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An appellate court in Arizona has ruled that injuries a woman allegedly suffered during a Zumba class at a local fitness club were not covered by the instructor's homeowner's insurance policy.

Suffered stroke

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

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

Their insurer, Country Mutual Insurance Company, subsequently brought an action seeking a declaratory judgment that the Koutses' homeowner's policy did not provide coverage for Lawson's claims because, at the time of the incident, Kouts had been engaged in business activity expressly excluded from coverage.

Kouts testified that she was a lifelong fitness enthusiast and that she had begun attending classes for Zumba, a dance-based fitness program, in 2011. She said that she had become close friends with the club's co-owner, Cami Warren, and that by August 2011 she was teaching a one-hour Zumba class three days per week for $10 per hour in bartered compensation. This arrangement continued until Kouts injured her knee in December 2011 and stopped teaching for seven months.

Agreed to informal one-year partnership

In 2012, Kouts said, the Koutses borrowed $40,000 and loaned the proceeds to the club, in what they characterized as an interest-free loan with flexible repayment terms. Also, using their own funds and resources, the Koutses purchased new Zumba equipment, and Mr. Kouts used his personal expertise and the resources of his construction business to make improvements to the club, including painting, moving walls, and building new bathrooms, an office, and a “Zumba room.”

As of the date of Ms. Lawson's injury, Ms. Kouts taught two one-hour classes at the club each week, issued checks for payroll and other club expenses, and spent six hours at the club five days per week, serving as a familiar face to encourage people to keep returning to the club. She received no regular compensation when she resumed teaching and assumed additional responsibilities in July 2012.

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

Contended that definition of 'business' was ambiguous

Ms. Kouts also confirmed that she did not take compensation because of Warren's promise to make her a partner, and that she believed her unpaid work entitled her to an ownership interest in the club. Additionally, she represented herself online as the club'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 trial court entered judgment that Country Mutual's policy excluded coverage for Lawson's claims.

Ms. Lawson appealed, challenging the trial court's judgment that the Koutses' homeowner's policy excluded coverage for her injury because it arose in connection with business activity subject to an express exclusion. She disputed the trial court's interpretation of policy language and challenged the jury's finding that Ms. Kouts had 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 less than $2,000 in the previous year.” She also contended that the definition 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 the following:
(1) Activities for which no “insured” receives more than $2,000 in 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's assertion that the policy's $2,000 exception applied to all business activity. According to the appellate court, the “very placement of the exception in a subsection under Part b” made clear that it applied to “other activity engaged in for financial compensation, 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 made doubly clear by the inclusion of the disjunctive 'or' at the end of Part a.”

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

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

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

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's injury, 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 the director of FC&S Legal, the editor-in-chief of the Insurance Coverage Law Report, and the founder and president of Meyerowitz Communications Inc. Email him at smeyerowitz@meyerowitzcommunications.com.

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