Business Exclusion Not Applicable When Homeowner's Dog Bites Boarder

The issue before the appeals court was whether either the business or rental exclusions in a homeowner's policy applied to defeat coverage for the insured who was sued after her dog bit a boarder's son. This case is Homesite Insurance Company v. Hindman, 992 A.2d 804 (2010).

Hindman owned a single family home and took in as boarders her friend, Romano and Romano's son. Romano paid Hindman $300 per month in rent plus one-half of the utilities. During this time, Hindman's dog bit Romano's son and Romano sued Hindman seeking recovery for the son's injuries. When Hindman turned the lawsuit over to her insurer, Homesite Insurance Company, the insurer denied coverage and cited two exclusions: the business exclusion since Hindman was engaged in a business; and the rental exclusion since the injury arose out of Hindman's renting a part of the premises. The insurer filed a declaratory judgment action seeking a declaration that there was no coverage for the dog bite claim. The trial court found in favor of the insured and the insurer appealed.

Homesite argued in the appeal that by renting a portion of the insured premises to boarders on an ongoing basis, Hindman was conducting a business, and the business exclusion barred coverage for injury arising out of or in connection with a business engaged in by an insured. The appeals court found this argument fatally flawed. The court said that if the policy contemplated that a business, defined as including a trade, profession, or occupation, was meant to include rental of a portion of the insured premises, there would be no need for the rental exclusion; it would be illogical to construe the business exclusion as prohibiting that which the rental exclusion in the policy addressed. Moreover, Hindman's trade, occupation, and profession was her work as a teacher's aide; taking in boarders, while fully employed in a regular occupation, cannot be reasonably seen as fitting within the policy definition of “business”.

As for the rental exclusion, that exclusion came with an exception stating that it did not apply “to the rental or holding for rental of an insured location in part for use only as a residence, unless a single family unit is intended for use by the occupying family to lodge more than two roomers or boarders”. The court found that this provision allowed Hindman to rent a portion of the insured premises for residential occupancy without losing coverage as long as she did not actually rent to more than two roomers or boarders or intend to do so. At the time of the accident, and at all times since the inception of the policy, Hindman had only two boarders, Romano and her son. Furthermore, Hindman did not have the property advertised for rent to additional boarders, did not have a for rent sign posted on the property, did not engage a real estate agent to find suitable renters, and did not do anything to manifest an intent to take in any more boarders. The court therefore, found that Hindman's actions were within the exception to the rental exclusion. The insurer contracted with Hindman for this exception and it should be liable for the risks it bargained for in issuing the policy.

The ruling of the trial court was affirmed.

Editor's Note: There have been many lawsuits over the application of the business exclusion found in the standard homeowners policy. Courts today generally agree that a business pursuit must involve two elements: continuity of the activity and monetary gain. In this case, however, the court did not actually discuss those elements, instead relying on the facts of the situation. Hindman was renting to a friend and colleague and she was fully employed in a profession completely separate from the rental of the house. In addition, the court noted that the policy's rental exclusion was more relevant to the situation than the business exclusion, making the business exclusion rather superfluous.

The rental exclusion in the policy fell by its own wording, with the exceptions to the exclusion being clearly applicable to the situation. Incidentally, the appeals court noted that the rental exclusion in the policy had not yet been construed in any published New Jersey opinion and had not been construed in a published opinion in any jurisdiction.