Stuart v. American States Ins. Co.

• Decision Date: 02 April 1998
• Docket Number: No. 65355-1,65355-1
• Citation: 134 Wn.2d 814,953 P.2d 462
• Court: Washington Supreme Court
• Parties: Neoma STUART, Respondent, v. AMERICAN STATES INSURANCE COMPANY, a foreign corporation, Petitioner.

Page 814

134 Wn.2d 814

953 P.2d 462

Neoma STUART, Respondent, v.AMERICAN STATES INSURANCE COMPANY, a foreign corporation, Petitioner.

No. 65355-1.

Supreme Court of Washington En Banc.

Argued Jan. 28, 1998.

Decided April 2, 1998.

Reed McClure, by William R. Hickman and Mary R. DeYoung, Seattle, for Petitioner.

Louie V. Delorie, Jr., Yakima, for Respondent.

JOHNSON, Justice.

This case presents the issue of whether a foster home constitutes a "business pursuit" as that term is used in an exclusion in a homeowners insurance policy.¹Neoma Stuart alleged injury by Jody Collins, a foster child of the insureds, Tom and Patricia McCabe(the McCabes).The McCabes' insurer, petitionerAmerican States Insurance Company(ASI), denied coverage and Stuart sued.

The trial court held the McCabes' foster home was a business pursuit and granted summary judgment to ASI.Stuart appealed and the Court of Appeals reversed and remanded, holding a question of fact exists as to whether the McCabes have a profit motive in operating their foster home.Stuart v. American States Ins. Co., 85 Wash.App. 321, 326, 932 P.2d 697(1997).We accepted ASI's petition for review and affirm.

FACTS

In December 1986, the McCabes acquired a license to operate a foster home.They then contracted with the Yakima Valley Farm Worker's Clinic (Clinic) to provide foster care for any children the State or the Clinic might place with them.Over the past 11 years, a total of 12 children have been entrusted to the McCabes' care.The McCabes are reimbursed by the State for the costs associated with caring for the children that are placed in their care, receiving anywhere from $369 to $870 per child per month, the amount dependent upon the special needs of the child.To be reimbursed for the expenses of their foster children, the McCabes fill out and submit vouchers to the Clinic each month.They do not declare the money they receive as income, nor do they declare their foster children as dependents for income tax purposes.

Before obtaining their foster home license, the McCabes purchased a homeowners insurance policy with ASI.The policy provided:

[I]f a claim is made or a suit is brought against an insured for damages because of personal injury or property damage caused by an occurrence to which this coverage applies, we[ASI] will: 1) pay up to our limit of liability for the damages for which the insured is legally liable; and 2) provide a defense at our expense by counsel of our choice, even if the suit is groundless, false or fraudulent.

Clerk's Papersat 37.²The policy, however, excludes from coverage injuries or property damage "arising out of business pursuits of an insured."The exclusion states, in pertinent part:

1.Coverage E--Personal Liability and Coverage F--Medical Payments to Others do not apply to bodily injury or property damage:

....

b. arising out of business pursuits of an insured or the rental or holding for rental any part of any premises by an insured in connection with:

1) a business owned or financially controlled by the insured or owned by a partnership or joint venture of which the insured is a partner or member....

Clerk's Papersat 39.

On August 5, 1991, while on an outing with a Clinic employee, Jody Collins struck Stuart with his bicycle.At the time, Jody was a foster child of the McCabes.Stuart filed one claim against Jody for negligence and a separate claim against the Clinic for negligent supervision.Jody tendered his defense to ASI which rejected the request and denied coverage because, "the running of this therapeutic foster home would come under the definition of business as defined by the policy."Clerk's Papersat 38.Jody assigned his claim against ASI to Stuart, who then filed an amended complaint for damages against ASI.

Stuart and ASI moved for summary judgment on the issue of coverage.The trial court granted summary judgment for ASI and denied Stuart's motion.Division Three of the Court of Appeals reversed and remanded the case for trial because a question of fact existed as to whether the McCabes have a profit motive in operating their foster home.Stuart, 85 Wash.App. at 326, 932 P.2d 697.

ANALYSIS

When reviewing an order of summary judgment, we engage in the same inquiry as the trial court.Safeco Ins. Co. of Am. v. Butler, 118 Wash.2d 383, 394, 823 P.2d 499(1992).That inquiry is whether "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law."CR56(c).

This case requires us to interpret an insurance policy and the policy's "business pursuits" exclusion.An insurance policy must have meaning to the average individual.As such, the policy language must be interpreted the way it would be understood by the average person.Vadheim v. Continental Ins. Co., 107 Wash.2d 836, 840-41, 734 P.2d 17(1987).In interpreting exclusions, we have held exclusions from coverage of insurance are contrary to the fundamental protective purpose of insurance and will not be extended beyond their clear and unequivocal meaning.McDonald Indus., Inc. v. Rollins Leasing Corp., 95 Wash.2d 909, 915, 631 P.2d 947(1981).Exclusions should also be strictly construed against the insurer.Mid-Century Ins. Co. v. Henault, 128 Wash.2d 207, 213, 905 P.2d 379(1995).

