Can a complete loss to an outbuilding be denied if the homeowner used a very small portion of it for a hobby that made money?

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: May 8, 2012

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Insurance Question from Wadena, MN

Asked on 05/08/2012

Can a complete loss to an outbuilding be denied if the homeowner used a very small portion of it for a hobby that made money? A fire destroyed our 54X28 outbuilding, used to store vehicles, and for woodworking, building things, gardening, etc. A small portion was used for a sewing machine that he used to upholster things as a hobby. However, since he did occassionally do things for others, and made some money from, we claimed it as a business for IRS purposes. Now our insurance company is saying that if we "ran" a business out of the buillding, they may not cover the building at all. We never advertised, incorporated, etc so am wonderng how they define a business vs a hobby that made a little bit of money.

Answer given on May 17, 2012

Homeowner policies have limited coverage for detached structurss that are used for business. However, hobbies are not usually considered a business, but the policy will usually indicate the amount of income allowed from a business or hobby.Talk to your agent about the use of the structure. The insurance company wouldn’t necessarily know, or ask, about any tax filings. Since this appears to be a part-time enterprise, with limited income, the insurance company should be willing to pay for the damage to the structure and its contents. Make sure the company understands there was no advertising of the business and the limited scope of the business. If you do not have an agent, discuss this with the adjuster on the loss. Again, make them aware that this was a hobby, not really a business. If you can show the income from the enterprise, or the number of customers, this should help your case that this is not a business. If your husband has another job or occupation, point that out too.

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