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.

What Are Business Pursuits?

Many courts that have examined the definition of business and the business pursuits exclusion are in agreement that a business pursuit must involve two elements: continuity of the activity, and monetary gain—or, with some courts, at least the hope or expectation of monetary gain.

Courts applying this two-part test generally find that if the activity meets both requirements, it is considered a business activity even though it may be a secondary occupation and not the insured's regular, full-time occupation. Note that the definition of business does not say the trade, profession, or occupation—wording which would strongly support limiting the exclusion to the primary occupation. However, not all courts follow these general rules, and there are several instances of cases with almost identical circumstances that have rulings on opposite sides of the question.

The Element of Continuity

Two elements are necessary for the finding that the insured was engaged in a business pursuit at the time of the occurrence. The activity must be continually or regularly conducted and must also be engaged in with a profit motive. There is some difference of opinion among jurisdictions about what constitutes a continually or regularly conducted activity, but the majority view is that the activity need not be the insured's primary occupation.

This view was adopted in Heggen v. Mountain West Farm Bureau Mutual Insurance Co., 715 P.2d 1060 ( Mont. 1986). The court found that the insured was engaged in a business pursuit when a participant in a steer-roping contest conducted on his land was injured by a horse falling on him. The insured had constructed a permanent arena and charged participants a fee for the events which he had held three or four times a year for three years. The court noted that the insured's tax returns showed no profit from the venture, after deducting expenses from receipts, but found that the evidence showed a profit motive. The regularity of the contests in a permanently installed arena, along with the fees paid by customers, led the court to the conclusion that the activity was a business pursuit.

But in the case of Rufener v. State Farm Fire & Casualty, 585 N.W.2d (Wis. Ct. App. 1998), the court found that even though a part-time business—snowplowing—was involved, the activity that caused the injury was not ordinarily part of or related to the business. Rufener was injured when he attempted to help the insured hoist a salter/sander on top of the insured's pickup. Even though the salter/sander was used in connection with the snowplowing, the court found homeowners coverage for the injury.

The reasoning in the above instance may have been the same as in Brown v. Peninsular Fire Insurance Company, 320 S.E.2d 208 (Ga. Ct. App. 1984). Here, the court held that the insured was not engaged in a business pursuit so that his homeowners insurance covered a claim against him for damage to a contractor's bulldozer. The insured was a real estate broker who had bought and commercially developed vacant land several times. In this instance, the insured and a partner had again purchased vacant land and the insured had hired a contractor to grade the land so that it could be developed. An employee of the contractor was using the bulldozer to grade the land when he hit an unmarked fuel pipeline, causing damage to the machine, and the contractor sued. The court viewed Webster's definition of business (“a usual commercial or mercantile activity customarily engaged in as a means of livelihood…”) as limiting business pursuits to the insured's primary profession, citing an  earlier decision by the same court as precedent (Southern Guaranty Insurance Co. v. Duncan, 206 S.E.2d 672 [Ga. Ct. App. 1974].)

Another example of this position is the case of State Farm Fire & Casualty Co. v. Friend, 478 So. 2d 1198 (Fla. Dist. Ct. App. 1985). The insured was a part-time security guard who was at work at the time when he shot someone who sued him. He had the job for about one month at the time of the shooting and had taken the job as a favor to someone for whom he was substituting, having been temporarily laid off from his regular employment in an aircraft factory. The trial court had found that the insured was not involved in a business pursuit, and the appellate court affirmed that decision. The court accepted the view that a business pursuit is a “continuous and comprehensive activity for financial gain,” but agreed with the trial court's finding that the insured's employment as a security guard lacked the requisite continuity. The appellate court noted that the insured was still an employee at the aircraft factory when the shooting occurred, the security guard position was part-time for which he was paid in cash without any additional benefits, and the security guard job lasted only one month. In effect, the court held that the job as a security guard was not a business pursuit because the it was not the insured's primary form of employment.

In contrast, the fact that the decision to raze a lean-to porch on a commercial building owned by the insured was a “one-time decision” did not alter the fact that the insured was engaged in a business pursuit. The insured, in Fire Insurance Exchange v. Jiminez, 229 Cal. Rptr. 83 (Cal. Ct. App. 1986), decided to raze the porch because it had become a nuisance. A person who had asked permission to salvage materials was injured while doing so. The insured looked to his homeowners insurance for liability coverage. The court noted that although the particular decision may have been made only once, it related to a commercial building owned for many years by the insured and used in his produce business, so the decision related to the insured's business activities.

Note that under current AAIS wording, part-time activities, such as those above, undertaken by an adult for profit fall under the exclusion, while the 1991 ISO wording may be open to interpretation.

