State Farm Fire & Casualty Co. v. Reed, 873 S.W.2d 698

State Farm Fire & Casualty Co. v. Reed

873 S.W.2d 698

Tex.

1994

Check Treatment

*1 FARM STATE FIRE & CASUALTY

COMPANY, Petitioner,

Joseph REED, al., Respondent. C. et

No. D-2377.

Supreme Court of Texas.

Sept.

Rehearing May Overruled Beirne,

Kathleen Simpson, Walsh Fred A. Mary Flynn-DuPart, Houston, Lou peti- tioner. Todd, Alvin, Hewitt, III,

Alton C. Otto D. Firm, Davenport Galveston, Law respon- dent.

OPINION HIGHTOWER, Justice. presents question

This cause coverage there is under a homeowners insur- ance coverage that excludes for “busi- except an insured those that are incidental pursuits.” Joseph and Francis (the Reeds) Reed and Michael and Sheree (the Fords) Ford declaratory filed a judg- ment action State Farm Insurance (State Farm) Company seeking a declaration under a homeowner’s insurance policy (policy) it issued for out of the death of the Fords’ child while at a operated by child care center Reed. The trial granted court summary judgment for the Reeds and the hold- ing that the child’s death was caused that was incidental to non- pursuits. appeals The court of af- firmed. 826 S.W.2d 659 We affirm appeals. of the court оf operated registered Frances Reed home for care services at her home. 1987, eighteen month old Michael Ford III puddle drowned in a of water that settled on tarp covering swimming pool after crawl- ing through a separat- hole the fence that play aed area from swimming pool. *2 death, exception of the case wrongful that the facts fit the Fords sued Reeds for Michael’s the exclusiоn.” S.W.2d at 668. notified State Farm of The Reeds sought coverage under death and coverage

