It is not enough that you have insurance. You need to have the right type of insurance. That is the costly lesson that the defendant in the case, Nationwide Mutual Insurance Company v Pasiak, learned; a case decided by the Connecticut Supreme Court on February 21, 2023.
The facts in the case are interesting. The defendant, Pasiak, owned a construction company, which he operated out of his home. He had one office employee, Sara Socci, who worked in a room on the second floor of the house, across from the primary bedroom. The office had three desks, including a computer workstation. He would generally spend the mornings in the office with Socci, but often she was alone in the defendant’s house. The defendant had a homeowner’s policy and an umbrella policy from Nationwide. However, he did not have a commercial liability insurance policy for his business.
One afternoon, a masked man, carrying a gun, entered the defendant’s home and walked into the office. He grabbed Socci, and, with his gun pointed at her head, demanded that she lead him to the defendant’s safe and open it for him. She pleaded that she did not know whether the defendant had a safe or the combination. He bound, gagged and blindfolded her. He forced her to the floor and told her that, if she didn’t open the safe, he would kill her and her family.
Just then, the defendant returned home. He was attacked by the intruder and, in the struggle, was able to unmask the intruder. It turned out that the intruder was a friend of the defendant, who was angry with the defendant for allegedly having had an affair with his girlfriend. And, oh yeah, the intruder also needed money.
The defendant and his friend then talked the situation out. While this was going on, Socci wanted to get as far away from the intruder as possible and call the police. However, the defendant refused to let her leave the house. When the intruder finally left, the defendant then forced Socci into his car and drove to a mutual friend’s place of business, where he tried to convince Socci to not call the police. The defendant was afraid that calling the police would ruin his business.
Later that night, when Socci returned home, she and her husband finally called the police. You might think that the police would have arrested the intruder. And, for all we know, they did. However, that is not important to this story. What is important is that the police arrested the defendant and charged him with kidnapping in the second degree and witness tampering. He eventually pleaded guilty to a lesser charge.
Socci and her husband then sued the defendant for false imprisonment, negligence, intentional, reckless and negligent infliction of emotional distress, and loss of consortium. The defendant filed a claim with Nationwide under his homeowner’s and umbrella policies. Nationwide provided an attorney to defend Pasiak in the lawsuit under a reservation of rights disclaiming any obligation to indemnify him against damages awarded to Socci. Nationwide then commenced this lawsuit for a declaration that it did not have a duty to either defend or indemnify Pasiak in the Socci lawsuit.
The issue in this case is not uncommon; although the issue does not generally arise in the context of a kidnapping. People who work out of their homes often think that their homeowner’s policy covers anything that happens in or around the house, including in connection with their business. After all, the purpose of a homeowner’s policy is, in part, to protect the homeowner from claims brought by others for personal injury or property damage. However, the typical homeowner’s policy has a number of exclusions, as did the defendant’s policy in this case. The exclusion at issue was the policy’s business pursuit exclusion.
The purpose of a business pursuit exclusion is to deny coverage for damages related to the operation of a business. The reason for the exclusion is that a home used for business purposes has significantly greater exposure than a simple residence, and the likely damages would be significantly more expensive. As a result, a typical homeowner’s policy will be less expensive than a commercial liability policy. An insurance company is generally loathe to let a policyholder sneak unpaid for risks into a policy.
The Court’s opinion does not recite the language of the policy’s business pursuit exclusion. So, we do not know the exact language of the exclusion at issue in this case. But, generally, a business pursuit is an activity engaged in for profit and intended to be long-term, rather than an isolated incident. Of course, in this case, the defendant was engaged in a construction business. He was not generally engaged in the business of kidnapping. So why would the intrusion into the defendant’s home office invoke the business pursuit exclusion?
The Court began to answer that question by saying:
. . . no one questions that the activities of [Pasiak Construction] meet the two elements of a business pursuit. Nor does anyone contend that false imprisonment constitutes a business pursuit. Therefore, the question is not whether the false imprisonment itself satisfied the continuity/profit elements of a business pursuit . . . but, rather, whether the defendant’s false imprisonment of Socci ‘arose out of’ his business pursuits in operating [Pasiak Construction].
Further, the Court said that:
. . . the general meaning of ‘‘arising out of’’ is well established . . . it is sufficient to show only that the accident or injury was connected with, had its origins in, grew out of, flowed from, or was incident to the [specified subject] in order to meet the requirement that there be a causal relationship between the accident or injury and the [subject].
Finally, the Court said that the term “arising out of” is to be interpreted broadly. It is more expansive than the term “proximate cause”, which is generally the standard for a negligence action.
At the beginning of this article, we said that the facts of this case were interesting. The procedural history of the case is even more so. However, the procedural history of the case is beyond the scope of this article. Suffice it to say that the case came to the Connecticut Supreme Court purely on issues of law. As a result, we do not have a complete picture of the evidence presented to the trial court. However, the opinion issued by the Connecticut Supreme Court does give us a peak into the type of evidence required to establish that Socci’s claims arose out of the operation of the defendant’s construction business.
the question of whether the defendant’s false imprisonment of Socci was connected with, had its origins in, grew out of, flowed from, or was incident to his business pursuits would . . . be a factual matter.
And, the Court described the type of evidence that could establish that the kidnapping did arise from the defendant’s business:
. . . Kotulsky was targeting Socci’s boss. Because Socci was a new employee, the defendant periodically stopped by the office to see whether Socci had any questions. After the incident, the defendant anxiously and repeatedly expressed a concern to Socci that Kotulsky’s actions would ‘ruin’ his business and did so as part of a two-pronged argument as to why she should not report the incident to the police. When she told the defendant that she wanted to leave the office, he told her, ‘[i]t’s business as usual.’ Although Socci was too distraught to perform any of her usual tasks, she viewed her presence in acquiescence to the defendant’s demands as having ‘worked all day.’ When [the defendant] and Socci left the office to meet with Taranto to discuss the incident, the defendant directed Socci to leave her personal effects at the office. The defendant stopped at a construction site on the way to the meeting with Taranto and spoke with two workers there. Socci announced to the defendant that she could no longer work for him, and he relayed that concern to Taranto when the three met. Taranto was instrumental in Socci’s hiring and training, and she was intimately involved in the defendant’s business affairs. Socci and Taranto knew each other from having previously worked for the same employer for several years, but [they] never had any relationship outside of work. The defendant allowed Socci to leave close to the time that her normal workday was scheduled to end.
Based on those facts, the Court found that the trial court properly concluded that the kidnapping arose out of the defendant’s business and that the business pursuit exclusion foreclosed coverage. As a result, Nationwide had no obligation to defend or indemnify Pasiak, and he will have to come up with the money to pay his attorneys’ fees and Socci’s damages out of his pocket.
If you run your business out of your home, you cannot rely on your homeowner’s policy to protect you from liability for claims arising out of the operation of your business. You need to have commercial liability insurance.
Furthermore, the language of one policy’s business pursuit exclusion may be different from another policy’s business pursuit exclusion. And, the language of an insurance policy is subject to interpretation by a state court as a matter of law. A “business pursuit” in one state may not be a “business pursuit” in another.
You should not attempt to navigate the insurance landscape on your own. You need an insurance professional to help make sure that you are fully protected from all things related to your business and to your home. That is where RMC Group comes in. Contact us for all of your insurance needs at 239-298-8210 or rmc@rmcgp.com.