Risky Business: One Night, No Employees?

By Erik Leeming

The movie was Risky Business. Joel Goodsen and Lana turned his parents’ home into a one-night business to raise money after the Porsche ended up in Lake Michigan.

Our injured customer and wet-floor lawsuit were fictional. The coverage question was real: if the customer sued Joel and his parents, would their homeowners insurer have to defend them?

The obvious exclusion has an exception

The unendorsed ISO HO 3 (03 22 edition) excludes bodily injury arising out of or in connection with a business conducted from an insured location. A paying customer’s injury during the event gives the insurer a strong reason to examine that exclusion.

But the form also has an exception for an insured under 21 involved in a part-time or occasional, self-employed business with no employees. Joel is 17, and this was a one-night operation. The hard question is what role Lana’s friends played in Joel’s business.

Lana brought them to provide the services. Did she recruit, direct and pay them as part of her own operation? Or could Joel set their assignments, control their work and dismiss them? Joel’s handling of customers and cash does not answer that question by itself. Nor does saying “Lana brought them” settle it.

There is another complication: Joel and Lana may have operated a shared venture. Before applying an exception for Joel’s self-employed business with no employees, the claim investigation needs to establish what they agreed to do together.

What about Joel’s parents?

The customer would have good reason to name the homeowners in the lawsuit. That does not automatically make them liable, and it does not automatically give them the same coverage answer as Joel.

The insurer needs to examine the allegations against each parent. Who created the wet condition? Did it exist before the event? Did the parents know about it or retain control over the area while they were away? Is the claim against them based on a condition of the home that stands apart from the paid event?

The policy’s business exclusion can reach a business conducted from the insured location even when a particular insured did not operate it. Joel’s age, meanwhile, does not settle his parents’ position. Each defendant’s potential defense deserves its own analysis.

The coverage cut

We cannot make a sound yes-or-no defense decision from the facts in Friday’s post. If Joel employed Lana’s friends, the under-21 exception faces a serious obstacle. If he ran an occasional, self-employed venture with no employees, that exception may preserve a defense for him. The parents’ defense depends on the policy wording and the allegations and facts specific to them.

This is why the claim file remains open. The next step is to investigate who controlled the operation and what caused the injury, while protecting the insureds’ potential right to a defense.

The lesson is to read past the exclusion. The words that follow it, and the facts needed to apply them, may change the coverage answer.