cy. Farm was State concluded I. policy1 under the Reeds’ because excluded Farm asserts that there is no cover- State death from a business Michael’s resulted un(jer policy age because Michael’s death under a pursuit and defended the Reeds activity of an was result was trial, non-jury rights. reservation After pursuit and the inciden- business against the judgment the trial court rendered disagree. does not apply. tal» We $480,000 plus Reeds for interest.2 A. and the declar- The Reeds Fords filed this Generally, a contract of insurance atory judgment seeking action a declaration subject to the same rules construction policy. that the was covered as other contracts. v. Aetna Barnett summary judgment, moved Life State Farm (Tex.1987). If alleging coverage there was no based given so policy is worded that it can be any coverage exclusion of busi- construction, only one reasonable it will be pursuits. ness Reeds and the. Fords enforced as written. Puckett v. U.S. judgment, asserting summary also moved for (Tex.1984). coverage excep- on the that there based However, suscep if a contract of insurance is pursuits to the business exclusion for tion interpretat tible to more than one reasonable ordinarily incidental to activities which ion,3 uncertainty by we must resolve the pursuits. grant- The trial court adopting the construction most favorable to summary judgment and the ed for the Reeds Nat’l Fire Ins. Co. v. the insured. Union summary judgment Fords and denied Energy Hudson Farm, holding exception to the that the (Tex.1991). An intent to exclude applied pursuits” policy exclusion expressed unambiguous must be clear death a busi- sinсe Michael’s was caused language. Id. activity ordinarily that was to a pursuit. appeals The court of B. affirmed, stating causes of that “one of the injury negligent the child’s was the failure to the home for which Whether fence, activity ordinarily inci- maintain the as some remuneration received is excluded pursuit”, or dental to a non-business Therefore a “business is an finding to non- we hold that the court did not err this exclusion becаuse is “incident 1.The homeowners ing language; policy, terms of the named on To seeking damages tached, shall defend tions of the suit lent; injury gation deems Subject sums obligated EXCLUSIONS— COVERAGE pay SECTION II—LIABILITY SECTION but which the or and settlement of expedient. on behalf and of bodily ^[*] property damage Page Company agrees pay any Company may policy, provisions ^[*] D—PERSONAL injury suit Insured shall 1 as follows: Coverage which ‍‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‍are form and endorsements groundless, the Insured even if ^[*] contained property damage and conditions of D shall not ^[*] make such investi- payable under the any the Insured claim or suit because of false or become [the Reeds] LIABILITY ^[*] the Insured Company fraudu- follow- apply: allega- legally bodily ^[*] alleg- as it at- all pretation of a contract amounts to an Among Nevertheless, 3.The 1. premises to that said Defendants failed to maintain cept activities incidental to non-business rence in gence maintenance dent made FRANCES access to the any was a n Defendants, business question. ambiguity. the basis things, REED, prevent swimming pool, 5¡S of the proximate therein every premises n ! JOE REED and were or an of this difference in the inter- which are judgment stated: Forbau cause of the occur- ^[*] negligent pursuits; insurance suit occurred in where and such an Insured ex- v. Aetna ^[*] ordinarily the acci- gaming in the n negli- Wife, pursuits,” is unclear. John Allen sitter’s homeowner’s the Californiа Practice, Appelman, 7A Insurance Law and Supreme Court stated: 4501.11, juris- p. Other Indeed, it is difficult to of an conceive ap- have different dictions taken three incident to a non- *3 proaches. approach The first is illustrated pursuit than of chil- commercial home care Co., Stanley Casualty by v. American Fire & dren. (Ala.1978), 361 So.2d 1030 in which a one 515, Cal.Rptr. at 95 485 P.2d at This 1131.5 injured year old was fell backwards when she approach has bеen criticized broad as too fireplace in bed of hot coals in the because the incident to non-busi Supreme baby-sitter. The Alabama pursuits” exception ness swallows the “busi ongoing profit on the and focused nature exclusion, ness con at least in the aspect and held that child See, e.g., care. text of child State Fire Farm compensation pursuit care was a business Moore, 250, Casualty & Co. v. Ill.App.3d 103 ordinarily was not and non-busi- 609, 613, 641, 58 Ill.Dec. 430 