Might the "Business Pursuits" Exclusion in HO Policy Preclude Coverage for Negligent First Aid at Home Day Care? – Claims Magazine

ISSUE:

An insured wife operated a licensed home day care operation with six children. The insured’s husband was largely uninvolved in his wife’s work, except when he might keep an eye on the children if he was out in his own yard while the children were playing there.

While in the care of the insured wife, one of the children began choking. The insured husband administered CPR and the child survived. However, the incident left the child with permanent disabling injuries. Suit was filed against the insured wife, alleging that she was negligent in caring for the child. The suit also alleged that the insured husband had negligently administered CPR. The husband sought coverage under their Homeowners policy asserting that his conduct was ordinarily incident to a non-business pursuit.

ANALYSIS:

Under most Homeowners policies, coverage is excluded for the business pursuits of an insured. A common exception to the exclusion may allow coverage for activities or conduct which are usual to non-business pursuits or activity which is ordinarily incident to a non-business pursuit.

In general, courts have found that a business pursuit is a continuous or regular activity, which is performed for the purpose of returning a profit. This is true for even for part-time or supplemental income activities. State Farm Fire & Casualty Co. v. Moore, 430 N.E.2d 641 (Ill App. 1981); Insurance Co. of Illinois v. Markogiannakis, 544 N.E.2d 1082 (Ill. App. 1989); Badger Mut. Ins. Co. v. Ostry, 636 N.E.2d 956 (Ill. App. 1994).

The severability of insurance clause found within most Homeowners policies states that coverage under the policy applies separately to each insured. It should also be noted that some (but not all) Homeowners policies exclude coverage for injury which arise out the business pursuits of "an" or "any" insured as opposed to or "the" insured.This distinction is important because use of the words "an" or "any" would broaden the application of the business pursuits exclusion to include injuries inflicted by one insured in connection with the business pursuit of another insured. For example, see Chacon v. American Family Mut. Ins., 788 P.2d 748 (Colo. 1990), where the court held that the intentional acts "an" or "any" insured barred coverage for all insureds where only one insured committed an intentional act.

A majority of jurisdictions have presented very narrow applications of the business pursuits exclusion in the context of day care cases. The issue has been whether that particular activity or conduct which caused the injury was performed continuously and with a profit motive. If the source of harm would have been present even if the insured had not beenbabysitting for a profit, the exception to the exclusion would allow coverage even though the act may have had some causal connection to the business pursuit. For example, the operation of a defective home appliance in the home would probably not be viewed as a business pursuit per se if injury arose from its use.

Most courts have not applied a broader "but for" analysis baby sitting or day care cases. In other words, if the injury was caused by an act or conduct which would not have occurred but for the business pursuit of an insured, the injury would be excluded. Recently, the court in Thoele v Aetna Cas. & Sur., 1994 U.S. App. 7th Cir. Ill. Lexis 30069, denied coverage for allegations of negligence in administering CPR in a day care situation with facts identical to those in the hypothetical above. The Thoele court applied the "but for" approach and held that coverage was unavailable to the insured husband despite the fact that he was not generally involved with his wife’s day care operation. The court also noted that the business pursuits exclusion in the applicable Homeowners policy referred to "any" insured and coverage was barred for all insureds if at least one insured was engaged in a business pursuit, (i.e. the insured wife).

CONCLUSION:

While the Thoele case is among the newest precedents to apply the "but for" approach to babysitting or day care cases, claims people should not view this case as part of a judicial trend. Each business pursuits case should be viewed carefully based upon the facts presented.