Without Alleging Insured's Conduct Arose Out Of His Occupation As A Real Estate Broker The "Business Exclusion" Does Not Eliminate The Duty To Defend
In Allstate Insurance Company v. O’Connell, 2010 U.S. Dist. LEXIS 117142 (D. Or. Nov 2, 2010), the court held the “business exclusion” of the policy did not eliminate the insurer’s duty to defend the insured against a negligence action arising out of personal injury in a duplex which the insured contracted to have built on real property he had purchased while at all times he had worked as a real estate broker.
The insured had worked as a real estate broker since 1971. In 2000 or 2001, the insured purchased real property. In 2004 the insured contracted with Water Brother Construction to build a duplex on the property and the construction for the project was completed in 2005. That same year, without ever having rented out the duplex, the insured sold the duplex. Three years later, a duplex tenant had a visitor who tripped down the stairs and fell sustaining bodily injury. The owners of the property, through a third-party complaint, alleged the insured was negligent and had breached the implied warranty of habitability. Initially the complaint alleged the insured was a “developer of commercial and investment real estate” however after discovery and depositions, the property owners amended the third-party complaint and removed all allegations referencing the insured’s occupation or business.
The insurer had issued three policies to the insured: a Landlord Insurance Policy, a Homeowner’s Policy and a Personal Umbrella Insurance Policy. The landlord policy provided coverage during the building of the duplex but ended at some time after the sale of the duplex. The homeowner’s policy and personal umbrella policy were in effect at the time of the alleged accident. Both policies had exclusions for an injury or property damage arising out of the insured’s “business activities.” Specifically coverage was excluded for “any occurrence arising out of any act or failure to act by any person in performing function’s of that person’s business” or “any occurrence arising out of a business or business property.” Further “Business” is defined as “any full or part-time activity of any kind: (1) arising out of or relating to an occupation, trade or profession of an insured person; and (2) engaged in by an insured person for economic gain, including the use of any part of any premises for such purpose.” The issue before the court on the Motion for Summary Judgment was whether the business exclusion of the policies applied and whether, in turn, the insurer had a duty to defend the insured.
The insured advanced the argument that “the construction and sale of the duplex constitutes ‘business’ as defined by the policy because it was at least a part-time activity, it arose out of [the insured’s] occupation, trade or profession, and it was engaged in for economic gain.” The Court, under Oregon law, determines the duty to defend by examining the four corners of the policy and the complaint. The Amended Third-Party complaint did not allege the insured was a builder or developer, and so while even though the facts tend to show the development of the duplex arose out of the insured’s business, the Court found those “facts do not extinguish the [insurer’s] duty to defend.” Therefore the court rejected the insurer’s argument and held the insurer had a duty to defend the insured.