N.E.2d 645 pursuits.4 approach ness This has been criti- (1981); Developments Maryland see also in because it cized focuses too much on the Law, ‍‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‍(1990). Maryland 49 L.Rev. 812 always business nature of child and approach by The third is illustrated exception inap- renders the to the exclusion Gulf Ins. Co. v. 280 60 plicable regardless the child care context per curiam 393 F.2d 119 specific activity actually creаted aff 'd Cir.1968). case, child, In that while See, liability. e.g., Allstate Ins. Co. v. baby-sitter, severely by care of a burned 349, (1984) Kelsey, 67 Or.App. 748 678 P.2d coffee, (Warren, pot. the contents fo denied, The court dissenting), J. review 297 type 227, cused on the (1984); that caused the Develop- Or. 91 coffee) Law, injury (serving Maryland and Maryland ments 49 held that was 509, (1990). activity ordinarily not an L.Rev. 823 associated gives approach function of care.6 This approach The second is illustrated effect exclusion exception to the and the but Co., Casualty v. State Crane Farm Ins. and appear reaches conclusions that somewhat 112, 513, Cal.Rptr. 95 Cal.3d 485 P.2d 1129 Developments Maryland contrived. See (1971). Crane, year In a two and a half old Law, (1990). Maryland 509, L.Rev. burns on suffered her hands and wrists while baby-sitter. in the care of a The sitter was II. also, paid for simultaneously her services but case, cared her own two children. conclud- In this policy provides, injury baby- among things, was covered pay that State Farm will following Stanley: approach 4.The courts follow following Moncivais 5. This was followed in the Co., Olwell, v. Farm Bureau Mut. Ins. 430 N.W.2d 438 cases: Bankers Standard Ins. Co. v. 799, (Iowa 1988); Russell, (Minn.1981); State Co. v. Mutual Ins. N.W.2d 801-02 Western Fire ( 521, (1990); 32, Mich.App. Mo.App. 462 N.W.2d 785 Ins. v. 34—5 Lucas, 1983); Collins, (La.Ct.App.1991); v.MVG 590 So.2d 1322 Nationwide Mut. Fire Ins. Co. v. 828, Despinasse, (Ga.App.1975). (La.Ct.App. Felder v. S.E.2d 830-31 564 So.2d 1331 1990); Susnik v. Western Indem. Kan. 421, (1989); App.2d McCloskey 795 P.2d 71 v. adopted ap other courts have Several 19, Republic Md.App. 559 A.2d 385 proach. Floyd v. Northern Neck Ins. (1989); Or.App. Allstate Ins. Co. ‍‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‍v. 153, 193, (1993); Va. 427 S.E.2d 196-97 Rodri denied, (1984), 678 P.2d 748 review Or. America, guez v. 821 P.2d 849 Safeco 683 P.2d 91 Other follow denied); (Colo.App.1991, Economy cert. Fire & Stanley, although Bassett, Casualty Ill.App.3d Co. v. slightly the exclusion 481, 484, differs in these cases: Lan (1988); Ill.Dec. 525 N.E.2d (Fla. v. dis Allstate Ins. Ashe, Casualty Or.App. Aetna and 1989); Haley (1988), denied, 745 P.2d 800 review 305 Or. (1987); Rocky A.2d 394 (1988); Mountain 750 P.2d 497 Farm Martin, Wash.App. v. St. Co. 802 P.2d 144 (1990), denied, 609, 613, review Wash.2d 430 N.E.2d Wiechnick, Collins, P.2d 102 Farmers Ins. Co. v. see also Nationwide Mut. Fire Ins. Co. v. (Ct.App.1990). 166 Ariz. Ga.App. P.2d 501 legally another construction the exclusion the Reeds become sums which all of bodi- at a obligated pay exception, because the maintenance of the fence provides there ly injury. also a non- person’s home is incident to “any busi- under the no pursuit.7 except activities of an insured uncertainty of a must resolve We ordinarily incidental which are therein cy adopting construction exclusion party dis- pursuits[J” Neither See Nat’l most favorable insured. opera- putes that Reed’s Energy Fire Ins. Co. Hudson Union Thus, must we tion was a business upon Based exception to the determine text of this exclusion examination applies. pursuits” exclusion possible considering *4 jurisdictions support The cases from other interpretations, we conclude reasonable excep and conclusion that this exсlusion the Therefore, provision ambiguous.8 is the to one reason susceptible more than tion are language strictly construing policy the See, Stanley v. interpretation. e.g., able adopting the inter- against the insurer and Casualty American Fire & insured, we pretation most favorable to the (Ala.1978); Farm Fire Crane v. State policy the hold that exists under 112, Cal.Rptr. and Cal.3d resulting of Mi- from the death P.2d 1129 Gulf chael.9 aff'd reasons, judgment of above the curiam, Cir.1968); For the see 393 F.2d 119 per appeals is the court of affirmed. Insurance Appelman, Allen 7A also John Practice, 4501.11, p. and Law Reeds interpretation, one the Under PHILLIPS, C.J., Dissenting opinion by is

