COURT DECISIONS

Rough Notes, May 2006

The case was remanded to the lower court for entry in favor of Builders Mutual.

Builders Mutual Insurance Company vs. North Main Construction, Ltd-No COA04-1717-Court of Appeals of North Carolina-February 21, 2006-625 South Eastern Reporter 2d 622.

Business pursuits exclusion debated

Shoney's Inc., a restaurant tenant, brought an action against its landlord, Donald Hedrick, for damages stemming from environmental contamination at its restaurant site. A gas station had been located at the site in the past, and petroleum contamination was later found to exist. Shoney's sought property damage and personal injury liability coverage under a homeowners policy issued to Hedrick by Mid-American Fire & Casualty Company. The policy excluded coverage for property damage and personal injury arising from the "business pursuits" of the insured.

The lower court granted partial judgment in favor of Shoney's and partial judgment in favor of Mid-American.

The Court of Appeals of Indiana held that the homeowners policy did not cover the remediation costs for the petroleum contamination. However, because the court applied the wrong policy exclusions, it granted a petition for rehearing. The key issue was whether the property damage and the personal injury arose out of Hedrick's business pursuits.

It was undisputed that Hedrick owned the property at the time the leakage occurred and that there was soil and groundwater contamination at the time he owned the property. Thus, his ownership of the property served as the basis of the liability claim so long as his ownership was not a "business pursuit." Shoney's argued that Hedrick merely owned a piece of land, and that the property damage and personal injury did not arise out of his business pursuit. They emphasized that Hedrick was a college professor and that his ownership of the property did not rise to the level of "business pursuit." However, the evidence showed that Hedrick regularly engaged in various real estate ventures, and that he often made more money from these investments than he did as a college professor. According to the court, it was obvious that Hedrick earned an additional livelihood through this commercial activity. In fact, Hedrick was also involved with the ownership and construction of a Comfort Inn located adjacent to the property. He had purchased the former gas station property in hopes of finding someone to build a restaurant that would be convenient for hotel guests.

The court held that Mid-American was not obligated to defend or indemnify in the Shoney's lawsuit because Hedrick's ownership of the property was a "business pursuit" that was excluded under the language of the homeowners policy.

The decision of the trial court in favor of Shoney's was reversed and remanded for an entry in favor of Mid-American.

Mid-American Fire & Casualty Company vs. Shoney's Inc.-No. 49A02-0503-CV-235-Court of Appeals of Indiana-March 3, 2006-843 North Eastern Reporter 2d 548.