The Profit Motive

The majority view is that a business pursuit is an activity in which the insured has been engaged with a profit motive (in addition to being an activity conducted with continuity). However, at least one court has found that the profit motive is irrelevant under certain circumstances. There is general (but not unanimous) agreement that the activity need not be the insured's sole occupation or source of livelihood, so that part-time business activities also come within the scope of the exclusion. (This thinking would also be the outcome in relation to the ISO 2000 and AAIS exclusions.)  Furthermore, many courts would agree with the Oklahoma supreme court in Wiley v. Traveler's Insurance Co., 534 P.2d 1293 (Okla. 1974) that the element of profit motive is met even if the venture is not successful, so long as the insured is motivated by financial gain.

In Wiley, the court stated that any activity that involves profit motive—regardless of actual profit made—should be considered a business pursuit. The court ruled that the insured's hobby of raising and selling dogs constituted a business pursuit and coverage was denied for injuries to a customer who was attacked by one of the dogs. But note that four of the nine justices in Wiley disagreed strongly with this decision. These dissenting justices argued that the profit motive in this activity of the insured was not sufficient to make it a business pursuit. The insured had a full time job earning in excess of $10,000 a year, which they reasoned was his stated occupation. Even though some of the dogs sold for as high as $300, the dissenting opinion pointed out that the insured did not consider this activity an important source of income because some dogs were sold for as little as $75 and others were given away.

In some cases, it may be possible for the insured to derive a financial benefit from an activity without realizing a profit. This was the case in Saha v. Aetna Casualty & Surety Co., 427 So.2d 316 (Fla. Dist. Ct. App. 1983). The insured was not covered for liability due to the business pursuits exclusion when a child drowned in a pond on land used in connection with a cattle operation he had been involved in for several years. (The court also held that the farming location was not an “insured location” for purposes of coverage.) The business pursuits exclusion applied even though the insured, a doctor, did not make his living raising cattle and the venture was unprofitable. The court found that an absence of profit from the activity was not significant, particularly since the insured used the venture to take deductions from his income taxes, providing a de facto financial benefit.

Some courts have ruled that a small amount of profit that is earned by a minor child for something other than self-support is not enough to activate the business pursuits exclusion. In the case of AMCO Ins. Co. v. Moran, et al., 929 P.2d 162 (Kan. 1996) the court held that the money received ($2.00 per hour) by an insured youngster to babysit was not such a source of money as to meet the test of a profit motive. In this case, a child in the insured's care was badly burned in a hot bath, and the parents sued. The insurer denied coverage, citing the exclusion for bodily injury arising out of or in connection with a business. The court disagreed, stating that the small amount of money earned could not even begin to provide a livelihood, and so the babysitting fell outside the exclusion. (The court also noted that not all babysitting would be covered; possibly thinking of the home day care cases we will discuss below.)

And in the case of Metropolitan Property and Liability Ins. Co. v. Spencer, No. 91-0283, 1994 Mass. Super. LEXIS 463 (1994), the court ordered Metropolitan to provide a defense for the insured's son for property damage when the son, a full-time student, damaged a piece of rental property his parents hired him to paint. Even though the son was to receive $3,000 towards school expenses, the court said that he possessed no special qualifications and his parents supplied equipment and paint and therefore the son was not engaged in a business.

At least one court has held that the absence of a profit motive is irrelevant to the question of whether the insured was engaged in a business pursuit when the activity “is incidental to the insured's regular employment.” This decision was reached by a federal appeals court, applying Missouri law, in American Family Mutual Insurance Co. v. Nickerson, 813 F.2d 135 (8th Cir. 1987). The case involved an insured who was an off-duty policeman. While walking in his neighborhood one night, he observed a man sitting in his car with the motor running and the parking lights on. Because there had been several burglaries in the neighborhood recently he believed that another burglary was in progress, so he got his revolver and went over to the car. He showed his badge to the man sitting in the car, stated that he was a police officer, and ordered the man from the car. The man got out of his car but made some kind of gesture that made the insured think that he was reaching for a weapon. The insured shot the man in the face. As it turned out, the injured party and his wife had been visiting friends in the neighborhood.

The insured argued that he was acting as a homeowner and neighbor, and not in his official capacity as a police officer at the time of the shooting. The court responded that he had invoked his official authority and that police officers, even off duty, have the obligation to investigate suspected criminal activity. The profit motive was irrelevant because his acts were incidental to his regular employment, and the business pursuits exclusion applied.

In spite of the Nickerson decision, most courts have not dismissed the lack of profit motive as irrelevant. For example, the following two cases found that the exclusion did not apply due to the absence of profit motive even though the insureds were engaged in activities in some way related to their livelihoods.

In Home Insurance Co. v. Aurigemma, 257 N.Y.S.2d 980 (1965) a person was electrocuted in a swimming pool following electrical work performed by the insured as a favor for a friend. The court held that friendly help done as a favor (no charge) was not a business pursuit even if the help was within the insured's business specialty. The facts of the case indicated that the insured's only regular and continued occupation was his employment as an estimator for a public utility company. Although trained as an electrician for several years, he had not engaged in installation of electrical wiring. The insured derived no profit from the installation of wiring in his friend's pool since he did not charge for his time and labor, only for the materials.