liability arising out child care of home HECHT, joined by J. pursuit. always incident to a non-business ENOCH, J., sitting. not failure to reading, another the Reeds’ Under failure to the fence constitutes a maintain PHILLIPS, Justice, dissenting. Chief safely supervise enrolled children Thus, Reeds’ homeowners’ Because believe the activity is not inci program. this coverage for unambiguously policy Yet under excludes pursuit. to a non-business dent (Ky.App.1981); disagree application State Farm Fire 7. We the dissent’s Tilley approach. asserts that the the The dissent properly supervise was to Michael 430 N.E.2d 641 Reeds’ failure activity that death. Howev- Va. the caused Michael’s v. Allstate Smith er, specifically found that the the trial court S.E.2d 696 activity proximately death caused Michael’s adequately the Reeds’ failure to maintain was the to case is similar Foster v. Allstate 9.This swimming pool. Nev- located around the fence case, (Ky.App.1981). In that S.W.2d 655 ertheless, death of the Michael’s one causes of compensa- provided care for Foster negligent the Reeds' failure to maintain was the cаre, died when While in Foster’s an infant tion. fence. in Foster’s coffee table he fell backwards Furthermore, contrary Kentucky asser- Supreme to the dissent’s Court reviewed The home. tion, repaired juris- adopted by fence was approaches it does matter if the different duty. pursuant varying S.W.2d at 702 to a business and determined that from dictions C.J., Instead, (Phillips, dissenting). the court's interpretations exclusion business creating lia- pur- whether the focus is actual ordinarily incidental to non-business and suits, bility incident to a non-business yard fence sur- Maintenance of the exception provision in the exclu- contained pool ordinarily to rounding Reeds' meaning, and to its leaves some doubt as sion pursuit regardless whether it is a non-business susceptible clearly reasonable inter- to two scheme, required by regulatory a state a local to pretations, one of would be favorable which or other law. ordinance not. and one which would ‍‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‍the insured case, is that the law of the commonwealth following that this have also held 8. The interpretation will to the insured ambiguous: favorable Robin- and exclusion adopted. Mutual son v. Utica (citations omitted). (Tenn.1979); at 657 Foster v. through allegedly dug by the death of fence from Michael a hole III, family dog. Ford dissent. Reeds’ bought When Reeds their hоuse in attempting interpret apply to Before 1983, they purchased 1982 or a Texas stan- case, this the Reeds’ facts of dard homeowners mandated important the nature of to consider Ms. regulations Board of Insurance held enterprise time of Reed’s homeowners, over four million Texas just From 1984 to Michael Ford’s death. they annually. which renewed This death, operated after Michael’s Ms. Reed one on coverage contains strict limits of risks 14,000 “registered of over homes” activities, defining state, which authorized the Texas “trade, profession, occupa- “business” as (TDHR) Department of Human Resources tion.” One Reeds’ declarations provide day many care services as pur- disclaimed that charged par- at a Ms. time.1 Reed home, suits” were conducted and a child, per per 5-day ents week for her $37.50 space exceptions declaration was of Ms. Reed’s services. scale They left blank. continued make apparently required, and the revenue from it renewal, disclaimer with each successive even allowed, employ- two to hire additional after Reed initiated her child enter- *5 range beyond ees. Her clients of extended prise. The contained an exclusion to friends, family mere and close аs she adver- personal liability coverage pur- for “business services, tised her for exam- while suits,” an that exclusion for ple, third-party on relied recommendations. “activities therein are which inci- dent to pursuits.” other While registered family home, As a Ms. Reed’s types were available for business comply enterprise required with a activities, purchase any Reeds did regulations designed variety of TDHR to en- these; rather, renewal, with each successive safety supervi- sure the of children under they rely solely continued to on their basic requirement sion. One “[i]f was that there is homeowners’ to ensure them creek, swimming pool, wading pool, pond, a risks from Ms. Reed’s child care en- body or prem- other of water or near the terprise. home, protected ises of the children must unsupervised from dispute access to the water.” The Reeds do not that the child Department ResouRces, pur- constituted a “business Texas Human 20320-0000, meaning suit” policy; under in- Stock Code Minimum Stan- Registered Family stead, Appendix argue they that because the “incident dards: Homes I, 1982); (April at 10 pursuits” exception see also TexAd- ambig- is § originally uous, 81.106. When con- apply we should the contra-drafter rule min.Code in structed coverage. the Reeds’ swim- to find construing When a con- separated tract, ming pool was not a primary fence or the court’s concern