business exposure is truly "incidental" or if a commercial policy would be more suitable.
• The premium for this endorsement is often modest, but the exposure should be clearly understood. Some insurers may have a flat charge or a charge based on the limit of liability for a scheduled other structure.