And in the case of Rayburn et ux. v. MSI Insurance Company, 624 N.W.2d 878 (Wis. Ct. App. 2000), the insured, sole proprietor of a carpentry business, helped his father, brother, and a neighbor build a shed on the father's property. The neighbor was injured, and sued the carpenter, who tendered defense to both his homeowners and his businessowners insurers. The insurers each moved for summary judgment, asking for a ruling that their respective policies did not cover the loss. The homeowners carrier argued that the insured was engaged in the conduct of his business and cited the business pursuits exclusion. The businessowners carrier argued that even though building the shed was certainly an activity the insured might engage in during the course of his business, nonetheless on the day of the occurrence the insured was simply helping his father. The court agreed with this line of reasoning, saying that the homeowners insurer was the one to provide a defense and coverage.

Exception to the Business Pursuits Exclusion

The 1984 ISO homeowners included an exception to the business pursuits exclusion, and that was for activities “usual to nonbusiness pursuits.” As noted, this exception does not appear in the 1991 ISO exclusion, although the AAIS definition of business excepts activities normally viewed as nonbusiness in nature. Many insurers have by now adopted the deletion, but cases involving the exception to the exclusion are still being decided. For this reason, and because of the exception, cases analyzing this provision are presented below. Many of the cases interpreting the exception have involved babysitting activities in the insured's home.

A case in which the exception applied to allow coverage is Vandenberg v. The Continental Insurance Company, 628 N.W.2d 876 (Wis. 2001). Vandenberg's infant son suffocated to death while in the care of Stephanie Riehl. Continental cited the exclusion, and Vandenberg sued, alleging Riehl's negligent supervision of her own son, who had actually accidentally caused the death of the infant, was the cause of the loss. The court found that Riehl's supervision of her own child was not related to her business of providing child care, and thus held for coverage.

But in the case of American Family Mutual Ins. Co. v. Moore, 912 S.W.2d 531 (Mo. Ct. App. 1995), the insured cared for two children in her home after school. Her son owed a dog that bit one of the children. When a suit was filed, the Moores turned the claim over to their insurer, which filed for declaratory judgment. Although the court agreed that keeping a dog was a nonbusiness activity, the babysitting was the activity leading to the injury. Had it not been for the babysitting the children would not have been on the premises and so the injury would not have occurred.

And in the case of Elorza et al. v. Massey et al., 783 So. 2d 453 (La. Ct. App. 2001), the policy excluded “bodily injury or property damage arising out of the past or present business activities of an insured person.” “The phrase 'arising out of' implies an element of causality, though not necessarily the proximate cause” stated the court, in finding that there was no coverage when a child was injured at the insured's in-home day care facility. The child fractured her knee when she was allegedly pushed down onto a trampoline by another child. The fact that the trampoline was normally used by the insured's family did not circumvent the exclusion because the trampoline was often used as well by the children in the facility.

There was no coverage under a State Farm homeowners form that contained two exclusions, one for business pursuits and one for child care services. The child care exclusion had an exception for occasional child care services provided by any insured, or to part-time child care services provided by any insured under nineteen. But in this case, the insured was over nineteen, and the child care was a full-time business. Therefore, when the insured's step-brother sexually molested a child in her care, there was no coverage. The molestation could not be viewed as an activity usual to a nonbusiness pursuit. This case is State Farm Fire and Casualty v. Straw, C.A. No. 2849-M, 2000 Ohio LEXIS 284.

Other Business Activities on Residence Premises

Although most court cases concerning a business conducted in the home involve babysitting, a variety of other service occupations are also commonly conducted in a residence. As the following case illustrates, insureds with businesses in their homes would do well to buy extra coverage rather than rely on their homeowners liability coverage. Certain homeowners endorsements can be added to provide the necessary protection. For a discussion see Standard Homeowners Endorsements, page A.12. Both ISO and AAIS have developed coverage for home-based businesses—those where the business may be an insured's chief livelihood. (These forms are not intended for home day care coverage.) See AAIS Home-Based Business Coverage Form—Property; see AAIS Home-Based Business Coverage Form—Liability; see The ISO Home-Based Business Coverage—Property; and see ISO Home-Based Business Coverage—Liability. Print subscribers will find these on pages B.5, B.6, B.7, and B.8.     

In Callahan v. American Motorist Insurance Co., 289 N.Y.S.2d 1005 (1968) the insured was a real estate broker who conducted the business from his home. Another broker was injured on the insured's premises when she came to pick up a key to property that had been listed for sale. The court in New York held that the injury arose out of the insured's business pursuit and thus there was no coverage under the homeowners policy. Clearly, added the court, there was an increased risk—due to the traffic that a business office generates—and this is what the insurer intended to and did exclude from coverage through the business pursuits exclusion.

The circumstances were somewhat different in Georgia Farm Bureau Ins. Co. v. Caster, 546 S.E.2d 30 (Ga. Ct. App. 2001), although a real estate business was involved. The policy contained an exception for activities usual to nonbusiness pursuits. The insured normally visited clients in their homes, but in one instance the client visited the realtor. When she went into another room to use a copier, the client walked around and fell down a step into the sunken living room, injuring himself. The insurer denied to cover, citing the exclusion. But the court said maintaining a home was usual to a nonbusiness activity, and so there was coverage for the claim. 