Four cases from the Court of Appeals have discussed business pursuits exclusions in homeowners insurance policies.Stoughton v. Mutual of Enumclaw, 61 Wash.App. 365, 810 P.2d 80(1991);Rocky Mountain Cas. Co. v. St. Martin, 60 Wash.App. 5, 802 P.2d 144(1990);Transamerica Ins. Co. v. Preston, 30 Wash.App. 101, 632 P.2d 900(1981);U.S.F. & G. Ins. Co. v. Brannan, 22 Wash.App. 341, 589 P.2d 817(1979).Stoughton and Rocky Mountain set out separate analyses for determining whether a given activity constitutes a "business pursuit."The Court of Appeals in this case followed the Stoughton analysis.Stuart, 85 Wash.App. at 325-26, 932 P.2d 697.³

In Stoughton, Division One concluded a business pursuits exclusion applied to deny coverage to a handyman who injured another while working on a barn.Stoughton, 61 Wash.App. at 370-71, 810 P.2d 80.Under the analysis in Stoughton, an insured's activity is a "business pursuit" if: (1)"the insured conducted the activity on a regular and continuous basis," and (2)"the insured's activity was 'profit-motivated.' "Stoughton, 61 Wash.App. at 369, 810 P.2d 80.As to the profit motive element, the Stoughton court stated there is no requirement the insured be motivated "solely by pecuniary gain" and the activity in question "need not be undertaken as the major source of livelihood" to satisfy either element of the test.Stoughton, 61 Wash.App. at 370-71, 810 P.2d 80.

In Rocky Mountain, an insurance company sought a declaration of coverage for an injury sustained by a child who touched a wood burning stove at his baby-sitter's house.Division Two held baby-sitting was a "business pursuit" and concluded the insurance company was not required to provide coverage under a business pursuits exclusion in the policy.Rocky Mountain Cas. Co., 60 Wash.App. at 10-11, 802 P.2d 144.In so holding, Division Two stated an activity is a "business pursuit" if it is "conducted on a regular and continuous basis for compensation."Rocky Mountain Cas. Co., 60 Wash.App. at 7, 802 P.2d 144.

In granting summary judgment to ASI, the trial court applied the analysis from Rocky Mountain.In reversing, Division Three followed the Stoughton analysis, reasoning that application of the Rocky Mountain analysis "broadens the base of the policy exclusion because it does not take into consideration a factor that would seem a sine qua non of going into business--making a profit....A profit motive is a necessary consideration in evaluating whether a pursuit is in fact a business."Stuart, 85 Wash.App. at 326, 932 P.2d 697.The Court of Appeals reasoned that broadening the exclusion was counter to this court's mandate that exclusions in insurance policies be strictly construed against the insurer.Stuart, 85 Wash.App. at 326, 932 P.2d 697.

The McCabes' homeowners insurance policy does not define "business pursuit," but defines "business" as a "trade, profession or occupation."Clerk's Papersat 38.⁴Because the term "business pursuit" is undefined, it should be given its "plain, ordinary and popular" meaning.SeeLynott v. National Union Fire Ins. Co., 123 Wash.2d 678, 691, 871 P.2d 146(1994)(quotingFarmers Ins. Co. v. Miller, 87 Wash.2d 70, 73, 549 P.2d 9(1976)).In order to determine the plain, ordinary and popular meaning of "business pursuit,"we may look to both legal and standard dictionaries.SeeLynott, 123 Wash.2d at 691-92, 871 P.2d 146.It only makes sense to understand the "plain, ordinary, and popular meaning" of the term prior to adopting the proper analysis to determine when an activity constitutes a "business pursuit."

Standard dictionaries do not define "business pursuit" as a term unto itself.While the term "business" is defined in the policy, the term "pursuit" is not.The term "pursuit" is defined in pertinent part as "an activity that one pursues or engages in seriously and continually or frequently as a vocation or profession or as an avocation

We also receive guidance from our previous cases.In Mains Farm Homeowners Ass'n v. Worthington, 121 Wash.2d 810, 854 P.2d 1072(1993), we held an adult family home violated a protective covenant that property would only be used for single family residential purposes.Central to our holding was that the defendant operated the home for a profit and for her main source of income.We agreed with the analysis of the Court of Appeals in Hagemann v. Worth, 56 Wash.App. 85, 782 P.2d 1072(1989):

While the Worths' purpose in providing room, board, and services may be charitable in nature, as...