Maryland Insurer Not Permitted to Rely on Business Pursuits Exclusion to Deny Duty to Defend Where Continuity of Business Interest and Profit Motive Were Unclear

In Springer v. Erie Insurance Exchange, the Court of Appeals set out to determine whether the allegations in a complaint for defamation triggered the Business Pursuits exclusion in a homeowner’s liability insurance policy and, consequently, would negate Erie Insurance’s duty to defend its insured.  Business Pursuits exclusions are commonly found in homeowners’ insurance policies, and this was the Court’s first opportunity to interpret the exclusion in the context of an insurer’s duty to defend.  In reaching its decision that Erie did have a duty to defend because the facts of this case were insufficient to support a denial of coverage as a matter of law, the Court established a two-part test for determining whether a business pursuits exclusion in a homeowner’s policy can be the basis for denying the insurer’s duty to defend its insured against a third party claim.  Specifically, in order to determine if an underlying complaint triggers the Business Pursuits exclusion, an insurer must consider (1) the continuity of the insured’s alleged business interests and (2) the insured’s profit motive.

The Court agreed with the insured, Springer, that the underlying tort complaint was ambiguous in that it did not clearly allege that Springer had any profit motive behind his actions, which was necessary to apply the Business Pursuits exclusion. Springer further claimed that he presented evidence from outside the complaint to Erie that suggested he was not involved in a business when the allegedly defamatory remarks were made.  Using the two-pronged analysis noted above, the Court agreed with other jurisdictions that have held that seasonal or occasional activities do not meet the continuity requirement, and that profit motive, not actual profit, makes a pursuit a “business pursuit.”

In addition to the specific application of the Business Pursuits exclusion in the context of an insurer’s duty to defend, the Springer case should serve to remind liability insurers that they cannot rely solely on the “four corners” of an underlying complaint to deny coverage if the insured provides evidence that would support coverage.  The insurer must consider this extrinsic evidence before making a decision on a duty to defend request.  Maryland courts have established that the denial of an insurer’s duty to defend based solely upon the four corners of the underlying complaint is permitted only in limited instances, and there will be a duty to defend if any evidence known to the insurer presents a potentiality of coverage.

Dalene Radcliffe is an attorney practicing in Niles, Barton, and Wilmer’s litigation group, serving clients in Maryland.  For more information on this post, or related issues, please contact her at daradcliffe@nilesbarton.com.