New York Federal Court Finds that Business Pursuits and Rental Exclusions Preclude Coverage for Bodily Injury Claims Against a Multi-Family Investment Property Owner (NY)
In MIC General Insurance Corp. v. Cabrera, 20 Civ. 4855, 2021 WL 5909975 (S.D.N.Y. Dec. 10, 2021), the Southern District of New York recently awarded summary judgment to an insurer based upon several exclusions in a policy issued to the owner of an investment property. The owner rented the two-family home to a total of twenty people and his tax returns reflected substantial income and tax deductions relating to the property. The owner also certified that the property was “rented” when applying for insurance and generally took care of repairs and maintenance himself.
One of the tenants was injured in a slip and fall accident on the property and sued the owner in New York state court, alleging that the owner negligently failed to remove ice from a sidewalk on the property. The insurer disclaimed coverage on several grounds, including that the Business Pursuits Exclusion and Rental Exclusion applied under the circumstances. However, the insurer sought declaratory judgment but provide a courtesy defense to the owner until the coverage issues were resolved.
The insurer moved for summary judgment on the exclusions. In evaluating the Business Pursuits Exclusion, the Court noted that the insurer must show that: 1) that the owner ran the premises as a business; 2) that he had a duty to keep the sidewalk safe for tenants to walk on the property which arose from the nature of the business; and 3) that the tenant’s injury resulted from the owner’s failure to carry out that duty.
As to the first element, the court observed that whether an activity is a business pursuit within the exclusion under New York law depends on whether the insured “regularly engaged in a particular activity with a view toward earning a livelihood or making a profit.” To constitute a business, there must be two elements: “first, continuity, and secondly, the profit motive” (citations omitted). The court found that the insurer satisfied the first element as the owner earned income from renting the property and took care of the maintenance himself.
As for the other elements, the court found that “[u]nder New York law, by virtue of renting out the [property] for profit, owed his tenants the duty…to keep common areas such as sidewalks reasonably safe.” Since the court further found that the tenant’s injury resulted from the owner’s failure to satisfy that duty, the Business Pursuits Exclusion applied to exclude coverage.
The rental exclusion in the policy precluded coverage for bodily injury that arose “out of the rental or holding for rental of any part of the” property.” The exclusion contained an exception where the property was “in part for use only as a residence, unless a single-family unit is intended for use by the occupying family to lodge more than two roomers or boarders.” The court evaluated whether the “unless” clause was triggered, finding that the 19 people that lived at the property, other than the injured tenant, were “roomers.” As such, the court found that the “unless” clause was triggered, and the Rental Exclusion also applied to preclude coverage.
The takeaway from this case is that insurers of residential investment properties may have grounds to exclude coverage where their policies contain business pursuits and/or rental exclusions under the appropriate circumstances. It is also important for insurers to fully understand the circumstances of each risk and to tailor their policies accordingly.
Thank you to John Diffley for his contribution to this article. Please contact Andrew Gibbs with any questions.