Business Exclusion under Homeowners Policy
The parent, on behalf of the infant, brought a negligence action against the babysitter after the infant suffered brain damage from a choking incident. The homeowner's insurer of the house in which the babysitter lived and cared for children brought a declaratory judgment action, asserting that the insurance policy did not cover the injuries sustained due to the business exclusion. This case is Western National Mutual Insurance Company v. Decker, 791 N.W.2d 799 (2010).
The insurer argued in the lower court that its homeowners policy did not cover injuries sustained in a daycare-type business. The lower court ruled that the business exclusion did apply and the case went to the Supreme Court of South Dakota on appeal.
The Supreme Court noted the facts here that an eight-month old child was left in the care of Sarah Decker. Decker placed the child in his car seat thinking he would go to sleep but moments later, Decker noticed the child stopped breathing and was choking on a small object. The child suffered permanent brain damage. When a lawsuit was filed against Decker, her insurer, Western National, brought a declaratory judgment action claiming that it had no duty to defend or indemnify Decker because Decker was operating a business, the injuries were sustained as a result of her business activities, and the homeowners policy expressly excluded such coverage. Decker argued that the policy terms were ambiguous because the definition of business excluded activities related to business that are not usually viewed as business in nature. This meant the policy should be interpreted in favor of coverage.
The policy defined business as a trade, a profession, or an occupation, all whether full or part time; in addition, a business included services regularly provided by an insured for the care of others and for which an insured is compensated. The lower court found that the activities of Decker met the definition of a business and the exclusion prevented coverage in this instance. That court said that, even though Decker did not charge each time she cared for the child, she did care for the child (and other children) on a daily basis and was compensated as part of a business pursuit.
In its review of the case, the Supreme Court first addressed the policy definition of business. The court said that there was no dispute that Decker regularly provided care to others and was compensated for her care. The court agreed with the lower court that the fact that Decker sometimes did not charge for her services was not relevant; her care of others was in fulfillment of a continuous, regular arrangement with parents and that met the definition of a business under the terms of the policy.
The court then reviewed the exception that Decker asserted made the policy ambiguous. The court declared that while babysitting on a single occasion for a family member or friend with or without compensation might not ordinarily be viewed as business in nature, the facts of this incident were different. Decker had care of the child as part of a continuous arrangement and this care was beyond a casual accommodation and was not an isolated or episodic favor to a friend or family member. Decker's care for the child the day of the injury was related to her business of providing child care and must be viewed as business in nature. Simply because child care can be viewed as business in nature in one instance and not in another does not make the insurance policy ambiguous.
The Supreme Court ruled that the homeowners policy did not pay for bodily injury resulting from activities related to the business of an insured, and the facts showed that the injury to the child did result from Decker's business activities. The homeowners policy unambiguously excluded coverage for the injury suffered by the child and the ruling of the lower court was affirmed.
Editor's Note: The business exclusion in the homeowners policy can be problematic when the “business” of the insured involves babysitting or day care services. The current ISO homeowners policy tries to clarify the point that the exclusion is not going to be applied to a teenager occasionally babysitting the neighbor's children, or to home daycare services for which no compensation is received. In this case, however, the insured provided her daycare services on a regular basis and was compensated (albeit not in every single instance). The South Dakota Supreme Court found these facts clear enough to view the business exclusion as unambiguously preventing coverage for the injury to the child.