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Maryland Court of Appeals Establishes a Two-Part Test for Business Pursuits Exclusion

David Springer v. Erie Ins. Exch.
--- A.3d ---, 2014 WL 2853792 (Maryland Court of Appeals, June 24, 2014)

by Morgan N. Gough, Summer Associate
Semmes, Bowen & Semmes (www.semmes.com)

Available at http://www.mdcourts.gov/opinions/coa/2014/79a13.pdf

Maryland adopted a two-part test for determining when insurers should apply a business pursuits exclusion in a homeowner’s policy for business activities. The Maryland Court of Appeals joined the Third Circuit and high courts of several other states, including Kansas, Arizona, and Montana, in employing this test, holding that an activity triggers the business pursuits exclusion within a homeowner’s policy if the policyholder is regularly or continually engaged in the activity to earn a living and if the policyholder undertakes the activity for a profit motive. In taking the case on its own initiative, the Court of Appeals vacated the decision of the Circuit Court for Frederick County, finding in favor of policyholder David Springer. Judge Battaglia authored the opinion for the unanimous court.

This appeal stems from a 2011 suit that J.G. Wentworth Originations, LLC (“J.G. Wentworth”), a company specializing in purchasing structured settlements from individuals, brought against David Springer (“Springer”) and the Sovereign Funding Group, a competing company, alleging that Springer used websites to spread defamatory and false light information to lure customers away from J.G. Wentworth. The complaint alleged that Springer made his statements to gain an unfair business advantage. Springer sought coverage under the personal injury liability provisions in his homeowner’s insurance policy with Erie Insurance Exchange (“Erie”), claiming that Erie had a duty to defend Springer in his suit with J.G. Wentworth. Erie refused, arguing that the J.G. Wentworth lawsuit arose from Springer’s business activities and that his insurance policy specifically barred claims based on the insured’s business pursuits.

Eventually, Springer and J.G. Wentworth entered a joint stipulation, upon which the 2011 case was dismissed with prejudice. Thereafter, Springer again demanded that Erie reimburse him for the funds expended in defending himself against J.G. Wentworth, again unsuccessful. Springer filed suit against Erie, seeking declaratory relief and damages for breach of contract. The trial court entered summary judgment for Erie, finding that J.G. Wentworth’s complaint (“Complaint”) sufficiently established that the 2011 lawsuit arose from Springer’s business pursuits, therefore the policy exclusion should apply.

Springer argued that, during the time period subject to the Complaint, he was not actively participating in any business endeavors on behalf of Sovereign Funding Group and acted only in his personal capacity. While the Maryland Court of Appeals had construed business pursuit exclusions on a number of occasions and in a variety of contexts, the state appellate courts had yet to analyze what variables, if any, must be included in an insurer’s analysis when determining the applicability of a business pursuits exclusion. In successfully urging the court to consider factors beyond the face of the Complaint, such as the continuity and profit motive considerations relied upon by other tribunals, the Court of Appeals found that the allegations on the face of the Complaint were not sufficient to trigger the business pursuits exclusions, nor to support a finding of summary judgment in favor of Erie. The appellate court acknowledged the contradictory and ambiguous allegations in the Complaint; the Complaint alleged that Sovereign Funding Group was no longer a viable corporate entity and that Springer’s wife served as the CEO, none of which supported a finding for profit motive. The court remanded the case for further proceedings to examine the continuity of Springer’s business interests and any profit motive he had during the time of the alleged defamatory statements against J.G. Wentworth.


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