A couple purchased a large estate for which they secured a homeowners policy. They lived in part of the house and, the following year, opened another wing of it to a bed and breakfast operation and the conducting of wedding receptions for a fee.

A guest at a wedding reception was bitten by a dog that the insureds were temporarily keeping for a relative. Their insurer sought a declaratory judgment, when asked to defend a lawsuit brought by the injured woman, that it had no coverage obligation because of a business exclusion in the policy. The insureds appealed a trial court judgment in favor of the insurance company.

The pertinent exclusion provided that personal liability coverage did not apply to bodily injury or property damage "....arising out of or in connection with a business engaged in by an insured. This exclusion applies but is not limited to an act or omission, regardless of its nature or circumstance, involving a service or duty rendered, promised, owed, or implied to be provided because of the nature of the business." The term "business" was defined in the policy as including "trade, profession or occupation."

The appeal court determined that the conducting of receptions was a "business" in which the insureds were engaged. They had held numerous receptions for which they were compensated for providing the site, food and service, as they were for the one involving the dog-bite incident. They did not personally know any of the participants.

The court then concluded that the alleged injury was "in connection with" the business operated by the insureds. It found that the woman would not have been on the premises and there would not have been a claim without the reception. She was not a private guest of the insureds.

The court said that the case demonstrated the purpose and importance of business use exclusions in homeowners policies. The homeowners policy insurer "....should not be expected to underwrite those additional risks without additional consideration. Nor should the company's other premium payers be expected to shoulder the added burden."

The judgment of the trial court was affirmed in favor of the insurance company and against the insured.

(NATIONWIDE MUTUAL FIRE INSURANCE COMPANY, Plaintiff-Appellee v. NUNN ET AL., Defendants-Appellants. North Carolina Court of Appeals. No. 9315SC831. May 3, 1994. CCH 1994 Fire and Casualty Cases, Paragraph 4764.)