Insurance Law

Business Pursuits Exclusion: Always Something Interesting

Cases involving the potential applicability of a Business Pursuits exclusion, in a homeowners policy, can be interesting. Some people operate a variety of unusual home-based businesses. Suit is filed against the homeowner. He or she seeks coverage under a homeowner’s policy. And the question arises whether the injury or damage was caused by an excluded business pursuit.

There was nothing surprising about the outcome of Hanover American Insurance Company v. White, No. 14-726 (W.D. Okla. Aug. 3, 2015), [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance]. I include it here just because it’s a good example of how “business pursuit” exclusion cases are often resolved – even if this one did not involve activities specifically on the home front.

Mark White’s primary business was an aviation related rental and repair company. He was also the vice-president and co-owner, with his father, of C & J Trucks, an oilfield service company. There are two barns on the C & J property, which consists of approximately 150 fenced acres. C & J stores equipment on the premises and Mr. White kept a bull there, along with approximately 50 head of cattle. Mr. White bought the bull to breed cows so he would have calves to raise. Calves suitable for team roping (done with friends about once a month) were kept and the others were sold. A C & J employee was responsible for caring for the cattle, for feeding and worming them, along with giving them their shots and mineral supplements. The employee obtained supplies for the cattle from a feed store and charged them to C & J’s account.

The bull escaped from the property onto Virgil Bricker’s property. It attacked Mr. Bricker and he died as a result of the injuries. Insurance policies issued by Hanover American and Massachusetts Bay to Mr. White – homeowners and dwelling, respectively, covering other properties -- included identical exclusions for bodily injury “[a]rising out of or in connection with a ‘business’ engaged in by an ‘insured.’” Both policies defined the term “business” to “include[ ] trade, profession or occupation.”

The insurers contended they had “no duty to defend or indemnify the Whites with respect to the incident involving Mr. Bricker because the Whites’ cattle operation fell within each policy’s business exclusion. The Whites deny they were engaged in a business. They claim Mr. White pursued team calf roping as a hobby, so the business exclusions in the policies do not apply.”

The court had little trouble concluding that no coverage was owed to the Whites on account of the business pursuit exclusions. Based on prior decisions, the test to be applied, in construing the phrase “arising out of business pursuits,” is that there is a profit motive, not actual profit. And that’s what the court found:

“Here, the evidence established that profit was a part of what motivated the White’s cattle operation. Mr. White testified that, while his sales of cattle were not sufficient to generate a profit for him ordinarily, there have been years when the cattle operation made a profit. Further, the Whites treated the cattle operation as a business for tax purposes, which strongly suggests a profit motive. They included Schedule F’s with both their 2011 and 2012 tax returns. Schedule F, titled “Profit or Loss From Farming,” is used to report farm income and expenses. While the Whites did not make a profit from their cattle operation in either 2011 or 2012, the tax treatment they chose was designed to permit them to derive a tax benefit from those losses. Mr. White testified the loss would have reduced his and his wife’s gross and taxable income. The offset or potential offset of those losses against other business income—potentially making their other business interests or activities more profitable—suggests a profit motive.”

The court found Mr. White to be generally credible and straightforward in his belief that his cattle activities were a hobby. “However, in light of the evidence establishing that profit was at least a significant part of the motivation for the activity and the manner in which it was conducted, the activity was not purely a hobby.”

    Randy Maniloff is Counsel at White and Williams, LLP in Philadelphia. He previously served as a firm Partner for seven years and transitioned to a Counsel position to pursue certain writing projects including Coverage Opinions . Nonetheless he still maintains a full-time practice at the firm. Randy concentrates his practice in the representation of insurers in coverage disputes over primary and excess obligations under a host of policies, including commercial general liability and various professional liability policies, such as public official’s, law enforcement, educator’s, media, computer technology, architects and engineers, lawyers, real estate agents, community associations, environmental contractors, Indian tribes and several others. Randy has significant experience in coverage for environmental damage and toxic torts, liquor liability and construction defect, including additional insured and contractual indemnity issues. Randy is co-author of “General Liability Insurance Coverage - Key Issues In Every State” (Oxford University Press, 2nd Edition, 2012). For the past twelve years Randy has published a year-end article that addresses the ten most significant insurance coverage decisions of the year completed.

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