Floyd v. Northern Neck Ins. Co.

• Decision Date: 26 February 1993
• Docket Number: No. 920946,920946
• Citation: 427 S.E.2d 193,245 Va. 153
• Parties: Bob FLOYD, et al. v. NORTHERN NECK INSURANCE COMPANY. Record
• Court: Virginia Supreme Court

Page 193

427 S.E.2d 193

245 Va. 153

Bob FLOYD, et al. v. NORTHERN NECK INSURANCE COMPANY.

Record No. 920946.

Supreme Court of Virginia.

Feb. 26, 1993.

Michael S. Irvine, Buena Vista (Robey & Irvine, on brief), for appellants.

David B. Carson, Roanoke (Ronald M. Ayers, on brief), for appellee.

Present: All the Justices.

COMPTON, Justice.

This is an appeal in a declaratory judgment proceeding in an insurance case. We must decide whether the trial court erred in ruling in favor of the insurer and in applying to a child care situation a business pursuits exclusion contained in a homeowner's policy.

The facts were stipulated. Residing near Buena Vista, Randolph J. Coffey and Linda Coffey, his wife, were friends and neighbors of appellants Bob Floyd and Phyllis Floyd, his wife. The Floyds are parents of appellant Hollie Nichole Floyd, who was 15 months old at the time of the occurrence giving rise to the controversy; the Coffeys are parents of Elizabeth Coffey, who was nine years of age at the time. The Floyds are not relatives of the Coffeys.

For some months prior to the incident in question, Linda Coffey kept Hollie at the Coffey home while the Floyds were at work. She provided day care or baby-sitting services regularly for which the Floyds paid her $5.00 per day. This sum was paid primarily to compensate the Coffeys for expenses in providing food and other necessities to Hollie. Mrs. Coffey did not keep any other child.

On May 17, 1990, Mrs. Floyd left Hollie with Mrs. Coffey for the day. During the day, Mrs. Coffey and her daughter Elizabeth were cutting the grass at the Coffey home using separate riding lawn mowers. As Hollie was playing in the back yard, Mrs. Coffey saw Hollie running toward Elizabeth's mower. Mrs. Coffey stopped her mower "to go after" Hollie. Before Mrs. Coffey could reach Hollie, she was struck and injured by the mower Elizabeth was operating.

On the day in question, appellee Northern Neck Insurance Company had in effect a homeowner's policy with Mr. and Mrs. Coffey as the named insureds. None of the Floyds is an insured under the policy. The policy provided coverage, inter alia, for personal liability and medical payments.

The following language was contained in a policy endorsement:

"NO COVERAGE FOR HOME DAY CARE BUSINESS

"If an insured regularly provides home day care services to a person or persons other than insureds and receives monetary or other compensation for such services, that enterprise is a business pursuit. Mutual exchange of home day care services, however, is not considered compensation. The rendering of home day care services by an insured to a relative of an insured is not considered a business pursuit.

"Therefore, with respect to a home day care enterprise which is considered to be a business pursuit, this policy:

"1. does not provide Section II--Liability Coverages because business pursuits of an insured are excluded under exclusion 1. [d.] of Section II--Exclusions; ..."

The insurance contract provided, under exclusion 1.d.: "This policy does not apply: 1. Under Coverage E--Personal Liability and Coverage F--Medical Payments to Others: ... d. to bodily injury or property damage arising out of business pursuits of any Insured except activities therein which are ordinarily incident to non-business pursuits." The foregoing exclusion, with its exception, is the focus of this dispute.

In July 1990, the insurer filed a petition for declaratory judgment in the court below joining as defendants the three Coffeys and the three Floyds. The insurer asked the court to declare that no coverage was afforded to the Coffeys by the policy, and that it had no obligation under the policy to defend the Coffeys against any claim made by Hollie or to pay any judgment which may be entered against any of the Coffeys for injuries or damages to Hollie arising out of the accident.

In a response to the petition, the Floyds moved the court to declare that coverage existed, and that the insurer had an obligation to defend any claim made by Hollie and to pay any judgment obtained against the Coffeys as the result of Hollie's injuries.

Following briefing and argument of counsel, the trial court ruled that no coverage for the incident was provided by the insurer's policy. The court applied the exclusion, finding from the stipulated facts that Mrs. Coffey's child care enterprise was a "business pursuit" within the meaning of the policy. We awarded the Floyds an appeal from the March 1992 order granting the insurer's petition.

Commonly found in personal liability insurance policies, this type of exclusion generally provides that the liability coverage does not apply to any "business pursuits" of the insured, other than activities which ordinarily are incident to nonbusiness pursuits. Job A. Sandoval, Annotation, Construction and Application of "Business Pursuits" Exclusion Provision in General Liability Policy, 48 A.L.R.3d 1096. This barring of business liability in personal liability policies removes coverage, not essential to the purchasers of the insurance, that ordinarily would require specialized underwriting and rating, thus enabling premiums to be kept at reasonable levels. Id. at 1098-99.

While we have addressed the business pursuits exclusion in a child care setting in two prior cases, Smith v. Allstate Insurance Co., 241 Va. 477, 403 S.E.2d 696 (1991), and Virginia Mutual Insurance Co. v. Hagy, 232 Va. 472, 352 S.E.2d 316 (1987), we have not been confronted with the precise language of the present provision. Other jurisdictions, however, have interpreted the same or similar language in a child care context using various analyses.

For example, some courts focus upon the specific activity of the caretaker that caused the child's injury. In Gulf Insurance Co. v. Tilley, 280 F.Supp. 60 (N.D.Ind.1967), aff'd per curiam, 393 F.2d 119 (7th Cir.1968), a child was burned by an overturned pot of hot coffee being prepared by the insured who conducted a baby-sitting business. The court determined that the preparation of coffee is an activity not ordinarily associated with a baby-sitter's functions. Thus, the exception to the exclusion applied and coverage was afforded. Id. at 65.

Other courts have not focused on the particular activity of the tortfeasor but have taken a broader view of the child care enterprise. Those courts have reasoned that a lack of proper supervision in a home child care situation is an activity directly related to the business pursuit of professional child care. In Moncivais v. Farm Bureau Mutual Insurance Co., 430 N.W.2d 438 (Iowa 1988), a child placed in a crib with another infant became entangled in twine and choked to death while the caretaker was tending to household chores. The court applied the exclusion and denied coverage, ruling the activity that caused the child's...