Non Payment of Insurance Claims when Home Businesses are involved

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Following an article in News.Com about an Insurance Claim that was refused and is now before the Courts I think Policy Holders need to check with their Insurer to be sure they have coverage.

Insurance issues coming from Home Businesses or Hobbies

Background and Edited News Item;
Thousands of ‘side hustlers’ may unknowingly be holding worthless Home and Contents Insurance. When Justin Uebergang and Verity Metcalfe’s rural home burnt down due to an electrical fault in 2021, they applied for a payout from their Insurer to rebuild and replace their lost possessions. Their claim was rejected because they had not disclosed a business they ran on the property and that business was a Farm Gate Stall at the end of their driveway selling free-range eggs using an Honesty Box. The Law firm involved in taking up their claim has stated that no part of the business activity caused or contributed to the loss that they ultimately suffered and claimed for under the Insurance Policy. Public reaction suggests that most people would not know/suspect that undertaking a business activity at their property is relevant when applying for Insurance Cover – especially if they aren’t using the insured house to conduct that business - and it also seems that most people who have registered an ABN at their home address would not know that disclosure of any business activity at their property when applying for Insurance Cover could affect their Insurance Coverage.
What kind of Work affects Home Insurance Coverage
The law does not seem to affect those working from home for an employer but people who run a side business from home and have an Australian Business Number registered with their home address might be affected. Home businesses, or ‘side hustles’, are increasing as people attempt to earn more money to outpace inflation. Australian Bureau of Statistics data suggest that nearly 48 per cent of Australians either have or are planning to have/start a side hustle. Businesses can include using any part of their property for Pilates/Yoga teaching and PT training (and possibly extends to selling Fruit, Honey, Sewing, Home Laundry Business, Seamstressing, Photography, Car Repairs, Car Restoration and so on ).

An Example - Looking at my Insurance PDS– it says the Policy does not provide cover ;
While your property or any part of the insured site is being used for any business, trade, profession, occupation, or commercial purposes e.g use as a farm, guest house, display home, club house, boarding house or commune, unless we agree otherwise ( other than use as a Home Office for Tutoring, or for ad hoc baby sitting)

We have many people in my suburb in Brisbane such as Plumbers, Electricians, Radio/TV Techs, Carpenters, Cabinet Makers, Home handymen, Seamstresses, Dog Washers, House Cleaners, Cake Makers, Mechanics, Agistment Services, Saddlers, etc - and I would think that they may not be covered under the above description in the PDS. I am also involved with Car Clubs which have Members doing Mechanical Work, importing and selling Car Parts, Restoration work etc who also may not be covered.

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Hi @Ranald, welcome to the community. I have moved some posts from another thread below which has discussed running home based businesses and potential impacts on domestic home insurance. Domestic home insurance is about insuring a home, not a business or non-domestic type activities.

It is worth noting that running a business at home can significantly change the risks of the insurer. Secondary to this, running a business at home doesn’t result in an impossibility to get insurance, it just means standard domestic home insurance doesn’t provide cover and one needs to seek out insurance which covers both the home and running a business from the home.

In relation to what is an activity which would void a domestic home insurance, one needs to contact the insurer to see what the status is. It is possible it could vary between insurers/underwriters for lower risk business type activities.

For many years insurers have included clauses in their insurance policies (PDS) about duty to notify when there is a change in activities, activities other than domestic home activities occur or new activities commence at the insured address. I suspect many have either not read their insurers PDS or ignored the requirements to notify their insurers. What recent media stories have done is made consumers more aware of such requirements and hopefully encourage them to notify their insurer where such activities occur.

It is also worth noting that many insurers are removing allowances for short term accommodation (e.g. AirBnb) from policies as these are run more as a business than an occasional activity to make a few extra dollars. These could require landlord type insurance in the future rather than domestic home insurance per say. Similar changes are occurring for car insurance where the car is used as a private taxi through ‘rideshare’ businesses.

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Here is a good bad one…

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It will be interesting to see how AAMI spin it in court. I am having trouble constructing any direct connection between the specified activity and the risk. I suspect they will rely on some kind of generalised actuarial defence. Businesses have different risks compared to domestic dwellings and they were in the business risk category and didn’t reveal it.

