Sun Alliance Ins. Co. of Puerto Rico, Inc. v. Soto

• Decision Date: 19 January 1988
• Docket Number: No. 86-3622,86-3622
• Citation: 836 F.2d 834
• Parties: SUN ALLIANCE INSURANCE COMPANY OF PUERTO RICO, INC., Appellant, v. Andres SOTO and Lydia Soto.
• Court: U.S. Court of Appeals — Third Circuit

Page 834

836 F.2d 834

SUN ALLIANCE INSURANCE COMPANY OF PUERTO RICO, INC., Appellant, v. Andres SOTO and Lydia Soto.

No. 86-3622.

United States Court of Appeals Third Circuit.

Argued Dec. 8, 1987.

Decided Jan. 19, 1988.

Warren B. Cole (argued), Isherwood, Hunter and Colianni, St. Croix, V.I., for appellant.

Mary Faith Carpenter (argued), Denise R. Reovan, Law Offices of Desmond L. Maynard, Charlotte Amalie, St. Thomas, V.I., for appellees.

Before GIBBONS, Chief Judge, and STAPLETON and MANSMANN, Circuit Judges.

OPINION OF THE COURT

MANSMANN, Circuit Judge.

This appeal arises from a declaratory judgment action which required the district court to determine the parties' rights and liabilities pursuant to an insurance policy. The district court found that the "business pursuits" exclusionary clause was not applicable under the facts of this case. Because we conclude that the activities at issue here do come within the business pursuits exclusion, we will reverse the judgment of the district court.

I.

Appellee Andres Soto ("Soto") ¹ is the sole shareholder, president and a member of the board of directors of Andres Soto, Inc. The corporation was the owner of commercial real estate in St. Thomas, United States Virgin Islands, which consisted of 65 efficiency apartment units, a furniture store and a furniture warehouse. The corporation was insured under a commercial multi-peril policy issued by American Home Insurance Company.

Mr. and Mrs. Soto occupied one of the apartment units on the premises. This property was insured under a tenant's homeowner's insurance policy issued to Andres and Lydia Soto by the Sun Alliance Insurance Company ("Sun Alliance"). The policy provided general homeowner's insurance for the residence and contained the following exclusion:

This policy does not apply:

* * *

(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 policy definition of business includes "the rental or holding for rental of the whole or any portion of the premises by an insured."

In April, 1983 the commercial properties were destroyed by a fire which commenced in the warehouse. Several tenants of these properties filed suit against the corporation and those suits were defended by the American Home Insurance Company. The Sotos filed their own claim with Sun Alliance for personal property damage and tendered the defense of the actions in which they were named personally as defendants to Sun Alliance. Sun Alliance refused the tender and filed a complaint seeking a declaratory judgment of its rights and liabilities under the policy.

After a bench trial the district court held that the exclusionary clause was not applicable because the "business pursuit" was that of the corporation, and not that of the individual defendant, so that Soto was personally not involved in a business pursuit. Thus Sun Alliance was obligated to defend the lawsuits in which the Sotos were named. The insurance company appealed.

The issue raised in this case involves the interpretation of an insurance contract. This is an issue of law, over which our review is plenary. Pacific Indemnity Company v. Linn, 766 F.2d 754 (3d Cir.1985). We have jurisdiction pursuant to 28 U.S.C. Sec. 1291.

II.

The determination of an insurance company's duty to defend an insured is made from the allegations of the complaint filed against the insured. Pacific Indemnity Company v. Linn, id. In this regard Sun Alliance points out that the complaints filed in this case allege tortious conduct by the Sotos in the operation of their business involving the properties at issue, or in their capacities as corporate officers, agents or employees. Sun Alliance contends that the tortious conduct of the Sotos alleged in the complaints meets the two-part test which is generally used by the courts to determine whether the activity is a business pursuit: the continuity of the activity and whether such activity is engaged in for profit.

The Sotos counter that the exclusion simply does not apply to them, as the named insured on the policy is Andres Soto (and Lydia Soto) and not Andres Soto, Inc. Since the apartment house is owned by Andres Soto, Inc. the business pursuits alleged could not have been conducted by Sun Alliance's insured (Andres Soto personally), and the business pursuits of the corporation cannot trigger the applicability of the exclusion.

We note that the complaints in this case specifically alleged that Andres Soto owned the buildings and properties at issue; that Andres Soto is the agent and president of Andres Soto, Inc.; that Mr. Soto conducted an apartment house business on the premises; that Soto was personally negligent in failing to make the buildings safe; that employees of Andres Soto, Inc. and Andres Soto personally were negligent in renting unsafe buildings and in constructing those buildings in an unsafe manner. Thus we conclude...