Current ISO and AAIS Exclusions and Exceptions

We have already noted that AAIS gives back coverage for some activities even though a business may be involved. By excepting “activities that are related to 'business', but are usually not viewed as 'business' in nature” there would be coverage, for example, if an insured were at a business seminar and accidentally tripped someone afterwards at a restaurant.

The ISO wording is not so forgiving. The 1991 homeowners excludes coverage for bodily injury or property damage “arising out of or in connection with a 'business' engaged in by an 'insured.' This 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'.” Certainly injury arising out of a business is excluded, but how close (or how tenuous) must the connection with the business be for coverage to be excluded (or to apply)? For example, in the restaurant example above, the injury would not arise out of the business, but would it occur in connection with the business? In other words, but for the business seminar the insured would not have been in the restaurant.

In the homeowners 2000 program, ISO revised the definition of business and the exclusion. Now, business means: “a. 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 appears, therefore, that many activities heretofore excluded, such as a hobby which generates a bit of money, will not fall outside the definition and therefore be covered. In theory, an insured engaging in home day care would be covered so long as the income derived is no more than $2,000. (Note that the policy does not clarify net or gross compensation, but the use of the word total probably indicates gross.)

The ISO 2000 forms business pursuits exclusion now reads: “Coverages E and F do not apply to… 2. 'Business' a. 'Bodily injury' or 'property damage' arising out of or in connection with a 'business' conducted from an 'insured location' or engaged in by an 'insured', whether or not the 'business' is owned or operated by an 'insured' or employs an 'insured'. This Exclusion E.2. 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 the provided because of the nature of the 'business'. b. This Exclusion does not apply to…An 'insured' under the age of 21 years involved in a part-time or occasional, self-employed 'business' with no employees.”

Although the exclusion now makes an exception for minors, and although an insured's activities generating no more than $2,000 by definition will fall outside the exclusion, it is still difficult to reconcile business activities with activities normally viewed as nonbusiness in nature. As the judge in Thoele v. Aetna Casualty & Surety, 39 F.3d 724 (7th Cir. 1994) complained, “We are more than a little puzzled as to why insurers…have not attempted a better articulation of the exception.”

Hobbies

Insureds and insurers often view the nature of spare-time activities differently, as the following cases illustrate. Remember in reviewing these that under the new ISO language there may have been some coverage.

The case of Riverside Insurance Co. v. Kolonich, 329 N.W.2d 528 (Mich. Ct. App. 1982) involved a claim for injuries from a fall on the insured's premises by a woman who was there in connection with the insured's ceramics firing and teaching activities. The insured considered her ceramics activities to be a hobby rather than a business, and neither reported any income on her tax returns nor possessed a sales tax license. But because the activity met both of the business pursuits criteria (gain and continuity) the court found this activity to be a business pursuit, and as the claimant was on the premises because of this activity, held that the insurer was relieved of liability.

A different conclusion was reached in Southern Guaranty Insurance Co. v. Duncan, 206 S.E.2d 672 (Ga. Ct. App. 1974). The court held that the insured's spare time car racing interest was not a business pursuit under a homeowners policy even though the insured was an automobile mechanic by trade and occasionally received prize money for racing. Thus, coverage was provided when a minor sustained an eye injury from a piece of metal propelled into his eye while the insured was removing the steering wheel from a race car.

A Minnesota court ruled in the insured's favor in the case of Reinsurance Association of Minnesota v. Patch, 383 N.W.2d 708 (Minn. Ct. App. 1986). The insured worked full-time as a laborer and machine operator for a construction company. In his spare time, he repaired bicycles in his garage. He charged customers for this service, although he often did repairs for free, and he did not keep business records or advertise. Because he did not keep records the insured did not know whether or not the activity generated any income. One of his customers sued him for injuries received while riding a bike that the insured had repaired. The repair had been performed as part of an arrangement with a hardware store where customers would take bikes to the store, the insured would pick them up, repair and return them to the store, and the store would credit his store account for the value of the repair.

The insured's homeowners section II coverage excluded coverage for liability “resulting from activities in connection with an insured's business.” ~”Business” was defined to mean “a trade, profession, or other occupation…all whether full or part time…” However, the policy also included an exception to the exclusion for “activities in conjunction with business pursuits which are ordinarily considered non-business in nature.”

The court found that the insured's activities did not amount to a “commercial enterprise” engaged in for financial gain. Then the court found that even if repairing bicycles could be seen as a business pursuit, the exception would apply. This conclusion was reached after citing Minnesota supreme court cases that had applied the exception, but with no specific analysis of how these rulings related to the present case.

