When I oversaw the Big “I” Virtual University’s “Ask an Expert” service, the following was a question we received and the response of several volunteer faculty members.



“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?

“I also operate a vehicle that travels largely by air, but with very frequent ground stops. The vehicle is unlicensed and, while it can be used on public roads, it was not designed as such nor is it used that way. Will a personal auto policy protect me, is my homeowners policy sufficient, or do I need a recreational vehicle policy?

“Thanks very much for your kind consideration. If possible, please respond before December 24.

“Merry Christmas!



Dear Mr. Kringle:

I ran your questions by the VU faculty and their responses are listed below. I hope they’re helpful.

P.S. With regard to that other list I sent you in late summer, please change the Dell 8100 to a Dell 8300. Thanks!



While you have a number of uncovered exposures, and no insurance company is willing to underwrite the risk, you are probably beyond the jurisdiction of any court. You are as judgment proof as someone who has no assets. P.S. I will leave you the hot chocolate and cookies as usual.



This doesn’t sound like a business but rather a charitable effort, and there is no exclusion for doing charitable things in the HO policy. As to your vehicle exposures, the PAP won’t do you any good unless it has at least four wheels. I’d suggest that you check with Arctic Mutual to see if they have a special artisan program that suits your unique operations.



Here’s how the ISO HO 2000 program defines “business:”

“Business” means:
  a. A trade, profession or occupation engaged in on a full-time, part-time or occasional basis; or
  b. Any other activity engaged in for money or other compensation, except the following:
       (1) One or more activities, not described in
       (2) through (4) below, for which no “insured” receives more than$2,000 in total compensation for the
             12 months before the beginning of the policy period;

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.

On the air/ground vehicle/craft…..Without knowing exactly what the vehicle/craft is it’s hard to say. Under the PAP I don’t see any liability coverage. The writer says it’s not designed for use on public roads. Here’s the exclusion:

We do not provide Liability Coverage for the ownership, maintenance or use of:
1. Any vehicle which:
     a. Has fewer than four wheels; or
     b. Is designed mainly for use off public roads.
     This Exclusion (B.1.) does not apply:
     a. While such vehicle is being used by an “insured” in a medical emergency;

Under the HO policy here’s some applicable wording which I believe kills coverage:

In addition, certain words and phrases are defined as follows:

  1. “Aircraft Liability”, “Hovercraft Liability”, “Motor
    Vehicle Liability” and “Watercraft Liability”, subject to the provisions in b. below, mean the following:
    Hovercraft means a self-propelled motorized ground effect vehicle and includes, but is not limited to,
         flarecraft and air cushion vehicles;

D. “Hovercraft Liability”
     This policy does not cover “hovercraft liability”.

Again, without knowing the specific type vehicle/craft involved, it’s hard to say. But, based on the above, I’d opt for no HO liability or property coverage and would look for coverage elsewhere.



In today’s society you may need the following coverages IF this is truly a business:

  1. A CGL with as high a limit as you can afford, with an umbrella with a limit about the size of the net worth of Bill Gates. Can you imagine if you crash into the Sears Tower?? However see item 2 below, the CGL excludes aircraft (exclusion g). But you still need the CGL for Products Liability and Completed Operations.
  2. The vehicle is a not an “auto” or “mobile equipment” thus you must have aviation coverage. Again limits as high as $$$$$$$$$$ will be in order. This is in case you collide with a jumbo jet liner or the Sears Tower.
  3. Also needed are Crime coverage, EPL (for those elves), Terrorism Coverage, Life Insurance, Health Care and Long Term Disability, and Workers Comp.

In fact, I’D stay home, and forget this “in home business.”



Kris – Your homeowners policy might cover you, but you do have a definite personal injury exposure due to your method of dropping down chimneys unannounced. Invasion of privacy is a concern. You may also have a workers comp exposure for the elves. I understand they have recently unionized which gives you the possible business risk of a strike.

