Zimmerman v. Safeco Ins. Co. of America

• Citation: 605 N.W.2d 727
• Decision Date: 17 February 2000
• Docket Number: No. C9-98-1991.,C9-98-1991.
• Parties: Robert ZIMMERMAN, Appellant, v. SAFECO INSURANCE COMPANY OF AMERICA, Respondent.
• Court: Minnesota Supreme Court

605 N.W.2d 727

Robert ZIMMERMAN, Appellant, v. SAFECO INSURANCE COMPANY OF AMERICA, Respondent.

No. C9-98-1991.

Supreme Court of Minnesota.

February 17, 2000.

Andrew Engebretson, St. Paul, for appellant.

Paul A. Benker, Paula Duggan Vraa, Lindsay G. Arthur, Jr., Minneapolis, for respondent.

Heard, considered, and decided by the court en banc.

OPINION

STRINGER, Justice.

Appellant Robert Zimmerman, president and sole shareholder of Airport & Airline Taxi-Cab Corporation (Airport Taxi), was sued by an employee for sexual harassment as well as other claims in October of 1995. Zimmerman tendered the defense to Safeco Insurance Company of America (Safeco) under his homeowner's insurance policy. Safeco declined to accept the tender, claiming that liability for sexual harassment was not covered under the policy because it was a loss that fell within the business pursuits exclusion to coverage. Zimmerman was found liable on the sexual harassment claim and then sought a declaratory judgment that Safeco has an obligation under the policy to defend and indemnify him in the lawsuit.¹ Safeco moved for summary judgment claiming that liability for sexual harassment in the workplace falls under the business pursuits exclusion of the policy. The district court granted summary judgment for Safeco, Zimmerman appealed and the court of appeals affirmed.² We affirm.

In 1991, Zimmerman and a female employee of Airport Taxi became involved in a sexual relationship but in late 1994 the affair began to tarnish. The employee began avoiding Zimmerman and no longer wanted a relationship with him because he had been making embarrassing and distressing comments to her in front of her co-workers. The relationship then ended but Zimmerman attempted to rekindle it a short time later. Unsuccessful, Zimmerman found it difficult to see the employee on a daily basis because he still had romantic feelings for her and asked her to "explore her options," although he admitted he was satisfied with her work. The employee begged Zimmerman for her job, prompting an outburst from Zimmerman that included sexual innuendoes. On July 19, 1995, the employee resigned her employment and sued alleging a variety of claims including sexual harassment in the workplace. The district court found that Zimmerman's conduct constituted sexual harassment and caused the employee emotional distress and permanent emotional damage. Further, the court found that Zimmerman implicitly fired the employee by creating a hostile work environment causing her to leave her job at Airport Taxi. In this declaratory judgment action, the district court granted Safeco summary judgment concluding that because the business relationship between Zimmerman and his employee was inseparable from the sexual harassment claim, the business pursuits exclusion in the homeowner's insurance policy applied relieving Safeco of a duty to defend or indemnify Zimmerman.

On appeal, the court of appeals held that the sexual harassment claim could not have existed but for the business relationship between Zimmerman and the employee and affirmed the district court's holding that Safeco's homeowner's policy does not provide coverage for injuries related to the claim because of the business pursuits exclusion. See Zimmerman v. Safeco Ins. Co. of Am., 593 N.W.2d 248 (Minn.App. 1999)

.

In appellate review of an order for summary judgment we must determine whether there is any issue of material fact and whether the lower court erred in applying the law. See Norwest Bank Minn., N.A. v. State Farm Mut. Auto. Ins. Co., 588 N.W.2d 743, 745 (Minn.1999)

. Where material facts are not in dispute and the sole issue is a question of insurance policy interpretation, our review is de novo. See id; see also State Farm Ins. Cos. v. Seefeld, 481 N.W.2d 62, 64 (Minn.1992) (stating that insurance coverage issues are questions of law).

The relevant provisions of the homeowner's policy issued by Safeco to Zimmerman are as follows:

SECTION II-LIABILITY COVERAGES

COVERAGE E -

PERSONAL LIABILITY

If a claim is made or a suit is brought against any insured for damages because of bodily injury or property damage caused by an occurrence to which this coverage applies, we will:

pay up to our limit of liability for the damages for which the insured is legally liable; and

provide a defense at our expense by counsel of our choice even if the allegations are groundless, false or fraudulent. We may make any investigation and settle any claim or suit that we decide is appropriate.

