No Coverage Under Tenant Policy for Regular Business Activities
Insurance companies write business liability policies to protect people in almost any business. Insurance companies write homeowners and tenant owners policies to protect owners and tenants and invariably exclude business transactions. When a person is sued for activities in a business and has only a limited tenant policy will try to convince a court that the limited policy is ambiguous and provides the business liability insurance not purchased.
In Kay Gnat-Schaefer v. Jason Amrani And Chase Properties And Investments LLC, Auto-Owners Insurance Company Erie Insurance, Appeal No. 2017AP100, State Of Wisconsin In Court Of Appeals District I (March 14, 2018) Jason Amrani tried to expand a limited policy.
He failed in the trial court and Amrani and his development company, Chase Properties and Investments LLC, appealed from an order granting a judgment in favor of intervening defendant Erie Insurance declaring that Erie is not required to defend or indemnify Amrani and/or Chase in an action filed by Kay Gnat-Schaefer.
Amrani and Gnat-Schaefer had a decade-long business and personal relationship. In 2013, they decided to purchase and renovate a Milwaukee residential duplex to restore it to a single-family dwelling. Gnat-Schaefer would hire Amrani and/or Chase to serve as general contractor. They discussed a projected cost of $163,970, a number Amrani said he felt “confident in.” The seller accepted Chase’s offer to purchase the property for $96,000. Chase then assigned its right, title, and interest in and to the offer to purchase to Gnat-Schaefer. At closing, Gnat-Schaefer executed a fixed-rate balloon note for the principal sum of $300,000 and a mortgage on the property to secure the note. Amrani acted as mortgagee.
The parties did not execute a written contract memorializing the scope or cost of the work. Gnat-Schaefer became dissatisfied with the renovation work and ended Amrani’s involvement with the project. In June 2014, Amrani informed Gnat-Schaefer he would not release the mortgage unless she paid him $282,174.25. He supported his demand with a multipage spreadsheet detailing the project’s final costs.
Gnat-Schaefer filed suit. The amended complaint alleged numerous Wis. Admin. Code § ATCP 110 (Mar. 2014) violations; breach of contract, unjust enrichment, breach of the duty of good faith and fair dealing, accounting, theft by contractor under Wis. Stat. §§ 779.02 and 779.16 (2015-16), negligent misrepresentation, strict responsibility misrepresentation, and intentional deceit. Gnat-Schaefer claimed that Amrani failed to complete the renovation work he was supposed to do, improperly performed some of the work he did do, and failed to keep Gnat-Schaefer apprised of delays, cost overruns, and change orders. Gnat-Schaefer also alleged that the HVAC system was defectively installed and, because Amrani left dust, exposed dirt, and piles of debris in the basement, the combination makes the home unsafe to occupy due to poor air quality.
Erie insured Amrani under a Tenantcover policy and a personal catastrophe liability policy. Erie moved for declaratory and summary judgment on the basis that the policies did not provide coverage for defense or indemnity, as the allegations in Gnat-Schaefer’s amended complaint did not allege bodily injury or property damage caused by an occurrence.
After examining the Erie policies’ language, the circuit court found an initial grant of coverage, as the policies limit coverage to an “occurrence,” which “means an accident,” and reasonable minds could differ as to whether an accident occurred.
The Tenantcover policy excludes “regular business activities” and defines “business” as “any full-time, part-time or occasional activity engaged in as a trade, profession or occupation, including farming.” The personal catastrophe policy excludes coverage for “personal injury or property damage arising out of business pursuits.” It defines “business” as “any activity engaged in as a trade, profession or occupation, other than farming.” Amrani and Gnat-Schaefer have engaged in other real estate ventures over the years; Amrani has purchased numerous other properties for investment and, for his own purposes, rehabbed and sold them; and Amrani acted as a general contractor on this project.
Since the exclusion applies the court then considered whether the occasional-business exception restores the coverage the business-pursuit exclusion knocked out. The occasional-business exception states that Erie provides coverage for “occasional business activities of anyone we protect. These include, but are not limited to, baby-sitting, caddying, lawn care, newspaper delivery and other similar activities.”
The court’s reading of the occasional-business exception persuaded it that “other similar activities,” not “occasional,” is the determinative term. For a pursuit to fall under the exception, it plainly must be “similar” to the listed activities. Amrani invested in real estate with Gnat-Schaefer on multiple occasions and loaned her money for them. He also worked for months on this whole-house renovation project and has done similar undertakings for his own benefit.
None of those activities are similar to babysitting, caddying, lawn care, or newspaper delivery. Amrani’s construction of the exception is not reasonable; the exception is not ambiguous, there is no coverage for defense or indemnity.
It is difficult to understand why people in a business relationship failed to acquire business liability insurance or errors and omissions insurance. The suit Gnat-Schaefer filed seeks both breach of contract and tort damages all of which flow from the business relationship in acquiring and restoring a residential property. None of Amrani’s activities even resembled babysitting, caddying, or lawn care. Another case that should never have been taken to an appellate court.
© 2018 – Barry Zalma
This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and email@example.com.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
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