The Business Pursuits Exclusion--Archived Article

The Business Pursuits Exclusion—Archived Article

March, 2002

Homeowners Section II Exclusion

Summary: The homeowners business pursuits liability exclusion, which also appears in the dwellings program personal liability supplement, excludes coverage for liability arising out of business activities of the insured. This provision has given rise to much dispute regarding its application, due to varying interpretations of the word business. Questions regarding whether an activity must have an element of continuity, or a profit motive have been presented to courts, with varying answers. Is a hobby a business? What about a part-time endeavor? There is no ready answer regarding the application of the business pursuits exclusion. Dispute particularly arises as to whether an activity is directly related to the business activity, or is incidental to the business. Each fact pattern will be examined in view of the particular circumstances and the position taken by the particular jurisdiction.The Insurance Services Office (ISO) homeowners 2000 program now gives some coverage for certain activities. The American Association of Insurance Services (AAIS) homeowners form excepts certain activities from the exclusion. The forms’ language will be examined in the following discussion. Following is a review of cases addressing various aspects of the business pursuits exclusion, and a discussion of the current homeowners language.

Topics covered:Evolution of the business pursuits exclusionWhat are business pursuits?The element of continuityThe profit motiveException to the business pursuits exclusionOther business activities on residence premisesCurrent ISO and AAIS exclusions and exceptionsHobbiesSocial activities related to businessWorkplace activitiesFarmingRental of premises to othersOutside directorsPolitical activitiesFoster careVacant landThe final word

Evolution of the Business Pursuits Exclusion

Personal liability insurance—whether written as part of a homeowners package, or as a separate comprehensive liability policy—is designed to protect the insured and family members from negligence claims they might incur in their private (as opposed to business or professional) activities. Coverage encompasses claims arising out of conditions at the insured’s residence or out of personal, nonbusiness activities of an insured away from the residence.