must be to give other barrier from the rest of their expression back effect to the written yard. In deposition testimony, parties’ Serv., E.g., Ms. Reed intent. Ideal Lease Inc. confirmed sepa- that the hurricane fence now v. Amoco Prod. 662 S.W.2d (Tex.1983). rating pool play contract, children’s interpretation area The of a help was latеr added to meet the TDHR and the issue of a whether contract has more requirements. safety gained interpretation, Michael Ford than ques- one reasonable pool by crawling access under this tions of law which we must resolve read- Code, children, Chapter 42 of Human elementary Resources additional school but the Facilities,” "Regulation children, of Child-Care defines a including total number of the care- "fаmily own, home” as follows: any given taker's does not exceed 12 at time. provides regularly home that [A] care in the 42.002(9). regis- § caretaker’s own Reeds residence for not more than Tex.Hum.Res.Code. years age, excluding tered six children under 14 the TDHR as re- children, Id., provides quired the caretaker's that own under Section 42.052 of the Code. 42.052(c). after school hours for not more than six (Ala.1978); Rang Reilly v. Cas. So.2d contract a wholе. mg the 853; (Tex. Inc., Rodriguez, 821 P.2d at Western Mgt., ers (Mo. Ins. Co. S.W.2d Coker, 1987); Coker v. S.W.2d Moran, (citing App.1983) Dieckman v. (Tex.1983). the case Applying these rules to (Mo.1967)); Haley v. Allstate conclude that there is leads me to at hand Ins. A.2d interpretation of the con only one reasonable Floyd, 678 P.2d provisions: are not the Reeds tested 196-97; Rocky Mtn. v. St. Cas. Co. covered. Martin, 144, 146n. Wash.App. 802 P.2d provision of an insur- agree that where Republic Piper, contraсt, ance like that (D.Colo.1981); F.Supp. susceptible to than one ambiguous, or more McCloskey, (construing A.2d at 387 uncertainty interpretation, reasonable exclusion). against the Na- be resolved drafter. should very supervision The act of essence Co. v. Hudson Ener- tional Union Fire Ins. child care. That is what Ms. Reed was (Tex.1991); Bar- gy do, perform paid to and it is her failure to nett v. Aetna duty Michael proximately caused every But not difference reject view that Ford’s death. thus interpretation amounts to contract determining non- the “incident to certainly ambiguity. And the fact applies, focus we should business” jurisdictions can- disagreement example, the specific act —for on some not, itself, justify holding language might be failure to maintain the fence—that ambiguous. Rodriguez v. Safeco injury. said to have caused the See Gulf All- (Colo.App.1991); Kelsey, Or.Apр. Ins. Co. v. state curiam, per 393 F.2d 119 aff Cir.1968); 'd *6 (1984); 748, Floyd v. Northern P.2d 852; at Rodriguez, P.2d Co., 153, 193, Neck Ins. 245 Va. 427 S.E.2d Develop Floyd, 427 197.2 S.E.2d at See also (1993); McCloskey Republic v. 196-97 Maryland Law: Insurance Cover ments (1989). Co., 385, 19, Md.App. 559 A.2d Day age Injuries Home that Occur at of Admittedly, states a few in other (1990). Care, 509, 49 Md.L.Rev. have, con in similar fashion and in similar early suggested a handful of cases While texts, ac “incident to non-business deemed might supervising the act of child that ambiguous have other exclusions tivities” pursuits,” see Crane “incident nonbusiness find applied contra-drafter rule to wise Co., 5 Cal.3d Farm Fire & v. State Farm, v. coverage. See Fire & Cas. Co. 513, 1129, 112, Cal.Rptr. P.2d 609, 250, Ill.App.3d (Cal.1971); v. Bankers Standard 641, 615, v. Foster 430 N.E.2d (Minn.1981); Olwell, 799, 801-02 309 N.W.2d 655, (Ky. Allstate 34-35, cases these v. App.1981); Robinson Utica Mut. that child for the outmoded rationale stand (Tenn.1979); see also compensation, if for supervision, even Collins, Fire Ins. v. Nationwide Mut. inherently “incident to non-busi- somehow Ga.App. 832-32 comport This fails to with ness activities.” states, however, Many includ working parents, ne- modern of realities provisions such cessitating professional all who have considered proliferation of decade, Perhaps providers last have held not to be like Ms. in the them Reed. this, have Stanley reflecting more recent decisions ambiguous. v. Fire & American points judg- sonably be viewed as “incident to nonbusiness out that the court’s 2. The trial expressly "to explained, referenced the Reeds' failure ment maintain the Reeds were activities.” I have As premises” hold- basis for its regulatory applicable required, scheme, state under the ing. this is a 873 S.W.2d at 700 n. n. 6. As to en- and maintain the fence build however, fact, question of than law rather unsupervised did not obtain sure children court’s reason is not entitled trial articulated Economy & Cas. access water. Cf. appeal. on deference Bassеtt, 121 Ill.Dec. Co. v. 481, however, disagree approach, under Even N.E.2d maintaining act could rea- that the of fence uniformly repudiated the view always Stanley, “nonbusiness.” See 1033; So.2d at Farmers’ Ins. Co. Arizona LIFE BENEFIT TRUST INSURANCE Wiechnick, 166 Ariz. COMPANY (Ct.App.1990); Landis (Fla.1989); Moncivais

