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Will a Homeowners Policy Cover a Multi-Family Home School?
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A client is reviewing school options for kindergarten and first-grade children for the fall. With so much uncertainty around public and private schooling models amid continued concerns over the coronavirus pandemic, they are contemplating pooling neighbors’ kids in that age group to host a school in their home.
The client is considering hosting a total of six kids in their home three times a week, and the other days rotating through two other neighbors’ homes. They will be hiring a professional teacher to conduct the schooling activities, as outlined by the State Board of Education. The three families participating will be paying the teacher a salary.
Q: Under a homeowners coverage policy, are there specific exclusions that might apply or a certain endorsement we should add?
Response 1: I’m okay with this concept as a neighborly venture, and I think it’s pretty well covered by both homeowners and umbrella policies, the latter because combining other peoples’ kids in one place represents an increased exposure for injury. If the homeowners policy has an exclusion for communicable diseases, that’s a problem—but the problem is only bigger because you’re dealing with a larger group.
The coverage falls apart, however, when you start charging money for this service and hiring people to perform it. Depending upon the laws of your state, there’s a potential workers compensation exposure for the employee and creating an “informal school” entails all the risks found in an ordinary school: sexual molestation, failure to educate, employee theft and more.
Unless you can find an insurer willing to provide all of those coverages, I think you need to warn your clients to avoid this situation.
Response 2: There are lots of different things to consider here. The first is whether this might constitute a “business” since the insured is paying for the teacher to come into the home. The ISO homeowners policy has a very long definition of business, while some carrier forms do not. The ISO definition of business is:
3. “Business” means:
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;
(2) Volunteer activities for which no money is received other than payment for expenses incurred to perform the activity;
(3) Providing home day care services for which no compensation is received, other than the mutual exchange of such services; or
(4) The rendering of home day care services to a relative of an “insured.”
It does not have to be your business for this exclusion to apply. In this case, it is the teacher’s business.
There are some exceptions to the business exclusion, but the best way to provide coverage in this situation is to add the endorsement HO 04 42 Permitted Incidental Occupancies – Residence Premises, that is the ISO form—your carriers may have another name for it.
This form allows you to describe the “business” being conducted on the premises and charges a modest premium. This is the same form you would use if the insured had a yoga class or art studio in their home. This will take care of the liability exposure and medical payments for simple injuries, such as slips and falls.
As always, the safest method to assure coverage is to notify each individual carrier when you become aware of this exposure and obtain either this endorsement or something in writing stating their agreement that coverage is being extended to this activity.
Response 3: People running a school in their home might need a license in some states or cities. This might be considered a business risk even though the homeowner is not earning revenue from it. Given the unusual times we are in it is difficult to offer a solid answer on how insurers might react to this activity. Ask your homeowners policy underwriters.
Response 4: The exposures potentially present in this situation go far beyond what homeowners’ contracts can successfully handle. I recommend considering this as a non-profit business enterprise. After all, it will have all the exposures of a private school.
As over-the-top as it may sound, I would encourage these parents to set up an LLC or Sub Chapter S corporation to operate the school, for liability protection, if nothing else. I would also strongly encourage the involvement of competent legal counsel in the planning of this endeavor. In my opinion, at a minimum, they would need:
- A commercial general liability policy
- Including sexual molestation liability.
- An employee benefits liability endorsement if benefits are provided
- Professional liability for the teacher
- Workers compensation for the teacher and any other paid individuals
- A business auto policy including a non-owned auto liability for field trips and other activities involving autos
- Computer coverage for the inevitable computer gear
- Fidelity coverage to cover acts of whoever may be handling the money
- An umbrella clause
One major advantage of this approach is the parents would avoid the inevitable mess of attempting to rely upon the diverse homeowner policies of all three parents when, and if, a claim occurs. There would be a single organized source of insurance coverage for all.
These recommendations may be very unattractive to these three sets of, obviously conscientious, parents. However, any school has far more exposure to loss than what is envisioned by most people.