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Many insurance policies have clauses about running home businesses and some policies exclude cover when some types of businesses are run. This can catch out anyone who decides to start a home based business and may impact those running activities like AirBnb to earn a bit more cash.

Running a business, especially related to food which this would be, substantially increases the insurance risks (we know this first hand). It often also requires food licences/approvals from local council food inspectors which are also often an oversight as well.

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The media story is lacking in some important details.

  1. Exactly how major is the chook operation? The bottom line is that if the entire property burnt to the ground then replacing the chooks and their enclosure (and the sales enclosure) would cost money. If that is not reflected in the insured value then it means that the customer is underinsured and the claim should be scaled back accordingly. (Obviously in this case the claim was outright rejected.)

Is there power to the enclosure? e.g. for incubators?

  1. Do customers have to enter the property in order to purchase eggs? If so then this represents a whole new world of pain and public liability insurance and again was not reflected in the premiums. What if someone buys an egg, eats it and gets sick? (as perhaps @phb is alluding to)

  2. Is there any other business being conducted on this property? In other words, is selling eggs a sideline to some other business?

The bottom line is that if you run a business from home then you should have business insurance. If it is all on one title then it is doubtful that you will get away with claiming that the business is separate from the home for insurance purposes.

For sure there are grey areas.

When does WFH become running a business from home?

What if the business is in the grey area between hobby and business? What if the business will never make a profit or has no realistic prospect of making a profit (once you take into account the capital investment or even disregarding the capital investment)? (The ATO might not want to know i.e. won’t allow the deductions but also won’t require you to declare the income … but the ATO makes its decisions independently of the insurance company.)

I infer, possibly incorrectly, that once the customer looked into getting the proper insurance, the business of selling eggs became financially unviable. So we probably are looking at something in the grey area between hobby and business.

There is insufficient information in the media article to do that.

It would be crying out for some more photos and a site plan. It does look like a lot of chooks!

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Having used their (AAMI) ‘get out of jail free card’, what would a reasonable person consider fair?

Having paid the insurance premiums for a house and only expecting the house to be covered is a simple outcome. For any event that was not related to the domestic property and normal residential use would exclusions limit the insurer’s liability to just what was specified as covered?

I see the questions of making money from a hobby and working from home highly contentious. If it’s not excluded then it’s included I was once informed when asking similar questions. We can assume in the instance of the chooks it was an innocent hobby, or it was a slight of hand running a full on business. The chooks may have no bearing on what happened to the property. It will be enlightening if the outcome is decided and made public through the court.

Note

Luckily, the family was staying in the unit — which was going to be an Airbnb — for the night, while their home was being renovated.

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That is correct.

It is worth noting that our own local council specifically conditions that home produced eggs can’t be used within the food business due to their high risk. Whether one agrees with this approach is another matter, but can understand why they manage food businesses to ensure that the community is safe.

We often see eggs being sold on the footpath and wonder if they realise the potential implications of doing such. If they weren’t sold but given away to neighbours/friends, it possibly wouldn’t trigger food licences etc as it isn’t a commercial activity.

Not including a food business as part of activities associated with the property is a significant risk. For our own business, we had standard domestic/landlord type insurance. After advising that we would be providing breakfast provisions for our guests, we were no longer classed as a domestic/landlord type activity. As a result, we are now classed within the food/hospitality industry. Insurance premiums quadrupled as a result due to the perceived increased risk.

I made the comment about AirBnb as most domestic insurance covers one of the Bs in AirBnb, but not the other. Two separate insurance brokers have indicated when questioned, as soon as one provides food (either cooked or uncooked), it is no longer covered by domestic/AirBnb type landlord insurance.

As home produced eggs are determined as high risk, as a minimum assuming that their insurance should include food businesses (and they didn’t have to advise their insurer that they planned to run a food business), they would be significantly underinsured.

It isn’t a tax matter. For the insurance in question, it isn’t contentious as the PDS states that they must advise the insurer if one plans to start a business at the insured address. It also defines what a business is in the definitions. If they had met their obligation (which appears to be an omission on their part which I feel for them as it has caused them serious ramifications), there would be no contentiousness as they would have advised their insurer and known if there were any consequences to their insurance cover.

We do likewise with our insurance broker to ensure that any changes to activities we do, we have protection through insurance. One shouldn’t assume anything when it comes to running a business from a home.

