ARE HOBBIES SOMETIMES CONSIDERED A BUSINESS?

Homeowners	Business Exclusion
Fire

The horse barn belonging to Wanda Bailey and Carma Foster (Bailey) was destroyed by fire. The property was covered by a homeowners policy issued by Farmers Insurance Company, Inc. (Farmers). The policy covered separate buildings including the barn and contents. Farmers denied coverage claiming the building and contents were used for business and therefore excluded from coverage under the policy.

Section I, Coverage B of the homeowner's insurance policy provided:

“We do not cover separate structures which are intended for use in “business” or which are actually used in whole or in part for “business purposes”.”

The policy defined two important terms as follows:

“business” is “any full or part-time trade, profession or occupation”

“business property” is “property pertaining to or intended for use in business.”

Bailey filed suit alleging breach of contract, breach of good faith and fair dealing.

Farmers filed for summary judgment and provided evidentiary material including:

• Barn usage include housing horses, tack, washing and drying machines for blankets, veterinary supplies and other items to care for and train horses
• Bailey owned about 15 horses
• In an interview, which was recorded, Plaintiffs stated that they used the barn for their “horse business”
• Baileys’ federal income tax return included Schedule F which listed “principal crop or activity” as “Horses/Breeding/Boarding” and listed $52,533 in related expenses
• A State Agricultural Exemption Permit was applied for and obtained by the Bailey; such permits are issued to specific “for profit” farming or ranching operations
• Bailey had registered three colts to increase their value
• One horse was sold following the fire

Bailey filed in opposition and provided evidentiary material indicating the horses were a hobby:

• Bailey was known as “horse collectors” and not “sellers”
• No horse had been sold in the five-year period prior to the 2003 fire and the horse sold in 2004 was for living expenses
• Bailey did no training for third parties
• No horses were boarded for profit
• There had been no breeding since 2000
• Bailey denied being motivated by profit; if money was made it was by “chance”
• Bailey did not advertise as a business and as such, did not have separate books or bank accounts and supported themselves with retirement and social security
• Farmers paid a collapse claim with respects to the same barn and the use of the barn had not changed since that time

The trial court granted summary judgment to Farmers. Bailey appealed.

The appellate court ruled that the trial court had acted too quickly in granting summary judgment on the coverage issue. The evidence provided by both parties resulted in a material fact as to whether Bailey’s horses were a business as defined in the policy that had to be decided in trial.

The summary judgment of the trial court was reversed and was remanded for further proceedings to determine if the business exclusion applied.

Wanda BAILEY and Carma Foster, Plaintiffs/Appellants, v. Farmers Insurance Company, Inc., Defendant/Appellee.

Court of Civil Appeals of Oklahoma, Division No. 4. No. 102,865. June 06, 2006

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