Federal Court In South Carolina Construes Business Pursuits Exclusion To Exclude Coverage to Home Business Operating Without a License

Applying South Carolina law, a federal court enforced a business activity exclusion in a homeowners’ policy against a claim for injury to a child attending a home daycare participant operated without a business license. Allstate Indem. Co. v. Riley, 2020 U.S. Dist. LEXIS 220382, *16 (D.S.C. Nov. 24, 2020).

The insured operated a daycare facility out of her home without obtaining a business license to do so. The insured’s college-aged son lived at home and owned a handgun, which he left on a counter-height kitchen table overnight. One of the children in the daycare found the gun and accidentally shot himself in the hand. The child’s parents sued the insured for the injuries the child sustained while in the insured’s care at the home.

The homeowners’ policy excluded injuries which “aris[e] out of the past or present business activities of an insured person.” In coverage litigation, the court found that the claims in the underlying lawsuit “arise out of” the child care business. The court noted that the South Carolina Supreme Court has not addressed the scope of the phrase “arising out of” in the context of such an exclusion in a homeowners’ policy. But the court found that the child’s injuries were “inextricably connected” to the child care business based upon both the underlying complaint and the testimony from the insured that the child would not have come in contact with the gun had the child not been at her home for daycare services. Thus, the court found coverage for the claims in the underlying complaint clearly and unambiguously excluded by the business activities exclusion.