The vehicle which travels through the air is an aircraft. Is it a licensed vehicle? Do you ever use it to service your residence premises? It might actually qualify as mobile equipment on a CGL policy…we need more details. You might be in trouble with the EPA due to the hazardous waste produced by the reindeer. However, this might not be a pollution exposure, but rather a “falling objects” exposure, clearly covered by named perils, but perhaps not by named exclusions coverage. Liability could be a concern either way. Frozen waste striking someone at a high rate of speed is dangerous.

I would consult with both an attorney and a competent insurance agent. You know how litigious our society has become.



First of all, your operation does not appear to be a business as defined by the either the current HO policy or the PAP. However, as we know, most insurance policies contain many exclusions, so let’s quickly examine each policy.

Personal Auto Policy

The liability insuring agreement first requires that you be “legally responsible.” Is there any chance you could have diplomatic immunity? If so, liability coverage might not be an issue. There is also a concern about coverage for your elves since they would most likely not qualify as “family members.” Keep in mind that there is no coverage for damage to property under the PAP while it is being transported, nor for any property in your care.

I’m concerned in both policies as to the workers compensation exposure for your elves. Are they exempt as “domestic employees” or would WC coverage be required? That may vary by the jurisdiction in which they are injured (U.S. states or countries). I’d recommend that you consult with a good attorney who is well-versed in these types of laws around the world.

Another issue under your PAP is whether you are operating a public or livery conveyance. Since you will deliver goods to any child in the world as long as they have been nice, as opposed to naughty, that exclusion might well apply. More important, the PAP only covers vehicles that have at least four wheels. You have not fully described your vehicle, but I am assuming it has no wheels. The PAP also excludes coverage for any vehicle designed mainly for use off public roads. That certainly appears to be the case here and I would implore you not to operate your vehicle on the freeways of New York City, Los Angeles, or Boston in particular.

I am happy to report that the racing exclusion (i.e., “prearranged speed contest”) does not apply here, primarily because your “race” does not take place inside a facility designed for racing. Finally, the PAP coverage territory only includes the U.S., its territories and possessions, Puerto Rico, and Canada, so you would be out of luck elsewhere.

In conclusion, it appears that the PAP is not the proper policy for your exposure. I would check with an E&S carrier that specializes in your unique exposures. If you are able to obtain coverage, be sure to insure your vehicle on a valued policy basis since the depreciation can be a killer!

Homeowners Policy

With regard to the vehicle exposure, you’re out of luck here as well. The HO policy excludes “Aircraft Liability,” which is defined in a way (“any contrivance used or designed for flight except model or hobby aircraft not used or designed to carry people or cargo”) that would preclude coverage for you. Sorry.

The business exclusion in the HO policy is much lengthier than that in the PAP, but it still appears that you are not operating a business, but a “volunteer activity” which is covered by the HO policy. You still have a problem with coverage for the elves unless they are under the age of 21 and in your or Mrs. Claus’ care…my understanding is that most of these rascals are several hundred years old. While the elves may not be “insureds,” they could still have limited coverage, as “residence employees” for BI to themselves and that they cause to others, though I’d still look into the workers compensation issues cited above.

As for damage to your personal property, it is generally covered anywhere in the world, but be mindful that there are special limits of liability that apply for certain types of property and/or losses, and some types of property are not covered at all, such as your reindeer. Personal property is usually covered on a named perils basis, so you might want to look into procuring broader coverage. For most losses, named perils coverage is probably adequate since it includes things like lightning, aircraft, vehicles, smoke (for example, from a chimney), falling objects, etc.

There are a number of general exclusions that might apply such as government confiscation, so be very careful. I would also consider adding Personal Injury protection to your HO policy because of the potential for invasion of privacy claims. Unfortunately, sexual harassment coverage is not something you can endorse onto the HO policy…you might consider purchasing EPLI coverage since one child has already alleged that he saw his mother kissing you.

Boy, don’t you just hate it when prospects and insureds ask these questions at the last minute?

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Bill Wilson

Founder at InsuranceCommentary.com
One of the premier insurance educators in America on form, coverage, and technical issues; Founder and director of the Big “I” Virtual University; Retired Assoc. VP of Education and Research from Independent Insurance Agents & Brokers of America. Reprint Request Information