Aside from the personal auto policy, the most ubiquitous product in the insurance market is probably the homeowners’ policy. The liability coverage of the standard homeowners’ policy covers the homeowner and his or her family for claims or suits by third parties alleging bodily injury or property damage, and — usually as an optional coverage extension — personal injury. Personal injury coverage applies to such claims as libel, slander, defamation, false imprisonment, and wrongful entry and eviction. The liability coverage of a homeowners’ policy generally encompasses claims for injuries sustained by third parties resulting from of a condition on the insured premises (the home), or from the off-premises conduct of an insured.
A fundamental limitation on homeowners’ liability coverage is that it encompasses the insured’s personal liability, not his or her business liability. This limitation is expressed in the business pursuits exclusion of the policy, which is typically worded something along the following lines: “We do not cover injury arising out of your business activities.” The policy then provides a definition of “business” or “business activities.” The definition is usually something like the following: “any full- or part-time activity of any kind engaged in for economic gain, and the use of any part of any premises for such purposes.” The precise wording can vary among insurers.
The exclusion for business pursuits is fundamental not only to the insurer’s financial interests, but also to public policy, which strongly favors making homeowners’ insurance widely available to the public by making it affordable. When limitations on the coverage are not enforced, the coverage becomes more expensive. Commercial insurance is readily available for the business pursuits of the insured, and the insured should look to that coverage when faced with a business-related loss. Moreover, many homeowners’ insurers will issue an “incidental business” endorsement to a homeowners’ policy if requested and an extra premium is paid. Without such coverage, however, a homeowner’s policy does not cover business pursuits.
Defining Business Pursuits
Courts have adopted certain principles in order to differentiate between homeowners’ risks and business risks. The linchpin — followed in most states — is whether the activity was continuous and for profit.
Continuous does not mean full time or even necessarily often. For example, a National Guardsman serving only two weeks per year was found to be engaged in a business pursuit when he got into an accident while driving a military vehicle back to his home armory. A state inspector that hosted a steer-roping contest on his ranch every year, charging an entry fee, and who was sued by a patron injured on the property, was found to be engaged in a business pursuit.
For profit does not mean a main source of income or livelihood. For example, serving as a union president was found to satisfy this element, regardless of how small the compensation. Delivery of a boat for $75 as a side job to the insured’s chief occupation as a boat mechanic was found to be motivated by profit. Additionally, the business need not actually be profitable, so long as the motive for engaging in the business was to earn a profit. A leading treatise says that, for the exclusion to apply, “[t]he acts complained of need not themselves be performed for profit…but need only be performed during the business pursuit of the insured.”
Disputing the Exclusion
Disputes about the exclusion can arise when insureds engage in business activities in their homes. Courts have applied the exclusion to a continuous, regular daycare service in the home where the insured is compensated, but not to an occasional babysitting job, particularly where the insured is a teenager or a full-time student. A court applied the exclusion to a couple who lived in the upstairs of a building and ran a laundromat in the ground floor, and were sued by a laundromat patron who slipped and fell on ice and snow at the entrance to the laundromat. A homeowner who sold dogs from his home and advertised for 10 years in the paper was held to be engaged in an excluded business pursuit.
Disputes about the exclusion can also arise when the insured engages in seemingly personal activities in his or her place of business. For example, an employee who brings his dog to work and the dog bites a co-worker. This would seem to be a non-business pursuit, but if the dog actually plays a role in the business, the exclusion could apply. For example, when the dog is a corporate mascot used in advertising. Another example is where the insured sits without pay on a board — either a nonprofit or a condominium association. The courts have mostly found such pursuits to be business pursuits.
Workplace Claims
Workplace claims can often involve personal clashes and resulting libel, slander and defamation claims — or even assault and battery claims — between coworkers or persons who otherwise do business together. As indicated earlier, it is not so much whether the conduct alleged was itself a business pursuit that determines whether the exclusion applies, but rather, whether the conduct took place in the context of a business relationship.
Another example is the mayor of a small village who donated back his nominal salary for the position, and was sued by village residents claiming illness resulting from some cutting corners in the mayor’s management of municipal infrastructure. The court found this to be a business pursuit.
Although fine distinctions sometimes drive differing results in cases where the business pursuits exclusion is at issue, it is important to keep the big picture in mind when approaching a given case. The big picture is that the homeowners’ policy is intended to cover personal, not business risks. Commercial insurance covers business risks. Courts should not be eager to construe ambiguities against insurers when doing so could jeopardize the public policy of making homeowners’ insurance available and affordable.