New Jersey Law Journal June 02, 2011
Homeowners who take care of other people's children for pay — even if only a pittance — may be held personally liable if their charges are hurt and their homeowners' policies contain business-exception clauses, an appeals court ruled on Thursday.
Appellate Division Judges Rudy Coleman and Jonathan Harris ordered a plenary hearing in Bay State Insurance Co. v. Jennings, A-0421-09, to determine whether a homeowner was running a for-profit business at her house when a child she was watching was injured.
Carol Collins cared for Kirsten Jennings, the daughter of Kevin and Tina Jennings, for two days a week her a Monmouth County home and was paid $35 a day. At various times, Collins watched other children at various rates of payment.
On Oct. 3, 2006, while with Collins at a Sam's Club in Freehold, Kirsten was riding in a shopping cart that tipped over when Collins lost her balance. She suffered a leg injury in falling to the floor.
The Jennings' family sued Collins, who turned to her homeowner's insurance policy. The carrier, Bay State Insurance Co., filed a declaratory judgment action, asserting that the business exclusion in Collins' homeowner's insurance policy relieved it of having to provide a defense and indemnification.
Monmouth County Superior Court Judge Louis Locascio applied the two-pronged test of Carroll v. Boyce , 272 N.J. Super. 384 (App. Div. 1994), to determine if Collins was engaged in a business. For the exclusion to apply, the defendant must be shown to be continually or customarily engaged in the activity and to be involved in making a profit, engaged in a means of livelihood or earning a living.
Locascio said Collins' activities satisfied the first prong but that she was not engaged in making a living or earning a profit.
Ruling on summary judgment, Locascio ordered Bay State to provide a defense and indemnification. Bay State then appealed.
Judges Coleman and Harris said the central question was whether Collins motivated by financial gain. "The burden is on the insured to disprove a profit motive," they said.
They noted deposition testimony revealing that on some occasions, Collins spent about half of the money the Jennings paid her on such items as diapers, food and wipes, and on other occasions, she spent more but was not reimbursed. Anything she did not spend on Kirsten she kept as profit.
"That implies that Collins earned a small income," they said. "Furthermore, Collins cared for several other children for extended period of time, for compensation, which suggests that her arrangement with the Jennings family also was more than just a favor to a friend or casual accommodation.
"Although this does not by itself establish a profit motive, we find it raises a genuine issue of material fact concerning Collins's intent," the judges said. Here, the issue of 'profit motive' is not so one-sided as to justify the granting of the summary judgment.
"Because we believe there is a dispute as to whether Collins was engaged in a business, we reverse the grant of summary judgment in her favor and remand for a plenary hearing consistent with this opinion."
The Appellate Division "made the right call," says Bay State's attorney, Paul Endler Jr.
"What it really means is that if you're going to open up your home for child care for pay, you have to understand how it affects your insurance policy," says Endler, of Edison's Methfessel & Werbel. "Before taking on any kind of business, you have to know how it affects your coverage."
Collins' attorney, Terrence Bolan, says the Appellate Division was off the mark.
"Clearly, Collins was not running a daycare center out of her house for a profit," says Bolan, of Shrewsbury's Bolan Jahnsen Dacey.
The ruling could serve as a warning to anyone considering watching other people's children for any compensation. "I don't know if [carriers] even sell coverage for that," he says. "The money earned would not be enough to pay the premiums. There would be no coverage if something untoward happens.
"The Appellate Division kind of missed it on the reasonable expectations test," Bolan says.
The Jennings' lawyer, Kimberly Gozca, of the Howell office of Levinson Axelrod, was away from her office Thursday and could not be reached for comment.