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By William T. Barker and Daniel E. Feinberg, Attorneys, SNR Denton
Homeowners' insurance commonly excludes coverage for the insured's "business pursuits," often said to be those involving (1) a continuous or regular activity, (2) done for the purpose of earning a profit. Chester Stranczek was sued for his activities as part-time Mayor of Crestwood, Illinois, but argued that this was not excluded because he had no subjective profit motive. The Illinois Appellate Court in Metro. Prop. & Cas. Ins. Co. v. Stranczek, 2012 IL App (1st) 103760 disagreed. This commentary supplement's the court's analysis for the benefit of counsel and courts in other jurisdictions.
As the commentary notes, the facts regarding Stranczek's motives were undisputed (though he was suffering from dementia by the time of the litigation):
Stranczek served as the mayor of the Village of Crestwood (Village) from 1969 to 2007. The job of mayor was a part-time position that initially paid Stranczek $1,000 per year and never paid him more than $6,000 per year. Stranczek did not retain any of that salary as compensation for his service as mayor. Instead, he donated the after-tax portion of that salary for charity, used it for projects benefitting the Village, and used it to defray his own out-of-pocket expenses incurred as mayor because he did not have an expense account. For many years, Stranczek was the president and chief executive officer (CEO) of two companies: Cresco Lines, Inc., a nationwide trucking company, and Chicago Marmon Trucks, Inc., a company operating maintenance facilities for tractors and trailers. Stranczek resigned as CEO of Chicago Marmon Trucks on August 8, 1994, and turned over day-to-day management of the company to one of his sons. Stranczek resigned as CEO of Cresco Lines on July 10, 1995, and turned over day-to-day operations of the company to another one of his sons. After these resignations, Stranczek continued to serve as chairman of the board of both companies until he resigned that position at Cresco on July 13, 2009, and at Marmon on August 10, 2009. In his role of chairman, Stranczek was closely involved in overseeing the companies' finances and overall operations until his medical condition started to deteriorate in 2008. Between 1984 and at least 1991, Stranczek received a salary of more than $100,000 for his work at both companies. Beginning in 1998, Stranczek was compensated principally through distributions from the companies, and although those distributions varied from year to year, they were never less than $189,000 and were frequently much more.
The commentary describes the underlying litigation as follows:
in 2009, a series of lawsuits were filed by Crestwood residents against the Village and its municipal officers, including its former mayor, Stranczek. Those lawsuits alleged that in the late 1980s, the Environmental Protection Agency (EPA) advised Village officials, including Stranczek, that its tap water was contaminated with toxic chemicals, including a dry-cleaning solvent, that were linked to cancer and other health problems. Village officials told the EPA that it was obtaining its tap water from Lake Michigan and that the contaminated well tap water would only be used in an emergency. The Village placed its well water on "emergency backup" status to avoid tests for chemical pollutants and assured its residents that the drinking water was safe and obtained exclusively from Lake Michigan. Stranczek, as the mayor and the "official custodian" of the Village's water supply, signed and certified reports given to consumers and the EPA stating that Crestwood's water was safe and purchased indirectly from the City of Chicago, which drew its water from Lake Michigan. Despite these assurances, the Village, in an effort to save money, continued to draw water from the contaminated well and relied upon that water for up to 20% of the Village's water supply. The complaints alleged that Stranczek, as mayor and official custodian of the Village's water, knew of and participated in the decision to draw water from the contaminated well and to supply that water to the Village's residents and businesses. The complaints alleged that residents suffered personal injury, death, and/or property damage due to use or ingestion of the contaminated water, including but not limited to *** cancer, stomach cancer, and lymphoma. The lawsuits asserted causes of action for negligence, wrongful death, willful and wanton misconduct, fraud, and public nuisance. The State of Illinois also filed a lawsuit alleging a number of statutory violations based upon the failure to provide Crestwood residents with safe drinking water.
In this action, the Mayor sought coverage under his homeowners' policies, which excluded "accidents happening on your business premises. And we do not cover any liability or claims connected with your business, profession or occupation. For example, malpractice claims." In another action, he and the Village sought coverage under the Village's public entity general liability policy. Coverage under the latter was denied pursuant to that policy's pollution exclusion.
In this action, the Mayor persuaded the circuit court that the business pursuits exclusion did not apply because Metropolitan had not proven a profit motive. The appellate court reversed.
The commentary marshals substantial nationwide authority to support that conclusion. It argues that business pursuits exclusions limit homeowners' insurance coverage to personal risks, leaving business risks to commercial policies. Moreover, service as mayor of Crestwood constituted a "business, profession or occupation" within the meaning of the business pursuits exclusion. Continuous and regular business activities were excluded, even if they involved only a minor fraction of the mayor's time and yielded only a minor fraction of his income. Remunerative activities are excluded, even if the insured is not subjectively motivated by the remuneration.
William T. Barker is a member of SNR Denton's Insurance Litigation & Coverage Practice Group and practices in the firm's Chicago office. He has a nationwide practice in the area of complex commercial insurance litigation, including coverage, claim practices, sales practices, risk classification and selection, agent relationships, and regulatory matters. He is the co-author, with Ronald D. Kent of THE NEW APPLEMAN INSURANCE BAD FAITH LITIGATION, SECOND EDITION and with Charles Silver of the forthcoming PROFESSIONAL RESPONSIBILITIES OF INSURANCE DEFENSE COUNSEL; he has written over 100 published articles on insurance and litigation subjects. He has been described as "[t]he leading lawyer commentator" on the relationships between insurance and civil procedure. Charles Silver & Kent Syverud, The Professional Responsibilities of Insurance Defense Lawyers, 45 Duke L.J. 255, 257 & n.4 (1995). He is an Adviser to the American Law Institute project on Principles of the Law of Liability Insurance. He is a member of the EDITORIAL BOARD OF THE NEW APPLEMAN ON INSURANCE LAW LIBRARY EDITION and THE NEW APPLEMAN INSURANCE LAW PRACTICE GUIDE. He is Editorial Board Director and Senior Contributing Editor of INSURANCE LITIGATION REPORTER and a member of the Board of Editors of DEFENSE COUNSEL JOURNAL.
Daniel Feinberg is a member of SNR Denton's Litigation and Arbitration practice concentrating on the representation and counseling of insurance companies in disputes and litigation regarding the extent or availability of insurance coverage. He has represented insurers in actions filed throughout the U.S. and in a variety of insurance coverage contexts. These include coverage disputes relating to environmental contamination, asbestos exposure, mass tort liability, products liability, professional liability, premises liability, civil rights and claims under the Federal Employers' Liability Act. In addition to his insurance coverage practice, Dan has extensive experience representing insurers in direct action lawsuits.
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