Hopefully others who run a business/have a commercial activity at their home become aware from this article the importance of liaising with their insurer, as they might not have coverage in the event of a claim.

It will be interesting to see the results of any legal action to see if the insurer has and responsibility in resolving the claim. It may have ramifications for many home based businesses.

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It may have ramifications for AAMI.

It’s not evident that the circumstances your arrangements relate to are applicable to the circumstances of the refusal by AAMI.

Many home owners have hobbies, buying and selling items as part of collections. Call it a hobby. Higher value and significant collections need to be declared for insurance purposes. Some swap items, others exchange for cash. What’s reasonable - we will need to wait and see. The prospects of an out of court confidential agreement may see no satisfactory answer.

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Wouldn’t public risk be entirely different cover to fire?

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Indeed. The court is the appropriate place for a ventilation of all the facts.

If it has ramifications for AAMI, it is likely to have ramifications for all insured parties i.e. a seriously adverse decision, particularly on a silly technicality, is likely to trigger changes to the Terms and Conditions at the next renewal that would shore up the position that the insurer took the court. That won’t fix it for the insurer for this case of course.

… which raises the obvious question as to whether the builder has some liability. Did the builder cause the electrical fault? Were the “renovations” substantial enough that this is likely? realistic? possible? Does the builder have insurance? Were the renovations substantial enough that insurance is mandatory for the job? (may depend on state - which state is this anyway?)

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Yes, and why we have found domestic insurance doesn’t cover food businesses. The article seems to indicate that a homeowner should be able to chose what is covered or not on a property when a claim is made, to ignore activities not covered by insurance or cause a policy to be voided Many homeowners/business owners would love to able to do this, but unfortunately, PDS is very clear on conditions of cover.

It is extremely relevant as we discussed similar things with our broker to try and reduce our premiums. We even discussed taking out domestic/landlord insurance and separate policy for catering (which would have been 1/3 cost of the cover we had). We have found it isn’t possible to pick and chose what is covered…such as ignoring a food business like that in the article.

The PDS is clear what a business is, that policy holder has obligations to report the starting of a business and failed to do so. AAMI has also indicated that they would have refused the homes and contents cover if the business was reported (which us our exact experience).

I am particularly interested in the outcome if it goes to court as we have potential to save many $1000s if we can chose what is covered and not. I am not holding my breath and the court of public opinion (purpose of the article) is very different to establishing potential legal precedence.

That is irrelevant. Please read a policy holders obligations under the insurance policy. Taking out the policy one agrees to its conditions. One can’t pick and choose what is covered or making ones own interpretation of what should or shouldn’t be covered. The policy is very clear. The article suggests what is being challenged is whether a business defined by a insurance policy, and to be reported to the insurer, can be ignored so that a claim can be honoured.

The owners in the article find themselves in very unfortunate situation. It appears they have hit a wall and trying to find ways for AAMI to payout for the fire damage. It will be interesting to see if their choosing what is covered under the policy (or ignoring things which may potentially void cover) stacks up legally.

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Quoting some of the more pertinent pieces from the PDS …

When you need to contact us

During the period of insurance you must tell us as soon as possible if:

  • there are changes to any business activity you operate at the insured address, such
    as but not limited to, people start to come to the insured address

(my emphasis - already raised as an issue by me above)

Business activity

means:

  • any activity specifically undertaken for the purposes of earning an income; or
  • any activity registered as a business and which you are obliged by law to register
    for GST purposes.

(again, my emphasis)

Sorry, but that looked like too many chooks to claim credibly that it is purely for their own consumption.

It looks to me that they have substantially underpaid their premium for a number of years. Underpaying your premium is not fair to other customers as the premium paid is not commensurate with the overall actuarial risk that you represent.

Commonsense outcome: The insurer should offer them a payout of, say, 25% of the claim.

If the customer wants all the stress and cost and aggravation and delay of going to court, best of luck to them but … the lawyers will most likely be the only winners.

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Consumers often have to step up to be treated fairly and reasonably.
It’s far easier for a well funded corporate to take a position. The outcome more so contested where the difference of view is a first time test of interpretation.

Both the following views have followed rational points and assumptions as to the facts relevant.

