Topics covered:
Evolution of the business pursuits exclusion
What are business pursuits?
The element of continuity
The profit motive
Exception to the business pursuits exclusion
Other business activities on residence premises
Current ISO and AAIS exclusions and exceptions
Hobbies
Social activities related to business
Workplace activities
Farming
Rental of premises to others
Outside directors
Political activities
Foster care
Vacant land
The final word

Evolution of the Business Pursuits Exclusion

Personal liability insurance—whether written as part of a homeowners package, or as a separate comprehensive liability policy—is designed to protect the insured and family members from negligence claims they might incur in their private (as opposed to business or professional) activities. Coverage encompasses claims arising out of conditions at the insured's residence or out of personal, nonbusiness activities of an insured away from the residence.

The Insurance Services Office homeowners (ISO) and American Association of Insurance Services (AAIS) forms (and virtually all other homeowners forms) contain specific exclusions of liability for bodily injury or property damage arising out of any business engaged in by an insured. (We will look at the current wording of the forms later under the heading Current ISO and AAIS Exclusions and Exceptions.)

That business exposures should be excluded from a policy designed to cover personal exposures is seldom, if ever, questioned. Other liability policies, expressly designed to cover business and professional activities, are available and should be purchased by insureds who are subject to those exposures. However, many insureds, like the homemaker who babysits her working neighbor's children, do not think of a part time or sideline occupation as a business pursuit.

In the ISO 1984 homeowners, there was no coverage for bodily injury or property damage “arising out of business pursuits of an insured… This exclusion does not apply to activities which are usual to non-business pursuits…” And, because business was defined as including a trade, occupation, or profession, insureds were supported in their assumption that these activities were not intended to be excluded. Many persons would not see an activity from which they made a modest amount of money as a trade, occupation, or professions.

This frequently led to difficulties for personal liability insureds. Claims stemming from sideline occupations or arising out of incidents connected with the insured's employment by others arose frequently, with the resultant conflict between coverage and the business pursuits exclusion. ISO made a change to policy language under endorsement HO-350 (attached to the 1984 homeowners, and later incorporated into the 1991 forms). The 1991 ISO forms exclude coverage for liability “arising out of or in connection with a 'business' engaged in by an 'insured'. The exclusion applies but is not limited to an act or omission, regardless of its nature or circumstance, involving a service or duty rendered, promised, owed, or implied to be provided because of the nature of the 'business'.”

The AAIS homeowners forms take a somewhat different approach in that the definition states: “`Business' means a trade, a profession or an occupation including farming, all whether full or part time… 'Business' includes services regularly provided by an 'insured' for the care of others and for which an 'insured' is compensated. A mutual exchange of like services is not considered compensation… ~'Business' does not include part-time or seasonal activities that are performed by minors, or activities that are related to 'business', but are usually not viewed as 'business' in nature.”

As we will discuss below, the ISO 2000 forms have changed the definition of business, but it remains to be seen what effect this will have. Currently,  this area of conflict is considerably narrowed to the benefit of insurers and with some possible loss of protection for insureds.

As noted, the 1991 ISO homeowners forms define ~business as including a “trade, profession, or occupation.” Because “trade,” “profession,” and “occupation” are not further defined or limited, it has been left up to the courts to interpret the definition and exclusion as they apply to specific cases. Unfortunately, the courts have not been able to agree either, giving rise to a steady stream of litigation on this subject.

The cases fall into two broad groups, those questioning whether the activity giving rise to a claim was in fact a business pursuit, and those in which a business pursuit is clearly involved but the question is whether or not the activity giving rise to the claim is usual (or ordinarily incident) to a nonbusiness pursuit. These latter cases often involve home day care.