9.2 Business Pursuits Exclusion

• Jurisdiction: Arizona

Standard homeowner liability policies contain a so-called "business pursuits" exclusion. A typical business pursuits exclusion provides that liability coverage does not apply "to bodily injury or property damage arising out of business pursuits of any insured except activities therein which are ordinarily incident to non-business pursuits."^[24] Two constituent elements are required before an insured's activity will be subject to the exclusion-continuity, or customary and regular engagement in the activity, and profit motive.^[25] Usually the analysis turns on the motivation for profit or gain and not whether profit has actually been generated.^[26] The insured's subjective characterization of his or her activities as business or non-business is irrelevant.^[27] People characteristically separate their business activities from their personal activities,^[28] and, therefore, business pursuits coverage is not essential and are excluded to keep premium rates at a reasonable level.^[29]

The supreme court analyzed a business pursuits exclusion in Kepner v. Western Fire Insurance Co.^[30] The facts before the court revealed that the Kepners insured their home with a standard homeowner's liability policy. Their premises were used primarily as a family residence and secondarily as an office for the insureds' pool service. While the carport at the residence was being enclosed for use as an office for the pool service, the insured's grandson was injured by a power saw being operated by an employee of the pool service working on the construction project. The court held that the policy's business pursuits exclusion was applicable. In so doing, the court observed:

Western's policy is low premium protection designed to insure a homeowner against the hazards arising out of the operation and maintenance of his home. In this type of policy, certain risks are specifically excluded because they are not embraced within the course of a homeowner's normal activities. Business activities present additional risks over and beyond the ordinary and usual hazards to be found in the operation and maintenance of a home. [Citation omitted.] They are not within the contemplation of or intended to be within policy coverage. Hence, whether the Kepners were personally negligent in their non-business activities is not a relevant factor in the determination of this case. For, irrespective of their negligence proximately causing the accident, the resulting injuries arose out of carrying on a business pursuit, without which the injuries could not have occurred.^[31]

In a detailed opinion, the court of appeals analyzed the application of various business pursuits exclusions in Industrial Indemnity Co. v. Goettl.^[32] In Goettl, the claimant was seriously injured when he fell through the roof of a warehouse owned by his employer, McGraw-Edison Co. The building was constructed 16 years earlier by International Metal Products Co. for Adgus Properties. Gust and Adam Goettl were officers and sole shareholders in International Metals and partners in Adgus Properties. Adgus Properties, the original owner of the building, leased the building back to International Metal. In 1960, long before the roof fell through, the Goettls sold their interest in International Metal, and, as partners in Adgus Properties, sold the building to the claimant's employer, McGraw-Edison. The claimant sued the Goettls and Adgus Properties, alleging that the Goettls had negligently constructed the roof and had negligently sold the building without disclosing the dangerous condition of the roof to McGraw-Edison.

At issue in Goettl were the business pursuits exclusions contained in a homeowner's policy, and a "Comprehensive Personal Catastrophe Liability Policy" issued to Gust Goettl. The insurance companies issuing these policies declined coverage. Goettl raised several arguments as to why the pursuits exclusions were not applicable:

Appellants recognize the existence of the "business pursuits" exclusion, but contend that it only excludes coverage for liability arising from business pursuits in which the insured was engaged during the policy term, and that it does not exclude liability arising from business pursuits engaged in by the insured prior to the term of the policy. They point out that the policy does not define "business pursuits" or specifically establish a time frame relating to the excluded coverage. They urge that because the coverage actually extended by the policy is limited to injuries caused by an "occurrence" during the policy term, similarly, the exclusion should be limited to business pursuits engaged in during the policy term. They then argue that because Goettl in 1960...