It may turn out that the assumptions of how certain details should be interpreted are consistent with any legal judgement. Whether the outcome is fair to the insured or the insurer, it’s unusual that we are putting an argument against the consumer to the favour of the insurer. It’s a warning to others that even with the best of intentions when taking out insurance, it’s all too easy to fall foul of the insurer’s policies.

Rather than argue for the insurer, should we be looking for better clarity and consumer protections with insurance. This may be difficult for those of us with greater experience and perhaps professional backgrounds in business to understand. The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry demonstrated how easy it has been for large financially driven industries to ensure their rules and practices favour profits or fair outcomes for consumers.

Unfortunately there may be some time before we hear of a resolution, either way.

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It isn’t an argument for or against anyone or an insurer, but a realisation when one starts to change an activity associated with an insured dwelling or property, it may have ramifications for a domestic house and contents insurance. If one uses a domestic property for a business, this no longer is solely a domestic activity and significantly changes the risks for the property owner, the business operator and the insurer. Expecting that any activity, including business related activities which may be high risk such as selling foods, can be covered by a domestic home and contents insurance is unrealistic.

The change in risks is recognised not only by insurance companies, but also by local governments. Local governments often require approvals and licences to allow a change in use of a domestic premise to occur. Some allow low risk activities to occur within a domestic dwelling without approval or licence, but as indicated earlier, selling significant quantities of poultry eggs for human consumption would at a minimum require a food licence in many local government areas.

The belief that a house is one’s castle and one can chose what they do is fundamentally flawed. When one changes a use or activity, it can impact on others and why those with an interest need to be advised to ensure external interests are protected.

The family in question may not have realised what the necessary requirements were to run a business selling eggs from their property, but not realising isn’t a reason to ignore what is required. As outlined above, hopefully as a minimum others reading the unfortunate circumstances the family faces might help others identify actions they need to take to ensure successful business operations comply with local government requirements and is adequate/appropriately insured.

The insurance PDS is one of the better written ones which is very easy to understand and clear in relation to carrying out new activities at a insured property (see relevant extracts in an earlier post in this thread). If those involved had read their PDS (noting they would have accepted the terms when they took out the policy) and notified their insurer, the circumstances they face could be very different. It might be a case of ‘our current insurer won’t cover a selling egg business under our home and contents insurance’.

The question of fairness will only be determined if they pursue legal action. As indicated, many home run business operators, like ourselves, will be interested in the outcome of a legal challenge. This is because if it is determined a policy holder can chose what is covered at the time of a claim and a policy holder isn’t required to report changes in property activities which impacts on insurance risks, this will enable many home business operator to change how they manage their insurances - with the potential to save a lot of money.

My own opinion is based on the above and noting the terms and conditions of the insurance would have been accepted at the time the insurance was take. If they were unfair why weren’t they challenged at the time the policy was taken, when the insurer was notified of the change in activities or insurance taken elsewhere. Requesting notification when there is change in activities on a property which has the potential to change risks to me seems reasonable. An insurer can then determine if the risks are acceptable and can be reasonably insured. This follows conventions in many fields such as town planning, taxation, health and safety, financial affairs, environment impacts and the list goes on where notifications are required to ensure risks are addressed and the broader community is protected.

It is also worth noting the article isn’t about fairness of the terms, but the AAMI ‘is ignoring the important consumer protections that are in place to prevent these irrelevant factors from being relied on to deny the claim’. As outlined above, it is whether reporting a business (which has a registered ABN, signage, and a Facebook page) is reasonable or an ‘irrelevant factor’. The other question to be addressed is it reasonable to ask if a business is being contacted at the premises subject of insurance and whether a consumer failing to declare a business when insurance is taken impacts on the validity of the insurance.

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If one is running a business? Is it for us to make that judgement?
In this instance it’s a choice is to agree with the insurer it constitutes a business. The second step is whether it is a fair term to refuse the claim considering the circumstances.

It remains up to the court to decide. Not for us. Fair warning that if one in any way sells something from your home more than once in a lifetime there is a point at which it becomes in the eyes of an insurer a business.

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It is a business, the article clearly states that. They have an ABN for it, they have business related signage and a business Facebook page. It can’t be disputed it isn’t a business either by layperson terms, tax office or by definition under the insurance PDS. They aren’t disputing it isn’t a business, I am not sure where you get this impression from.