Another case in the insured's favor is Shelter Mutual Insurance Co. v. Smith, 779 S.W.2d 149 ( Ark. 1989). The case involved the question of whether horse racing activities conducted by the insureds were a business pursuit or a hobby. The insureds' tax returns provided evidence to support either view. Recent tax returns treated the racing activities as an unprofitable business, which was also the opinion of their current accountant. However, tax returns prepared by H&R Block for earlier years were filed on a nonbusiness basis. The appeals court found that this evidence, and the fact that the burden was on the insurer to prove that the exclusion applied, was enough to support the jury's finding for the insureds.

Social Activities Related to Business

Courts have also taken different positions on whether mixing business with pleasure precludes looking to the homeowners insurer for liability coverage. In one case, the insured was a cement and masonry contractor who paid his employees every Friday at his home and then allowed them to socialize in his converted garage. There was no expectation that the employees would stay, but they could choose to stay, drink beer, and play pool and dice. The purpose of the gatherings was to foster better relations with his employees. One Friday night, a fight broke out and an employee and former employee were injured. They sued the insured for negligently providing alcohol and failure to control people on his premises. Both the comprehensive general liability (CGL) carrier and the homeowners insurer denied coverage. In West American Insurance Co. v. California Mutual Insurance Co., 240 Cal. Rptr. 540 (Cal. Ct. App. 1987), the court held that the CGL carrier had the duty to defend or indemnify (because the exclusion for bodily injury to an employee arising out of and in the course of employment did not apply), and that the homeowners carrier was absolved from liability under the business pursuits exclusion. The court found that the dual nature of the activity, social and business, did not eliminate the business aspect of the gatherings, stating that “Nothing in the insurance policy requires that the business pursuit be wholly business related for the exception to apply.”

A different conclusion was reached by a Minnesota court in Hennings v. State Farm Fire and Casualty Co., 438 N.W.2d 680 (Minn. Ct. App. 1989). This case involved an insured who owned a marina. The insured was boating with his niece and nephew, who were to be employed at the marina that summer, in a boat belonging to the marina's inventory when he ran into another boat. The driver of the other boat was knocked unconscious and thrown from the boat, suffering chronic medical problems as a result. It was established at trial that part of the purpose in taking out the marina boat was to orient the young people to the lake and boating safety. The marina was insured under a general liability policy and the insurer agreed to defend and indemnify, but the insured's homeowners carrier denied liability because of the business pursuits exclusion. (The trial and appeals courts found that since the insured did not own the boat, the watercraft exclusion did not apply.) Citing an earlier Minnesota case, the court held that an act can be considered a business pursuit only if it is one that the insured would “not normally perform but for the business, and must be solely referrable [sic] to the conduct of the business.” Since there was a finding that boating with his niece and nephew had a dual social and business nature, and was not solely tied to a business purpose, the court held the business pursuits exclusion inapplicable. Consequently, the homeowners insurer was liable for the difference between the amount paid by the other insurer and the damages awarded.

But in the case of Shelby Insurance Co. v. Heritage Mutual Insurance Co., 616 N.W.2d 923 (Wis. Ct. App. 2000), the court held that a boating trip had an essential business purpose and therefore the business insurer owed coverage. In this situation, the CEO and president of a marina was driving a power boat owned by the marina when the boat flipped. One passenger drowned and the others were injured. Even though two passengers (one a mechanic employed by the marina) stated that they thought the primary purpose of the trip was social, the fact that the CEO logged time testing parts on the boats he took out persuaded the court that the usage was for business purposes.

Workplace Activities

Perhaps the most clear cut of the decisions applying the business pursuits exclusion are those relating to injury at a workplace, or stemming from work activities away from residence premises. This is particularly troublesome in states that allow negligence suits against fellow employees for on-the-job injury, apart from workers compensation recovery. (The current CGL form states that employees are insureds, but not with regard to bodily injury to a co-employee while the co-employee is in the course of employment or performing duties related to the insured's business.) Below are some of these on-the-job cases.

The court in Bertler v. Employers of Wausau, 271 N.W.2d 603 ( Wis. 1978), concluded that the business pursuits exclusion applied to relieve the insurer of liability for a claim by a fellow employee of the insured. The fellow employee was injured when struck by a fork lift truck driven in a work capacity by the insured. The court found that the insured was engaged in an activity that fulfilled both the elements of continuity and profit motive at the time of the injury. The court also specifically held that it did not violate public policy to find that there was no coverage under the homeowners policy even though the state allowed injured workers to sue coworkers.

Another case in which homeowners coverage did not apply was Pitre v. Pennsylvania Millers Mutual Insurance Co., 236 So. 2d 920 (La. Ct. App. 1970). The insured asked his fellow employee to check a blockage in a piece of machinery and then absent-mindedly pushed a starter button, an act that cost the other man his arm. The insured contended that his momentary forgetfulness was an act ordinarily incident to nonbusiness pursuits, but the court disagreed. The exception was not allowed since starting the machine was part of the insured's job, whether he did it deliberately or forgetfully. Furthermore, the court—while acknowledging the difficulty in some cases of determining if a particular activity is “ordinarily incident to nonbusiness pursuits”—found no ambiguity in this case when the exception was examined with respect to these specific facts.

