Last week, in National Farmers Union Property and Casualty Company v Garfinkel, the Colorado Court of Appeals decided whether a “Business Pursuits Exclusion” was ambiguous, and if not, whether it applied to the facts of the case.
In general, the intent of a homeowner policy is to protect the insured homeowner against the risk of liability for injuries (damages) suffered by others. But these policies often exempt from coverage any injury (including property damage) “arising out of or in connection with a business engaged in by an insured.”
In what is becoming less and less true with the growing virtual economy, the court stated that “people characteristically separate their business activities from their personal activities,” and thus “business pursuits coverage is not essential for their homeowners coverage and is excluded to keep premium rates at a reasonable level.”
A typical business exclusion looks like this:
SECTION II – EXCLUSIONS
1. Coverage E – Personal Liability and Coverage F – Medical Payments to Others do not apply to “bodily injury” or “property damage”:
b. 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.”
The court noted that the policy also defines “business” to include any “trade, profession or occupation,” and followed the majority of courts in other jurisdictions in finding that the exclusion is “expressed in plain, certain, and readily understandable language,” and thus not ambiguous.
That was not the end of the matter. The court then had to determine whether the particular activity at issue in the case was a “business pursuit.” For this, the court applied a two-part test: (1) was the activity done continuously or regularly, and (2) whether there is a profit motive.
If an activity can be charcterized by both “continuity” and “profit motive,” it qualifies as a business pursuit for which coverage is excluded. Most courts hold that the activity need not be the insured’s only or even primary business or occupation. “Part-time or supplemental activities may constitute business pursuits for purposes of the exclusion,” and the Colorado appellate court agreed.
As to the second, or “profit motive” prong of the test, actual profit is not required so long as the activity is in fact a way of procuring subsistence or profit and there is a motive to make a profit. Even the minor motive to cover costs and expenses will likely satisfy this prong of the test. In other words, profit need not be an immediate or even primary consideration of the pursuit or activity in question. An activity that you do for the love of it may still be a business pursuit!
Further, the exclusion may apply whenever the insured is furthering his or her own business interests or, take note, the business interests of another, even if the insured does not receive any remuneration for the service.