Member Article

In Still v. Great Northern Insurance Company, No. 07-2425, 2007 U.S. App. LEXIS 26024 (3d Cir. Nov. 87, 2007), the Third Circuit affirmed the District Court’s grant of summary judgment to an insurer relying on the “business pursuits” exclusion in a homeowner’s policy. The Third Circuit found the exclusion was unambiguous and precluded coverage for a counterclaim brought by the insured’s former employer for malicious prosecution. Id. at *5-6.

Factual and Procedural Background

The policyholder, David Barnes Still, founded Regulus Group LLC in 1995 and subsequently served as its President, CEO and Chairman of the Board. About five years after Regulus was founded, a dispute arose regarding Still’s employment and investments at the company and he was eventually terminated. Regulus also removed Still from the Board and issued additional stock to dilute his ownership in the company. Id. at *1. Still then commenced an action in federal court against the company and related individuals, alleging that the company’s actions breached several agreements as well as Pennsylvania law. The federal action proceeded to a jury trial and judgment was entered in favor of Regulus. Id. Still then commenced a second suit against Regulus in Pennsylvania state court. Regulus filed a counterclaim for wrongful use of civil process. Id. at *2.

Still tendered the counterclaim to his homeowners insurer, contending that the policy provided coverage for malicious prosecution claims. Id. The insurer denied coverage based on the policy’s “business pursuits” exclusion, which excluded coverage for “any damages arising out of a covered person’s business pursuits, investment or other for-profit activities, for the account of a covered person or others, or business property.” The policy defined “business” in relevant part, as “any employment, trade, occupation [or] profession.” Id. at *4. Still then filed an action in federal court against his insurer seeking a declaration that the insurer was required to provide him with a defense against the counterclaim. Still also alleged that the insurer acted in bad faith in denying the claim. Id. at 2-3. On cross motions for summary judgment the court, applying Pennsylvania law, entered judgment in favor of the insurer. Id. at 3. Still appealed the decision to the Third Circuit.

The Third Circuit Decision

The Third Circuit affirmed the district court’s decision. Id. at *7. The Third Circuit agreed with the district court that the “business pursuits” exclusion was not ambiguous. Id. at *5. The court also agreed that the Regulus counterclaim fell within the exclusion. Based on Third Circuit precedent, the court explained that an activity is a business pursuit when there is both continuity and profit motive. Id. at *5-6 (citing Sun Alliance Ins. Co. v. Soto, 836 F.2d 834, 836 (3d Cir. 1987)). Still’s activity with Regulus was continuous because he held several different positions with the company over the course of five years. Id. At *6. In addition, his involvement with Regulus was motivated by profit as he was employed there and had invested money in the company. Id. Thus, Still’s involvement with Regulus was a business pursuit.

The Third Circuit also found that the Regulus counterclaim clearly arose out of Still’s business with Regulus. The basis of the counterclaim was the initial federal suit filed by Still regarding his employment and investment rights in the company. Id. Under Pennsylvania law as applied by the Third Circuit, an injury arises from a business pursuit when it is “casually connected” to the business of the insured. Id. at *6-7 (citing Aetna Cas. & Sur. Co. v. Ericksen, 903 F. Supp. 836, 840 (M.D. Pa. 1995)). Accordingly, the Third Circuit found that the district court was correct in concluding that the insurer had no duty to defend Still against the Regulus counterclaim. Id. at *7.

Implications

Still confirms that courts are willing to grant — and appellate courts willing to affirm — summary judgment in favor of insurers where plain and unambiguous exclusions preclude coverage. The decision also illustrates that the term “arising out of” when used in an exclusion precludes coverage for injuries casually connected to the excluded activity or condition. The Still decision also affirms that the business pursuits exclusion in a homeowners policy excludes all liability arising from disputes connected to a homeowner’s employment or investment interests.