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An appellate court in Arizona has ruled that injuries a womanallegedly suffered during a Zumba class at a local fitness clubwere not covered by the instructor's homeowner's insurancepolicy.

Suffered stroke

Melissa Lawson alleged that, in January 2013, she suffered astroke during an exercise class taught by Maria Kouts at a fitnessclub in Safford, Arizona.

After Lawson sued Kouts and her spouse Jason Kouts, the Koutsessubmitted a claim under their homeowner's insurance policy.

Their insurer, CountryMutual Insurance Company, subsequently brought an actionseeking a declaratory judgment that the Koutses' homeowner's policydid not provide coverage for Lawson's claims because, at the timeof the incident, Kouts had been engaged in business activityexpressly excluded from coverage.

Kouts testified that she was a lifelong fitness enthusiast andthat she had begun attending classes for Zumba, a dance-basedfitness program, in 2011. She said that she had become closefriends with the club's co-owner, Cami Warren, and that by August2011 she was teaching a one-hour Zumba class three days per weekfor $10 per hour in bartered compensation. This arrangementcontinued until Kouts injured her knee in December 2011 and stoppedteaching for seven months.

Agreed to informal one-year partnership

In 2012, Kouts said, the Koutses borrowed $40,000 and loaned theproceeds to the club, in what they characterized as aninterest-free loan with flexible repayment terms. Also, using theirown funds and resources, the Koutses purchased new Zumba equipment,and Mr. Kouts used his personal expertise and the resources of hisconstruction business to make improvements to the club, includingpainting, moving walls, and building new bathrooms, an office, anda “Zumba room.”

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As of the date of Ms. Lawson's injury, Ms. Kouts taught twoone-hour classes at the club each week, issued checks for payrolland other club expenses, and spent six hours at the club five daysper week, serving as a familiar face to encourage people to keepreturning to the club. She received no regular compensation whenshe resumed teaching and assumed additional responsibilities inJuly 2012.

Ms. Kouts testified that she reluctantly had agreed to aninformal one-year partnership with Warren when Warren moved out ofstate because she was passionate about Zumba, did not want the clubto close, and Warren was her best friend.

Contended that definition of 'business' was ambiguous

Ms. Kouts also confirmed that she did not take compensationbecause of Warren's promise to make her a partner, and that shebelieved her unpaid work entitled her to an ownership interest inthe club. Additionally, she represented herself online as theclub's co-owner at some point after March 2013.

The jury found that Ms. Kouts' activity at the club constituted“a trade, profession or occupation” and, as a result, the trialcourt entered judgment that Country Mutual's policy excludedcoverage for Lawson's claims.

Ms. Lawson appealed, challenging the trial court's judgment thatthe Koutses' homeowner's policy excluded coverage for her injurybecause it arose in connection with business activity subject to anexpress exclusion. She disputed the trial court's interpretation ofpolicy language and challenged the jury's finding that Ms. Koutshad been engaged in a “trade, profession or occupation.”

Among other things, Ms. Lawson asserted that the policy provided“a safe-harbor for business activity where the insured earned lessthan $2,000 in the previous year.” She also contended that thedefinition of business in the policy was ambiguous.

The Country Mutual homeowners' policy

The Country Mutual policy excluded coverage for:

“Bodily injury” … arising out of or in connection with a“business” conducted from an “insured location” or engaged in by an“insured” whether or not the “business” is owned or operated by an“insured” or employs an “insured”.

The policy defined:

Business

as:

a. A trade, profession or occupation engaged in on a full-time,part-time or occasional basis; or

|

b. Any other activity engaged in for financial compensation,other compensation, or other professional purposes, except thefollowing:

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(1) Activities for which no “insured” receives more than $2,000in total compensation for the 12 months before the“occurrence”.

The Appellate Court's decision

The appellate court affirmed.

In its decision, the appellate court rejected Ms. Lawson'sassertion that the policy's $2,000 exception applied to allbusiness activity. According to the appellate court, the “veryplacement of the exception in a subsection under Part b” made clearthat it applied to “other activity engaged in for financialcompensation, other compensation, or other professional purposes”as described in Part b. It “plainly [did] not apply to the 'trade,profession or occupation' activity found in Part a, a fact madedoubly clear by the inclusion of the disjunctive 'or' at the end ofPart a.”

The appellate court also was not persuaded by Ms. Lawson'sargument that the policy's definition of business was “impreciseand ambiguous” about what activity would fall under Part b but notPart a, and that the definition was overbroad because “[a]lmost anybusiness activity could be described as a trade, profession oroccupation.”

The appellate court said that, rather than ambiguity, thepolicy's “broadly drafted” definition of “business” reflected a“clear intent to exclude coverage for business activity.”

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It then concluded that Ms. Kouts' activity at the club was a“trade, profession or occupation” within the meaning of thebusiness exclusion, given the time and monetary resources theKoutses had invested to maintain and improve the fitnessclub, the time Ms. Kouts was spending every week serving as thepublic “face” of the club and signing checks for payroll and clubexpenses, and her expectation of an “explicit connection” betweenher unpaid services and an ownership interest in theclub.

Ms. Kouts' activities at the club may have been her “passion,hobby and primary social activity,” but they also amounted to a“trade, profession or occupation” as of the date of Ms. Lawson'sinjury, the appellate court concluded.

The case is Country Mutual Ins. Co. v. Lawson, No.2 CA-CV 2016-0154 (Ariz. Ct.App. March 31, 2017).

Steven A. Meyerowitz, Esq., is thedirector of FC&S Legal, the editor-in-chief of the InsuranceCoverage Law Report, and the founder and president of MeyerowitzCommunications Inc. Email him at [email protected].