State Farm Fire Independent Policy Practice Exam

In a HO-3 policy, which loss is generally not covered for the insured?

1. A. Shed rented to a tenant for storing furniture.

2. B. Detached garage used to operate a lawnmower repair shop.

3. C. Garage rented to the neighbor to store an antique automobile.

4. D. Basement used as an office for insured's bookkeeping business.

The correct answer is: B. Detached garage used to operate a lawnmower repair shop.

In a HO-3 policy, which is a type of homeowners insurance, coverage is designed primarily for personal use of the dwelling and associated structures. Typically, the policy extends to residential properties and personal belongings, with certain exceptions for business usage. The option regarding the detached garage used to operate a lawnmower repair shop is not covered because homeowners insurance usually excludes coverage for business activities conducted on the premises. If a portion of the property is being utilized specifically for a business purpose, such as repairing lawnmowers, it moves outside the realm of typical residential usage, leading to the denial of coverage for losses related to that activity. In contrast, the other scenarios involve usage that is either incidental to residential living or does not rise to the level of significant business activity requiring additional coverage. For example, renting a shed for storage may be seen as a personal use, while a garage rented out for storage does not typically constitute a commercial activity. Similarly, a basement used for bookkeeping could still fall within personal use as long as it does not generate significant business operations that would necessitate specific business insurance policies. Therefore, the correct answer highlights the limitation of the HO-3 policy regarding business activities conducted in an insured structure.