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Litz v. State Farm Fire and Casualty Co.6/27/1997
Opinion by Raker, J.
The primary issue we must decide in this case is whether the "business pursuits" exclusion in a homeowner's liability insurance policy relieves the insurer from its duty to defend an innocent spouse who does not participate in the business pursuit of the other spouse against a suit brought by a third party who allegedly suffered injuries arising out of the business pursuit.
I.
This appeal arises out of a declaratory judgment action filed by Respondent, State Farm Fire and Casualty Company ("State Farm") to determine its obligation to defend and indemnify Petitioners, David and Pamela Litz, in a pending tort action brought by Russell and Sharon Wright on behalf of their minor child, Stephanie. David Litz and his wife, Pamela Litz, were insured under a homeowner's policy issued by State Farm. The policy covered damage to the Litz residence and provided personal liability insurance protection. Several provisions in the policy are relevant to the matters in dispute. Under one such provision, State Farm agreed to defend and indemnify the "insured", as follows:
COVERAGE L. -- PERSONAL LIABILITY
If a claim is made or a suit is brought against an insured for damages because of bodily injury or property damage to which this coverage applies, we will:
1. pay up to our limit of liability for the damages for which the insured is legally liable; and
2. provide a defense at our expense by counsel of our choice. . . .
Another provision, relied on by State Farm to deny coverage, which we refer to as the "business pursuits exclusion," states that liability coverage is excluded for "bodily injury . . . arising out of business pursuits of an insured." Business is defined as "a trade, profession or occupation." The final provision of importance to this case is entitled "Severability of Insurance," which states as follows:
This insurance applies separately to each insured. This condition shall not increase our limit of liability for any one occurrence.
On October 21, 1992, Mr. and Mrs. Wright, on behalf of their minor child Stephanie, filed a complaint for negligence against Pamela and David Litz in the Circuit Court for Charles County. The Wright complaint alleged that on December 31, 1986, while in the care and custody of the Litzes, Stephanie suffered serious injuries due to the negligence of David and Pamela Litz.
On February 22, 1994, State Farm filed a declaratory judgment action in the Circuit Court for Charles County seeking a declaration that it had no duty to defend or indemnify David Litz and Pamela Litz from the personal injury claim filed against them by the Wrights as parents of their minor daughter, Stephanie. State Farm claimed that the policy provides no insurance coverage for allegations contained in the Wright complaint because Stephanie's injuries had occurred while the Litzes were providing babysitting services. State Farm denied coverage under the "business pursuits" exclusion of the insurance policy.
The tort case was scheduled for trial on August 3, 1994, but by order of the circuit court dated July 28, 1994, was continued and reset for May 16, 1995, to allow for resolution of the declaratory judgment action. The Litzes requested that the declaratory judgment action be stayed pending final resolution of the minor's tort claim. The circuit court denied this request, and the declaratory judgment case proceeded to trial on January 25, 1995.
The circuit court concluded that "the babysitting services provided by Pamela Litz at the time of the alleged injury . . . constitute a business pursuit as defined in the St
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