An omission in my earlier post is the main point of challenge is what does domestic home and contents cover…the footprint of the house or the house and property containing the dwelling. Insurance policies assume the property and house as they cover property installations such as fences and sheds, and extend public liability to anyone who enters the property. They appear to claim a different view where it is restricted possibly to the building footprint. If it is determined it is only the building footprint, this has enormous ramifications to every home and contents policy holder as they will be exposed should someone enter the property and be injured - they have no insurance cover. This affects everyone who has home and contents insurance. I suspect the insurance industry will be interested in the outcome of any legal challenge because if it sets a precedence to what is taken as standard cover, it will have enormous ramifications.

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Appreciate the point.
If the policy paid for did not include consideration of coverage for carrying on a business within the property boundaries why would the insurer be at risk of paying out for any claim arising from a business activity?

If instead of the home being destroyed by a fire there had been an incident due to the sale of eggs, would AAMI have accepted a claim re the sale?

AAMI has received payment for a policy over a number of years. Through it’s interpretation is AAMI entitled to keep all the policy payments and refuse all claims? Whether related to the house and contents or other, it seems very much like a junk policy. IE one that would never have paid out for anything. It’s why the situation in question appears to lack any fairness in the position taken by the insurer.

It supports keeping an open mind to how the court might determine the claim against AAMI.

P.S.
From prior experience of insurance for larger properties more than 2ha. What insurance includes or excludes is subject to agreement. One can have a policy that covers the principle residence, but excludes other risks associated with use of the land and non residential assets for income producing purposes. Wisdom would be to discuss with a broker - rural and farm insurance.

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My house is not special but cannot be properly described by the X bed Y bath Z blah blah model. Some years ago I got paranoid from reading the binary approach insurers take to cover and rang mine to discuss. The outcome was simplistically filling in the standard proforma with ‘rooms without plumbing’ and ‘rooms with plumbing’.

I’ll not go into the games with my car but their specialist told me to go with how it is registered (inaccurate) rather than the details on the sales papers (accurate) since ‘the manufacturer knows best’. It was first registered to the manufacturer (Australia importer).

Insurance companies seem to have considerable leeway on their side but [try to] demand binary perfection on the other to avoid payouts. That being written every quote system I see asks whether there is a business operated on the premises so the requirement for disclosure could be the decider. How this plays out may be precedent. Lots of folks in my area have a few chooks and sell eggs, lemons, etc curbside with honour boxes, semi-rural to rural. I hope they are paying attention just in case.

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This isn’t how insurance works. As outlined above home and contents are based on all activities on the insured place/property/address. If a business related claim is made AAMI would still be party to the claim and try an defend its position that it isn’t a responsible party. Who pays for these costs?

If they take legal action, it could set a precedent which says it is how insurance works which will impact on every policy holder who currently has insurance. Insurance is based on activities on the insured place (property/address in this case), not on activities the policy holder didn’t disclose to an insurer.

They did based on the information provided by the policy holder. The article says as part of the questionnaire to gain insurance, whether a business was carried out at the insured place. This was answered incorrectly. AAMI stated had they known of the type of business was occurring at the property, they would have refused insurance. Only the policy holder will know why they didn’t disclose the business activities on the property. If they had disclosed the business, they would have had to seek insurance elsewhere and paid for an insurance policy which provided protection against known risks.

During application other critical information also needs to be provided so the insurer can assess risks to determine if insurance coverage will be provided. This includes things like past claim history and criminal convictions. It is also clearly stated that not providing correct information can invalidate the insurance (wording they use is ‘we may be able to refuse to pay a claim and treat the contract as if it never existed.’). As outlined above, only the policy holder will be able to say why they didn’t disclose the information as required and took the risk in relation to having their policy invalidated.

While it may be easy to blame the insurer, there are many questions the article raises in relation to discloser by the policy holder. Such questions will need to be addressed if they pursue legal action, and if the action is in their favour, it potentially has enormous ramifications to how insurance has worked in the past, affecting every policy holder.

In the article they indicated it isn’t a stall which sells the odd produce or a children’s lemonade stand. It was a business with an ABN, signage and website. It also generated steady income.

If any policy holder is unsure, it is very easy to make contact with their insurer to know where they stand.

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