A June 17, 2015 decision of the Appeals Court, Preferred Mutual Insurance Company vs. Vermont Mutual Insurance Company arising out of denial of liability under the “Business pursuits” exclusion of a homeowner policy has resulted in the Appeals Court adopting a two-prong test for Massachusetts courts to apply in deciding whether a homeowner policy’s business pursuits exclusion bars coverage.
Failure to warn worker of railing being unattached leads to fall and injuries
Francis and Eileen Munyon lived in Medford with their adult son, Joseph. Joseph was an electrician who had his own business.
In October, 2009, the Munyons undertook to renovate their second-floor bathroom and hired a plumbing contractor. The plumbing contractor assigned an employee, Richard Dubois, to work on the project. On Mr. Dubois’s first day on the job, he removed old copper piping and other debris from the bathroom and attempted to throw it into the backyard from a second-floor deck. Unfortunately, he did not know that the day before Joseph had unfastened the porch railing in order to push the bathroom’s old cast iron bathtub into the backyard. When Joseph had finished pushing the iron bathtub into the backyard he put the railing into an upright position but did not reattach it or otherwise secure it. The next day when Mr. Dubois leaned against the railing thinking that it was secured, it gave way and Mr. Dubois fell to the ground and was severely injured.
Homeowners sued for worker’s injuries and son sued as general contactor
Mr. Dubois and his wife later filed suit against Joseph and his parents, alleging that the Munyons had unhinged the railing of the second- floor deck in order to dispose of the old bathtub, left it in place so it appeared to be securely fastened, and failed to warn Mr. Dubois of its condition.
In their complaint they also alleged “Joseph . . . is a licensed electrician . . . who resides at [the family’s residence] and has…been in charge of the contracting work conducted [there].” Also, the complaint claimed that Mr. and Mrs. Munyon had their son, Joseph “serve as their general contractor” and that as a general contractor he had subcontracted with Mr. Dubois’s employer for the plumbing work on the second-floor bathroom.
Mother, father and son insured on homeowner policy but son also had a commercial liability policy
At the time of the accident, Mr. and Mrs. Munyon were the named insureds under a homeowner’s policy from Vermont Mutual. Their son, Joseph, since he lived in the household, was an insured under Vermont Mutual’s policy. Joseph also, however, had a commercial liability policy from Preferred Mutual that insured him as an electrician operating as a sole proprietor
Both carriers, Vermont Mutual and Preferred Mutual were notified of the Dubois’ suit. Vermont Mutual assumed the defense of Mr. and Mrs. Munyon but disclaimed any obligation to defend their son, Joseph.
Vermont Mutual based its denial on the exclusion in its homeowner policy stating that coverage does not apply to bodily injury:
[a]rising out of or in connection with a business engaged in by an insured.”
In the “Definitions” section of the policy, “business” is defined to include “trade, profession or occupation.”
Vermont Mutual claimed that the fact that Joseph was an electrician and that the complaint alleged that his liability arose out of his acting as a general contractor for his mother and father, along with similar allegations, triggered the business pursuits exclusion as a matter of law.
Preferred Mutual for its part assumed the defense of Joseph under a reservation of rights.
Judgments against Mr. and Mrs. Munyon and Joseph for $239,000
After a 2013 jury trial, judgments entered for Mr. Dubois for his personal injuries in the amount of $226,218.49, and for his wife’s loss of consortium in the amount of $12,567.69. The judgments were against Mr. & Mrs. Munyon and Joseph, jointly and severally. Vermont Mutual paid the judgments in their entirety on behalf of Mr. and Mrs. Munyon but then sued for and obtained a judgment for contribution against Joseph.
Preferred Mutual sues Vermont Mutual over business pursuits exclusion
After assuming the defense of Joseph under a reservation of rights, Preferred Mutual commenced a declaratory judgment against Vermont Mutual seeking a declaration that Vermont Mutual’s denial based upon the business pursuits exclusion and refusal to defend was improper. Preferred Mutual asserted an equitable claim against Vermont Mutual for fifty percent of all defense costs incurred by Preferred Mutual on Joseph’s behalf. After hearing summary judgment motions, a judge of the Superior Court ruled that Preferred Mutual had no duty to defend or indemnify; that Vermont Mutual had both a duty to defend and a duty to indemnify; and that Vermont Mutual was required to reimburse the entirety of the defense costs incurred by Preferred Mutual in defending Joseph, Vermont Mutual appealed to the Appeals Court.
Court rules “continuity” and “profit” determine whether the business pursuits exclusion applies
In deciding Vermont Mutual’s appeal, the Appeals Court noted that there were only a few Massachusetts cases involving the business pursuits exclusion and that those cases did not articulate any “general, guiding principles for determining when an activity arises out of or in connection with the insured’s business.”
The Appeals Court noted that courts in other states had generally settled on a two-prong functional test to determine whether the business pursuits exclusion applied. The Court then stated that this “two-prong test” is so widely utilized that it should be accepted as the norm and employed in deciding Vermont Mutual’s appeal.
As described by the Appeals Court, the first prong of the test is “continuity” — that is, the activity in question must be one in which the insured regularly engages as a means of livelihood. The second prong is “profit motive” — that is, the purpose of the activity must be to obtain monetary gain.
The Court then quickly disposed of Vermont Mutual’s appeal on its application of the business pursuits exclusion to deny Joseph a defense.
The court found that although the Dubois’ complaint specifically alleged that Joseph served as a general contractor, contracted with others, and oversaw the work there was no indication in the complaint that his alleged supervisory or disposal activities were ones in which he regularly engaged in connection with his means of livelihood.
As to the second prong the complaint did not indicate that Joseph’s participation in the renovation project was motivated by profit.
The Court then stated that considering the record in the light most favorable to Vermont Mutual that:
We conclude, as matter of law, that Vermont Mutual cannot carry its burden of proving the applicability of its business pursuits exclusion.”
The final judgment, however, was modified from Vermont Mutual paying Preferred Mutual the full cost of Joseph’s defense to the insurers sharing equally the costs of defending Joseph. The Court noted that at oral argument both parties had stated that the correct allocation of defense costs would be if the judgment were not reversed that each pay fifty percent. Additionally, Preferred Mutual’s original request in the Superior Court had been for an equitable sharing of Joseph’s defense costs.
A copy of the decision can be accessed by clicking on this link: Preferred Mutual Insurance Company vs. Vermont Mutual Insurance Company.