v. Farm Bureau Mut. Ins. 430 N.W.2d City Leslie LITTLES and the of Victoria. 442; 390; McCloskey, Mary 559 A.2d at No. 94-0066. Hayes, land (Mo.App.1992);3 Haley v. Allstate Ins. Supreme Court of Texas. 529 A.2d 750-52; April Rocky 678 P.2d at Mtn. Cos. 147; Piper, 802 P.2d at Fidelity United States parties Jоint motion of the to remand for Heltsley, F.Supp. 1418, Guar. Co. v. entry judgment pursuant (D.Kan.1990). to settlement 30, 1994, granted; filed on herein March reject supervision notion applications for writ of error behalf full-time, for-profit, state-regulat- Benefit Trust Life Company, Insurance Les- enterprises ed residential can rea- Littles, City lie and The of Victoria are sonably be deemed “incident to non-business granted merits; without reference to thе pursuits.”4 The Reeds’ Texas standard judgments of the courts below set aside policy was homeowners’ not intended to cov- merits, without reference to the er risks out that or cause is trial entry remanded to the court for accordance the settle- necessarily sympathizes One with the agreement parties. ment plight understandably who de- adequate sire the of compen- sure source sitting. Justice SPECTOR not tragic satiоn for their son’s death that the policy might provide. Reeds’ homeowners’ job

But it is of this Court to ensure ‍‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‍where the at issue un-

ambiguously And, excludes it. under this language, it responsibility is not the SHIVERS, Appellant, James four million Texans who have home- policies owners’ to subsidize the business risks of the homeowner who initiates an at- Texas, Appellee. STATE enterprise subject to certain risks with- No. 08-92-00225-CR. purchasing out appropriate coverage. would reverse the of the court Texas, Appeals of appeals and summary judgment render El Paso. favor of State Farm. Feb. 1994.

HECHT, J., joins in this dissent. Rehearing Overruled March 1994. child, But see bysitting teenagers neighbor’s 658 S.W.2d at 34. compensated, even while would not into fall however, doing, categorically so I do not category same as Ms. Reed’s full-time business. suggest that Texas standard homeowners’ Pennington, See United.Serv. Auto. Ass’n v. cies would exclude (Tex.App. Antonio — San any for-profit undertaken in the denied). writ Certainly part-time home. such activities as ba-