Insurance — Homeowners – ‘Business’ – Cattle – Insured Premises – Grandmother’s Pasture

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State Farm Fire & Casualty Co. v. Nivens (Lawyers Weekly No. 002-192-14, 23 pp.) (Margaret Seymour, Sr. J.) 0:12-cv-00151; D.S.C.

Holding: Even though the defendant-homeowners classified their cattle-raising as a “business” for tax purposes so they could deduct their losses, the homeowners’ cattle raising does not otherwise appear to be a business.

The plaintiff-insurer has a duty to defend the homeowners in any lawsuit brought as a result of the escape of a bull into the road and the ensuing traffic accidents. The homeowners’ policy provides coverage for property damage or bodily injury resulting from the accidents.

Facts

Defendants Kim and Ronald Nivens bought five acres from Mr. Nivens’ grandparents, Marshal and Dolly Douglas. The Douglas’ 70-80 acres lay on both sides of Beamguard Road in Clover.

The Nivens obtained a homeowners’ insurance policy from plaintiff in 1998. The policy was renewed every year thereafter.

The 1998 insurance application indicated that the family had one pet – a dog – and operated no business on the property. Over the years, the family acquired horses, goats, chickens, dogs and cats.

Marshall Douglas fractured his hip in 2007. He gave Ronald Nivens four cows in exchange for replacing a fence, caring for Mr. Douglas’ cattle, and cultivating and cutting hay. After Mr. Douglas died in 2008, Dolly Douglas gave Mr. Nivens five more cows in exchange for two calves a year until Mrs. Douglas decided no further calves were needed as payment. She gave Mr. Nivens full use of the pasture (across the road from his house) and made him responsible for the care of the cattle and upkeep of the pasture.

Mr. Nivens bought a bull in 2010 or 2011 to breed cattle.

The Nivenses never made a profit on the cattle; instead, Mr. Nivens enjoyed keeping cattle as a family tradition.

The Nivenses sought to cover the substantial expense of raising cattle by claiming their cattle breeding and farming activities as a business on their federal income tax returns.

On the evening of Sept. 29, 2011, the Nivenses’ bull escaped from the fenced pasture and walked onto South Carolina Highway 55. The bull was struck by three vehicles.

The Nivenses’ homeowners’ insurance policy excludes coverage for bodily injury or property damage arising out of the operation of a business. The policy does not define “premises.”

Business

The Nivenses do no advertising for a cattle business, have no website for a cattle business, have no business plan or business license for a cattle business, keep no separate telephone number or address for a cattle business, and have no employees to help with the cattle. Both Mr. and Mrs. Nivens have full time jobs outside the home. They kept no ledger or business records, although they kept separate bank accounts, one for household expenses and another for expenses appertaining to the cows, horses, chickens, goats, and other animals owned by the Nivenses. They kept receipts for costs related to the cows.

In State Auto Property & Casualty Insurance Co. v. Raynolds, 592 S.E.2d 633 (S.C. 2004), the South Carolina Supreme Court adopted the two-prong test developed in Fadden v. Cambridge Mutual Fire Insurance Co., 274 N.Y.S.2d 235 (NY 1966) to evaluate whether an activity constitutes a “business pursuit” for purposes of an insurance policy exclusion. “To constitute a business pursuit, there must be two elements: first, continuity, and, secondly, the profit motive.”

Here, the Nivenses’ conduct does not rise to the level of a profit motive. In that respect, only the fact that they sought to recoup costs through claiming farming losses and depreciation on their income tax returns demonstrates a profit motive. There is no evidence that the Nivenses took steps to upgrade the quality of their cattle or to increase the size of their herd in order to maximize profits. They did not expend sums to modify or improve any of the Douglas Property or the Nivens Property in order to accommodate the cows.

The court concludes that the Nivenses were not engaged in a business pursuit for purposes of the policy exclusion.

Premises

Although the policy defines “residence premises,” it does not define the word “premises.” Consistent with the common usage of the term, the context of this case, and the other language in the policy, the court finds that the pasture constitutes a “premises.”

The court has located no South Carolina precedent interpreting a homeowner’s policy in which the “insured location” is defined as “any premises” used “in connection with” the residence premises.”

The court finds persuasive the notion in American National Property & Casualty Co. v. Sorensen, No. 20110221-CA, 2013 WL 6503310 (Utah Ct. App. Dec. 12, 2013), that the court must consider the nature of the insureds’ use of the property at issue. The Nivenses were granted unrestricted use of the pasture by the Douglases and regularly undertook the activity of caring for cattle on the property. Although the pasture is not contiguous to the Nivenses’ property, it is located a short distance across a country road. The use of the pasture was consistent with the Nivenses’ use of the residential premises in a rural community. The court concludes that the pasture is an insured location under the policy.

The handwritten agreement by which Mrs. Douglas transferred Mr. Douglas’s remaining cows to Mr. Nivens was not a lease of the pasture.

Plaintiff has a duty to defend the Nivenses, and the policy provides coverage for personal injury and property damage claims against them arising out of the Sept. 29, 2011 accidents.