In Economy Fire & Casualty Co. v. Beeman, 656 F.2d 269 (7th Cir. 1981), a federal court of appeals found that no homeowners liability coverage applied when an electrician rudely lifted a restaurant employee and moved her out of the way of his work, injuring her back. The waitress argued that the electrician's attempt to repair the machine was not a business pursuit, or that the act of moving her aside was an activity ordinarily incident to a non-business pursuit. In finding that the insured was involved in a business pursuit at the time of injury, the court said: “[W]e cannot accept the…definition of business pursuits to include only those activities strictly necessary to the business activity. To the contrary, numerous cases have held activities resulting in injury to be incident to business pursuits even though the actions in question were not strictly necessary, and in most events were counterproductive, to carrying out the business activities.”

The Alabama supreme court also found that no homeowners coverage applied in the case of Pullen v. Cincinnati Insurance Co., 400 So. 2d 393 (Ala. 1981). The insured was the building supervisor for a high school and his duties included providing security for property and persons on the school grounds. He also provided these services on the public road leading up to the school. One morning he went to investigate strange behavior by a young man in the middle of the road leading up to the school and got involved in a physical fight with the man. The insured's pistol went off and a bullet struck the young man who later died. The court had no trouble upholding the lower court's finding that the insured was involved in his usual occupation of building supervisor and security officer at the time of the shooting so that the business pursuits exclusion applied.

The business pursuits exclusion was held to apply to deny coverage for damage to a hotel room for which the insured was liable occurring while the insured was traveling overnight on business. The insured hung his garment bag on a fire sprinkler head, causing the head to break off and allowing water to damage the room. The hotel claimed against the insured, who brought claim under his homeowners policy. That claim was denied, and the denial upheld in court, due to the business pursuits exclusion. (Note that coverage would not be available under the employer's CGL policy, either; the care, custody and control exclusion would operate to eliminate coverage for damage to the hotel room, though not to any outside area.) The case is United Food Service Inc. v. Fidelity & Cas. Co., 189 A.D.2d 74 (N.Y. App. Div. 1993).

But in the case of Monfils et al. v. Charles et al., 575 N.W.2d 728 (Wis. Ct. App. 1998), the court found coverage under the homeowners policy. Monfils worked at a paper mill and allegedly informed the police that a fellow employee was planning to steal a piece of company equipment. The employee went to Charles, the local paper workers union president, and he counseled the employee to make the action public to the other union members. In the following confrontation Monfils was killed, and Charles was sued for negligence. The court found for homeowners coverage, stating that Charles's primary occupation was that of a paper worker, and the union presidency involved intermittent work and nominal compensation.

Business and nonbusiness intermingled in the case of South Carolina Farm Bureau Mutual Insurance Company v. S.E.C.U.R.E. Underwriters Risk Retention Group, 554 S.E.2d 870 (S.C. Ct. App. 2001). The insureds took their dog to work with them occasionally if they had nowhere to leave it. While on the business premises, the dog bit a child, and both the homeowners and commercial liability insurers filed for declaratory judgment. The homeowners insurer cited the business pursuits exclusion, and the CGL insurer said the dog bite did not originate with any risk connected with the business. The court found that the dog was personally owned and there was no proof it was connected in any way with the business. Therefore, the homeowners insurer's coverage was primary. (The court also looked at the “overall intent” of the policy—that being to protect against negligence in everyday activities, such as owning a dog.) But because the bite occurred on the business premises, and the insured had a reasonable duty to protect persons coming onto the premises, the CGL insurer could not avoid responsibility and provided excess coverage. 

Farming

Another group of cases where the application of the exclusion is fairly clear cut relates to farming activities. Most policies written before the homeowners '76 program included farming within the business definition, as do the current AAIS forms. This left no doubt that the business pursuits exclusion of the homeowners policy applied with respect to farming operations. In the homeowners '76 and subsequent policies, the reference to farming has been deleted from the definition, in the interest of language simplification, but with no change in the intent to exclude farming activities from homeowners coverage unless additional coverage is purchased. A homeowners insured whose principal business is not farming can buy liability coverage for farming activities by adding endorsement HO 24 72 10 02 or HO 24 73 10 02 Farm liability coverage under the Insurance Services Organization (ISO) and American Association of Insurance Services (AAIS) programs are reviewed in the Fire & Marine volume, Farms section. The following cases have affirmed the applicability of the homeowners business pursuits exclusion to farming premises or activities.

In Wint v. Fidelity and Casualty Co. of New York, 507 P.2d 1383 ( Cal. 1973), a horse escaped from a pasture through a gate negligently left open and was struck by a car, injuring the occupants. The court found that the business pursuits exclusion of the horse owner's policy precluded coverage. Although this case was decided before the homeowners '76 program, the policy defined business as including a trade, profession, or occupation, without making any exception for farming. The court concluded that grazing animals for a fee was included within the meaning of farming and that the activity from which liability arose was farming for a profit.

