In Nationwide Mut. Ins. Co. v. Jeffrey S. Pasiak, 161 Conn. App. 86 (2015), the Connecticut Appellate Court addressed the issue of whether a “business pursuits exclusion” contained in a personal umbrella policy barred an insured’s claim for defense and indemnification of an employee’s lawsuit that arose out of an incident that occurred at the insured’s residence.

In the underlying matter, an employee of the defendant-insured sued the insured for damages stemming from an incident that occurred while the employee was at the insured’s residence. The employee worked for the insured’s company, Pasiak Construction Services, LLC, in an office located on the second floor of the insured’s residence. On May 9, 2006, while the employee was alone in the office, she was held hostage by a masked intruder that entered the residence. During this incident, the insured returned home and discovered that the “intruder” was actually an acquaintance of his. The insured instructed the victim to remain at the residence for several hours, before eventually releasing her. The employee subsequently filed suit against the insured, alleging false imprisonment, negligence, intentional, reckless, and negligent infliction of emotional distress, and loss of consortium. After a 2010 trial, the jury returned a verdict in favor of the employee, awarding her compensatory damages of $628,000, punitive damages of $175,000, and awarded her spouse $32,500 for loss of consortium.

At the time of the incident, the insured held automobile, homeowner’s, and personal umbrella policies issued by Nationwide. During the 2010 trial, Nationwide provided the insured with a defense, despite notifying him that it reserved its right to contest its coverage obligations.

In 2008, Nationwide commenced the present matter against the insured. It sought, inter alia, a declaration that it had no duty to defend or indemnify the insured against the employee’s claims. The trial court granted a motion for summary judgment in favor of the insured, holding that the allegations of the underlying complaint fell within coverage of the personal umbrella policy and, therefore, invoked Nationwide’s duty to defend. The court noted that, for the “businesses pursuits exclusion” to apply, the underlying complaint must “expressly” allege that an employee was injured as a result of her employment with the insured. The court reasoned that the employee’s “employment or the relation thereto [was] not an element in the basis of her claims of [the insured’s] negligent and /or intentional acts” and, moreover, that “there was no element of any regular activity of the business that is related to the events” and, thus, the exclusion was not applicable. Id. at 93. The trial court declined to grant the insured’s motion for summary judgment regarding Nationwide’s duty to indemnify, however, noting that “a duty to indemnify should not be decided on summary judgment.”1

At a bench trial, the court, construing the “business pursuits exclusion,” stated that the “real issue” was “whether the actions of the defendant in response to the robbery arose out of the business pursuits for the defendant’s business or as the defendant contends because he was trying to protect a lifelong friend.” Ultimately, the court found that the exclusion did not apply because the defendant was attempting to “protect his friend” rather than further his business pursuits.

Reviewing the trial court’s analysis and application of the exclusion, the Connecticut Appellate Court held that “the language of the business pursuits exclusion in the defendant’s umbrella policy establishes an expansive standard of causation between the incident giving rise to a claim for coverage and the insured’s business pursuits” and, for that reason, the facts in the underlying complaint fell within the exclusion precluding coverage. Id. at 95.

The Appellate Court began its analysis by reviewing the terms of the defendant’s umbrella policy. The relevant exclusion provided, in part, that “excess liability and additional coverages do not apply to . . . an occurrence arising out of the business pursuits or business property of an insured.” Id. at 97.

To determine whether the above referenced exclusion applied to the facts at bar, the court utilized a two part analysis. First, it noted that previous decisions of the Connecticut Supreme Court have interpreted the term “business pursuits” as “contemplate[ing] a continuous purpose of earning a profit or livelihood. The determination of whether a particular activity constitutes a business pursuit is to be made by a flexible, fact specific inquiry.” See Pacific Indemnity Ins. Co. v. Aetna Casualty & Surety Co., 240 Conn. 26, 33 (2011). The court noted that, in the scenario at bar, the record established that the defendant’s business was “sufficiently continuous and profit driven so as to satisfy this test.” Id. at 98.

Next, the court considered whether the employee’s injuries “arose out of the operation of [the defendant’s] construction business.” The court noted that the term “arising out of,” when used in an exclusionary clause of an insurance agreement, establishes an “expansive standard of causation” and, for that reason, “must be interpreted broadly.” Applying this “broad standard” to the facts at bar, the court held that the employee’s injuries arose out of the defendant’s business pursuits. The court reasoned that “had [the employee] not been at the office performing her duties as an employee of the defendant’s business, there is no reason to believe that she would have been assaulted by [the intruder] and, consequently, detained by the defendant. Indeed, there was no other reason for [the employee’s] presence on the premises. . . .” Id. at 100.

The court further rejected the trial court’s analysis of the exclusion, noting that such analysis treated the insured’s motivation or mental state as dispositive in determining whether the insured’s actions and the employee’s injuries arose out of his business pursuits. The court reiterated such emphasis was incorrect, as the phrase “arising out of” and its establishment of an expansive standard of causation requires only that an insurer demonstrate that tortious acts and resulting injuries of an insured were “connected with, had their origins in, grew out of, flowed from, or were incident to” the defendant’s business pursuits. Id. at 101.

The Pasiak decision demonstrates that Connecticut courts will continue to construe the phrase “arising out of”, when contained in an exclusionary provision of an insurance policy, in a broad manner. Accordingly, carriers should continue to be aware that the inclusion of such language will likely broaden the applicability of any exclusionary policy provisions, by excluding from coverage conduct that is “connected with” the excluded actions.

1. Initially, the court also found that coverage was triggered under the insured’s homeowner’s policy. The court later granted a subsequent motion for summary judgment in favor of Nationwide, finding that coverage under the insured’s homeowner’s policy was limited to physical injuries, as the policy expressly excluded coverage for damages related to emotional distress not tied to a physical injury.