Pretend a couple in Grand Prairie, Fort Worth, Arlington, Dallas, Weatherford, or anywhere else in Texas is running a business out of their home and someone gets injured as a result of that business activity. Does a normal Texas homeowners insurance policy cover any claim that may be made?
As a general rule the answer is no. The normal Texas howeowners policy includes a “business pursuits exclusion.” This means that incidents arising out the course of that business are excluded from coverage under the insurance policy. There are exceptions to this general rule mainly because the Texas Department of Insurance, several years ago started letting insurance companies write their own policies. Prior to this the policys were standard and followed recommendations from the state. Now, each company writes their own policy and so, there are differences between one policy and the other that now exist. Plus, homeowners can buy endorsements to cover their business pursuits that they are pursueing from their home.
The normal / typical homeowners policy excludes coverage for “bodily injury or property damage arising out of or in connection with a business engaged in by an insured.” This is articulated in the case, State Farm Fire & Casualty Company v. Vaughan. This case was decided by the Texas Supreme Court in 1998, and is still good law. Here, State Farm Fire & Casualty Company challenged a claim being made by Vaughan and the court ruled in favor of State Farm, on this business exclusion policy language.
In another case, United Service Auto. v. Pennington, the San Antonio Court of Appeals, decided in 1991, guidelines to go by in determining whether or not the activity being conducted out of a home was a business pursuit.
“Business pursuit” for these purposes encompasses two elements:
1) continuity or regularity of the activity; and 2) a profit motive, usually as a means of livelihood, gainful employment, earning a living, procuring subsistence or financial gain, a commercial transaction or engagement.
In this case the court said that the profit need not be realized; that the issue is the expectation or anticipation of profit in the future. They explained further saying, the insured can even hope that the pursuit will succeed and eventually become profitable, but if his or her present intention and goal were not motivated by profit, then there is no business pursuit.
Anytime this question arises an experienced Insurance Law Attorney should be consulted so that the facts of any one situation can be applied to the existing law and an opinion can be discussed.
In the Pennington case, the homeowner was a car salesman but also ran a quarter horse breeding business with his father. Apart from the breeding business, he and a coworker at the car lot bought a quarter horse to experiment with a new training system to condition horses for racing. They advertised for someone to ride the horse. The woman who answered the ad was injured when the horse fell on her. The court found evidence to support the jury’s finding that the ownership of the horse was not a business pursuit. With regard to the continuity element of the definition noted above, the court found that the insured had engaged in the experiment of interval training for a race horse for a month, that there was testimony that the ownership of the horse was separate from the breeding business, that there was no evidence that the homeowner intended to breed the horse or that the father held any ownership interest in the horse, and finally that there was no evidence that the undertaking was engaged in with regularity. As for the second element, profit motive, the jury heard ample evidence upon which it could find that the homeowner did not anticiplate making a profit.
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