When it comes to personal insurance, some people are content with their standard automobile and homeowners’ (or renters’) insurance policies. Others, however, believe additional insurance is necessary to adequately protect their interests. Whether these people are naturally more risk averse, or they understand that an auto policy with $10,000/20,000 limits will likely fail to fully cover all but the slightest of occurrences, the solution they seek can be found in a personal umbrella liability insurance policy.

A personal umbrella insurance policy, or an excess liability insurance policy, provides coverage that goes beyond the limits of an insured’s primary home or automobile insurance policies. Such coverage is often described as second-tier or second-layer insurance because the coverage comes into play only after the primary or underlying coverage is exhausted. Depending on the precise policy form, an umbrella policy may simply operate to increase the limits of coverage beyond those of the primary policies, or it may provide broader coverage beyond those of the underlying policies. Either way, a personal umbrella insurance policy creates an additional layer of security against the loss of one’s personal assets and wealth.

To maximize the protection afforded by a personal umbrella policy, it is necessary to understand what the policy covers. Or, more importantly, what the policy excludes from coverage. While every insurance policy contains exclusions, some warrant additional discussion. In the context of personal umbrella insurance policies, one such exclusion is the “business pursuits” exclusion.

Although the precise language of the “business pursuits” exclusion varies among different policies, it typically provides that the personal umbrella policy will not cover bodily injury or property damage arising out of business pursuits of the insured. The underlying purpose of this exclusion is to deny coverage for losses arising out of a business endeavor. Since most of those who purchase personal umbrella insurance policies undertake some form of business endeavor throughout their day, it is important to understand the precise scope of the exclusion.

The first place to start is the policy itself. Unfortunately, the word business is not always defined in the policy. The policies that do provide a definition usually do so by providing a list of synonyms, such as trade, profession, or occupation. As a result, there is little guidance to be found in the policy.

Another way to understand the exclusion is to look at judicial opinions that have considered its meaning. However, working with little more than the sparse policy language, courts have struggled to provide a universal interpretation of the exclusion. Nevertheless, these opinions do provide some general guidance as to the scope of the “business pursuits” exclusion.

According to these judicial decisions, the exclusion applies to conduct that is primarily taken in furtherance of a business interest or that is inextricably entwined with employment. Although many courts refused to define the outer limits of the exclusion, one court rejected the notion that the exclusion automatically applies merely because the conduct occurred in the workplace. According to this court, the applicability of the exclusion must be assessed in light of the relationship of the alleged conduct to the business activity. And, while the applicability of the exclusion may depend on the existence of a profit motive, the alleged act must ordinarily be one that the insured would not normally perform but for the business and must be solely referable to the conduct of the business.

Despite this guidance, insureds are still left without a universal interpretation of the exclusion. And, while it may be easy to predict the applicability of the exclusion in some clear-cut cases, those instances falling somewhere in the middle may defy accurate prediction. Consequently, as is often the case, it is very difficult to state whether coverage will be excluded in a hypothetical situation. Actual facts are needed to make a determination.

However, any difficulty encountered in predicting the applicability of the exclusion before the happening of an occurrence does not diminish the importance of incorporating a personal umbrella policy into a comprehensive insurance portfolio. Knowing about, and understanding, the “business pursuits” exclusion allows insureds to identify potential gaps in their personal insurance coverage and adjust their behavior accordingly.

If you would like to learn more about obtaining a personal umbrella insurance policy, please contact us.