An Illinois court, in State Farm Fire and Casualty Co. v. Stinnet, 389 N.E.2d 668 (Ill. App. Ct. 1979) found that mowing weeds in the strip between a road and a corn field constituted farming operations and was excluded as a business pursuit under the insured's homeowners policy. The insured argued that the mowing had a dual purpose, one purpose being to make the farm look good for his father, from whom he rented the property. The insured reasoned that because there was a nonbusiness purpose as well as a business purpose for the activity, the exception to the business pursuits exclusion applied. The court did not agree that the dual nature of the activity transformed it into an activity ordinarily related to a nonbusiness pursuit.

Another case denying coverage is LeBlanc v. Broussard, 396 So. 2d 535 (La. Ct. App. 1981), in which the court held that the insured's homeowners policy did not cover the insured's liability for an accident between the tractor he was driving and a car. The insured and his brother had formed a farming partnership that occasionally cut other farmers' hay for a fee. At the time of the accident, the insured was driving a tractor that was towing a mowing machine to another farmer's field. He argued that he was not engaged in a business pursuit until he reached the other person's field and began cutting the grass, paralleling an argument that has been upheld in worker's compensation cases. The court did not approve of this analogy, reasoning that the purpose of the business pursuits exclusion in a homeowners policy is to lower rates by removing nonessential coverage. The court found that driving the tractor to the field was a “necessary and essential part of the commercial enterprise,” and that the insured had been engaged in a business pursuit. The insured also asserted that the activity of driving the tractor was ordinarily incident to a nonbusiness pursuit, to bring it within the exception to the exclusion, because he sometimes used the tractor for cutting his grass and the grass of relatives. The court was unimpressed by this assertion and held that the purpose of the activity at the time of the accident was the pursuit of a business undertaking.

A claimant in the case of Erickson v. Grinnell Mutual Reinsurance Co., 622 N.W.2d 138 (Minn. Ct. App. 2001) attempted an unusual approach to force additional coverage under the insured's homeowners. The insured owned a farm and had both farm and homeowners coverage. The insured's twelve year-old son drove a farm tractor across a highway and collided with the claimant motorcyclist. The farm policy responded, but the motorcyclist argued that the homeowners policy should also contribute because the business pursuits exclusion applied only if the person liable for the accident was engaging in his own business. The court said no, the focus of the exclusion is on the activity causing the accident. Because the son was driving the tractor in conduct of the father's business, coverage was excluded.

Rental of Premises to Others

The current exclusion of coverage for liability arising out of “the rental or holding for rental of any part of any premises by an 'insured'” was also part of the business pursuits exclusion in the 1984 homeowners program. (Earlier homeowners forms included such rentals in the definition of business.) The exclusion contains three exceptions for residential rental, so that there is liability coverage if an insured location is rented: (1) on an occasional basis for residential purposes; or, (2) part of the insured premises is rented for residential purposes and each single family unit has no more than two individuals who are roomers or boarders; or (3) part of the insured premises is rented out as an office, school, studio, or private garage. Deviations from the rental arrangements specified in the policy can cause protracted coverage disputes. Remember that a homeowners policy's liability coverage applies to conditions arising out of the residence premises as well as to insureds' activities away from the residence premises. Therefore, if an insured owns other rented premises, the exposure entitles the insurer to additional premium. Insureds would do well to avoid any rental situation outside those specified unless they purchase additional coverage.

The insured's liability was not covered in the case of Salmon v. Commercial Union Insurance Co., 267 S.E.2d 273 (Ga. Ct. App. 1980). The insured boarded someone else's horse in his barn and pasture for $25 a month. The horse escaped, was struck by a truck and killed. The horse's owner sued, and the court held that the insured was not covered due to the rental exclusion.

And in an unpublished limited precedent opinion, construing policy language similar to that given above, the court in Schuck v. The Aetna Casualty & Surety Company, 552 N.W.2d 897 (Wis. Ct. App. 1996) found there was no coverage under the insured's homeowners policy for a rooming house he owned that was rented to students. The rooming house was not listed on his homeowners policy as an additional location rented to others, nor was there any other policy on the property. The court applied the two-pronged test of continuity and a profit motive, and found the ownership of the rooming house met that test. Therefore, the insurer was not required to provide a defense or indemnification when a student fell off the roof during a party at which she consumed alcohol.

Outside Directors

Most insureds who are sophisticated enough to be asked to serve on the board of directors of a commercial entity realize that their homeowners insurer will not cover their liability for such activities. The difficulty in filling boards with qualified directors due to the liability exposure has prompted corporations over the past decade to seek coverage for outside directors.

An example of an insured familiar with insurance coverages who nonetheless made a claim against his homeowners carrier is found in the case of Krings v. Safeco Insurance Co. of America, 628 P.2d 1071 (Kan. Ct. App. 1981). The insured had held various positions in the insurance industry (presumably in property and casualty) throughout his career. He was asked to sit on the board of a savings and loan in which he had invested $320,000. Payment of $25 (later $50) was made for his attendance at board meetings. After serving several years, the insured became aware that there were loan delinquencies and allegations of self-dealing involving other board members. He resigned from the board after disagreements with other board members over these issues. When suit was brought against the members of the board, neither his homeowners nor his excess insurance carrier provided defense or indemnification.

