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Argent v. Brady

386 N.J. Super. 343, 901 A.2d 419 (App. Div. 2006)

INSURANCE; LANDOWNER’S LIABILITY; INSURANCE—An insurance policy that excludes coverage for the business activities of an “insured” excludes coverage for all “insureds” under the policy even ones who were not engaged in the business activity.

While on the premises of, and under the care of, day care operators, a minor was bitten in the face by a dog. A suit against the day care operators was filed by the minor’s mother on behalf of herself and her son. The day care operators sought a defense and indemnification from their homeowner’s carrier, an insurance company. When the insurance company denied coverage on the basis of the policy’s business pursuits exclusion, the day care operators instituted a third-party declaratory judgment action against their carrier. The lower court found an open issue of fact as to whether the day care operators were engaged in the business of providing day care services, since there was a dispute as to whether they were being paid for such services or just being reimbursed for their expenses when they accepted the mother’s weekly payment on behalf of the child. Discovery disclosed that the dog may have been owned by the day care operators’ son, who lived with the day care operators. When the day care operators’ son proffered his defense to the insurance company, it denied coverage to him as well, again relying on the business pursuits exclusion even though the day care operators’ son was not personally engaged in any business allegedly conducted by his mother.

The Appellate Division held that the issue was whether the policy’s business pursuits exclusion applied to the resident son of the named insureds. If it did, the insurer would have no duty to defend or indemnify him from alleged liability for injuries sustained by the infant.

The Appellate Division first addressed the issue of whether there is coverage as the result of the insurance company used the phrase “an insured” when excluding coverage for incidents arising out of the business activities of “an insured.” The Court reasoned that if the insurance company had used the phrase “the insured,” coverage for the day care operators’ son would certainly exist, regardless of the business pursuits exclusion, because there was no evidence that the injury arose out of a business engaged in by him. Care of the bitten child was provided by the day care operators, and no other insured. Instead, the Court found that the insurance company’s use of the phrase “an insured” could only be reasonably understood to encompass a business engaged in either by either the day care operators or their son. They were the three persons to whom homeowner’s protection, in general terms, was offered under the policy at issue. Courts have uniformly held that the use of the article “an” in this context is not susceptible to any other meaning, and in this context cannot be deemed synonymous with “the.” Accordingly, the Court construed the phrase to exclude from coverage any liability resulting from the business pursuits of a covered person, regardless of whether the person sued was engaged in those business pursuits.

Next, the Appellate Division addressed the issue of whether the policy’s severability clause or the absence of a disclaimer of the applicability of that clause rendered the insured’s homeowner’s coverage ambiguous. The Court noted that although the issue previously had not been addressed in New Jersey, courts in other jurisdictions were split on the effect of a severability clause on a policy exclusion that applies to the acts of “an” or “any” insured. In this case, the Court followed the majority of courts, holding that the existence of a severability clause does not contradict a clearly worded exclusion. Therefore, it concluded that coverage did not extend to the day care operators’ son in light of the business pursuits exclusion. As such, it declined to find an ambiguity that would require construing the policy in a way that would negate the business pursuits exclusion and afford coverage to the day care operators’ son.

Lastly, the Court addressed the question whether the absence of a direct reference to the inapplicability of the severability clause within the business pursuits exception rendered that exception ambiguous. While the Court agreed that a disclaimer of severability following all of the exclusions would have been preferable, it ruled such a clarification was not required. Thus, the Court found that the absence of a direct reference to the inapplicability of the severability clause did not create an ambiguity.

Accordingly, the Appellate Division reversed the judgment of the lower court.

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