SECTION II-EXCLUSIONS

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

* * * *

arising out of business pursuits of any insured * * *.

This exclusion does not apply to:

(1) activities which are ordinarily incident to non-business pursuits; * * *.

We must determine if Zimmerman's sexual harassment arose out of his business pursuits and therefore falls within the policy's business exclusion and if it does, if it was an activity ordinarily incident to nonbusiness pursuits falling within the exception to the exclusion.

In Milwaukee Mutual Insurance Co. v. City of Minneapolis, we held that whether conduct constitutes a business pursuit depends on the relationship between the conduct in question and the business of the insured. 307 Minn. 301, 309, 239 N.W.2d 472, 476 (1976). There, a Minneapolis police officer who was demonstrating the operation of his service revolver to other officers in the police station accidentally shot another officer. See 307 Minn. at 305-06, 239 N.W.2d at 474. The officer who accidentally discharged the gun tendered the wounded policeman's claim for injuries to the officer's homeowner's insurance carrier. See id. We affirmed the district court's determination of coverage, concluding under policy language identical to Safeco's that the officer's conduct was a business pursuit for purposes of the insurance policy because the conduct was peculiar to and contributed to the interests of police activities. See 307 Minn. at 307, 239 N.W.2d at 475. We held that the exception to the business pursuits exclusion applied however, because "activities such as pistol handling and trigger spring checking * * * are ordinarily incident" to nonbusiness activities such as "hunting, weapon collecting and target shooting." See id. The officer was thus entitled to indemnification from liability for the accident under his homeowner's insurance policy.

We also held that the exclusion and its exception applied in Farmers Insurance Exchange v. Sipple, where the insured, a state highway department employee, assaulted a farmer during a heated debate over a new highway that was allegedly creating drainage problems for the farmer's land. 255 N.W.2d 373, 374 (Minn. 1977). Under language identical to that in Zimmerman's Safeco policy, we held that while the assault fell within the exclusion because it was peculiar to and contributed to the interests of business activity, it also fell within the nonbusiness exception to the exclusion because the assault was an act ordinarily incident to nonbusiness pursuits. See id. at 375.

Finally, in Bankers Standard Insurance Co. v. Olwell, we determined that the insureds, licensed daycare providers, were entitled to coverage under their homeowner's insurance policy for claims asserted when two children, who were under their care, wandered into a street and were injured. 309 N.W.2d 799, 801-02 (Minn.1981). We again held that the incident fell under the business pursuits exclusion but concluded the exception to the exclusion applied because caring for and supervising children were "clearly incident to [the] nonbusiness regimen of maintaining a household and supervising * * * children." Id. (quoting Crane v. State Farm Fire & Cas. Co., 5 Cal.3d 112, 95 Cal.Rptr. 513, 485 P.2d 1129, 1131 (1971)).³

Here, Zimmerman asserts that Safeco has a duty to indemnify him because sexual pursuits in the workplace are not conduct peculiar to or in the furtherance of the interests of his business. See Milwaukee Mut. Ins. Co., 307 Minn. at 309, 239 N.W.2d at 476. Zimmerman argues that the conduct at issue is the sexual pursuit of another person, a private and personal matter not solely referable to the conduct of the business because it is not an activity regularly engaged in for purposes of earning a livelihood such as a trade, profession, or occupation. Zimmerman further contends that even if we determine that the business pursuits exclusion applies, the exception to the exclusion also applies because, regardless of the legal label attached to sexual harassment, the sexual pursuit of another person is an activity ordinarily incident to nonbusiness pursuits. Finally, Zimmerman argues that Safeco could have amended its policy language, as many other insurers have done, to specifically prohibit coverage for sexual harassment; Safeco chose not to and therefore has a duty to indemnify Zimmerman for his losses. Safeco, on the other hand, argues that the liability-creating event—Zimmerman's sexual harassment of an employee—must be the focus for determining whether the policy's business exclusion and exception apply, and that sexual harassment must fall under the business pursuits exclusion because, by definition, it arose from and was dependent upon the business relationship. Further, Safeco argues that the exception to the exclusion does not apply because the liability-creating conduct could not have occurred outside the employment relationship. Therefore it was not an activity ordinarily incident to nonbusiness pursuits.⁴

We believe that Safeco has the better arguments and that the appropriate focus must be on the liability-creating conduct— Zimmerman's sexual harassment of an employee.

Here the liability-creating conduct is Zimmerman's sexual harassment of an employee. Clearly, sexual harassment of an employee falls within the general business pursuits exclusion of the...