The court rejected the insured's position that part-time or supplemental income activities are not business pursuits, pointing out that by being on the board the insured had hoped to maximize the return on his investment. Because the insured's service on the board was a regular activity engaged in with a profit motive, it met the requirements for a finding that it was a business pursuit.

Theodore Smyth was an outside director of a corporation that owned a hotel in Puerto Rico. A fire caused many injuries and deaths, and Smyth was sued as a director. Although the insured argued that he had taken the position of director as a favor to a friend and received no monetary compensation, the court still held that the activity fell within a business activity. The case is Smyth v. USAA Property and Casualty Insurance Company, 7 Cal Rptr. 2d 694 (1992). It is interesting to speculate, however, what the outcome would have been if the current ISO language exempting “volunteer activities for which no money is received other than payment for expenses incurred to perform the activity” from the definition of a business had been in place. A prudent person, however, would be unwise to test this premise. 

Political Activities

In two cases involving political activities by holders of public office, the business pursuits exclusion was found not to apply. In Burdge v. Excelsior Insurance Co., 476 A.2d 880 (N.J. Super. Ct. App. Div. 1984), the court found that campaign activities of a county clerk seeking reelection were outside the scope of the exclusion (but instead were related to the exercise of the insured's personal and political rights).

In Ritter v. U.S. Fidelity and Guaranty Co., 573 F.2d 539 (8th Cir. 1978), the exclusion in a personal excess liability policy did not apply to a mayor who was sued for libel because of an ad placed in a newspaper expressing his views on a public issue. The court found the business pursuits exclusion to be ambiguous, noting that it contained no reference to political activity, so the court declined to find that “political functions integral to the performance of an elected public office constitute business pursuits.”

Foster Care

Many persons provide foster care for children with no other thought than to be providing a much-needed service. There is no clear-cut line, however, governing when the activity rises to the level of a business. The case of Stuart v. American States Insurance Company, 932 P.2d 697 (Wash. Ct. App. 1997) was remanded for trial to determine if a profit or purely humanitarian motive was the driving force when a husband and wife operated a licensed foster home, sometimes with as many as five children at one time.

Many insurers would not construe fostering one or two children as a business. Indeed, the definition of insured includes a foster child. However, the safest procedure is to make sure the agency responsible for the children provides necessary liability coverage for the foster parents. 

Vacant Land

A case involving vacant land where the business pursuits exclusion was held not to apply is American Motorists Insurance Co. v. Steffans, 429 So. 2d 335 (Fla. Dist. Ct. App. 1983). The claim occurred on vacant land in land parcels where the insureds had done some property development. Here, the court found that a canal and land underlying it, still owned by the insured after he had developed and sold the adjacent residential development, qualified as vacant land and that the insured was covered under his homeowners policy for liability when he was sued by an individual who was injured when he dove into the canal. The insured had created a small lake in the development which he connected to the Intracoastal Waterway by digging the canal. He thought that he had conveyed all the property after development, but in fact he had retained title to the land under the canal. The court said that “the inquiry should be whether, at the time the injury arose, [the insured] owned the land as part of a business pursuit,” pointing out that the trial court had determined that the business pursuit relating to the canal had long been abandoned by the insured. On the issue of whether the property qualified as vacant land, the court dismissed the argument that use of the canal by watercraft disqualified it from such designation, construing the term to mean “land which is unoccupied by any permanently affixed structure or inanimate object.”

But in the case of O'Conner v. Safeco Ins. Co. of North America 352 So. 2d 1244 (Fla. Dist. Ct. App. 1977) the court looked at both the definition of vacant land and the business pursuits exclusion, and found that coverage was excluded on both grounds. The insureds owned a vacant tract which they subsequently divided into lots serviced by a clay road which they maintained. O'Conner was injured when an auto she drove skidded on the clay road. The court held that the clay road was not vacant land because it had been improved through additions of clay. Further, the road led to improved lots. The business pursuits exclusion applied because the insureds' dividing the land into lots and maintaining the road for prospects and purchasers to use clearly pointed toward a business.

The Final Word

We conclude this discussion with a case resolved in favor of the insured involving alleged libel and slander. The insured's employment as manager of a law firm was terminated. Suits to divide the assets of the firm followed, as well as a suit against the insured alleging libel, slander, and invasion of privacy. The insured's homeowners policy provided personal injury coverage, but the insurer declined to defend, citing the business pursuits exclusion. The court held otherwise, in the case of Nationwide Mutual Fire Ins. Co. v. Erwin, 525 S.E.2d 393 (Ga. Ct. App. 1999), because once the insured's employment  was terminated she had no trade, occupation, or profession. “Vendettas do not constitute the pursuit of business, even if motivated by bitterness from a former business relationship,” said the court, and therefore the insured was owed a defense.