Business Pursuits and the Duty to Defend
Preferred Mutual Ins. Co. v. Vermont Mutual Ins. Co., __ N.E.3d __, 2014 WL 9909470 (Mass. App. Ct. June 17, 2015)
Preferred Mutual Insurance Company (hereinafter “Preferred”) brought a declaratory judgment action against Vermont Mutual Insurance Company (hereinafter “Vermont”) seeking a determination that Vermont had the sole obligation to defend and indemnify Joseph Munyon. This action involved injuries allegedly sustained by a subcontractor’s employee (hereinafter “plumber”) while renovating a house owned by Francis and Eileen Munyon. Francis and Eileen lived in the house with their adult son, Joseph. Joseph was an electrician assisting in the renovations in what Vermont argued was a supervisory capacity. The injuries occurred after Joseph left a portion of the porch railing unfastened. The plumber fell while leaning on the railing and sustained injuries. Joseph maintained CGL insurance through Preferred. The Munyons maintained a homeowner’s policy with Vermont. The plumber successfully brought an action against both the Munyons and Joseph. Vermont defended the Munyons, but not Joseph. Preferred defended Joseph under a reservation of rights. Following the plumber’s successful trial, Preferred sought a judgment that it had no duty to defend or indemnify Joseph and asserted an equitable claim against Vermont for 50% of the defense costs. A Superior Court Judge held that Preferred had no duty to defend or indemnify and that Vermont must reimburse Preferred for the entirety of the defense costs. Vermont appealed.
The Vermont policy contained a business pursuits exclusion stating that no coverage is provided for injuries sustained by an insured in connection with an insured’s business. The duty to defend arises when the allegations in a complaint are reasonably susceptible of an interpretation that states a claim for coverage under a given policy. The Court applied a two prong test to determine if the business pursuits exclusions of the Vermont policy applied. The first prong asks whether the insured regularly engages in the activity as part of his livelihood. The second prong asks whether the purpose of the activity was to obtain monetary gain. Here, under prong one there is no question that Joseph is an electrician. However, there is no indication that the alleged supervisory activities Vermont asserts regarding Joseph are activities he regularly performed. Regarding the second prong, the complaint was insufficient to indicate whether Joseph was participating in the renovation for profit, specifically considering that the renovations were being performed to Joseph’s parents house where he was also a resident. The Court held that as the business pursuits exclusion was not satisfied and that Vermont had a duty to defend and indemnify Joseph. However, the Court also held that Preferred had a duty to defend because the asserted claim could potentially fall within the scope of its coverage. Finally, the Court vacated the Superior Court’s prior order requiring Vermont to reimburse Preferred for the entirety of the defense costs. Instead, the Court held that under the equitable claim, Vermont must reimburse Preferred for 50% of the costs to defend Joseph.