United Services Automobile Ass'n v. Pennington
810 S.W.2d 777, 1991 Tex. App. LEXIS 1804, 1991 WL 129712 (1991)
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Rule of Law:
An activity constitutes a 'business pursuit' under a homeowner's insurance policy exclusion only if it has both continuity or regularity and a profit motive. An insurer's wrongful refusal to defend its insured is a breach of contract, and damages are generally limited to the policy limits and defense costs, unless a separate tort claim like bad faith is proven.
Facts:
- Gary Lochte, a car salesman, purchased a homeowner’s insurance policy from United Services Automobile Association (USAA) that excluded coverage for damages arising from 'business pursuits.'
- Lochte also operated a quarter horse breeding business with his father, which was separate from his main occupation.
- Apart from the breeding business, Lochte and his co-worker, Don Rowland, purchased a quarter horse named Viking Vanny to experiment with a new training system for racing.
- Lochte and Rowland placed a newspaper advertisement to hire a rider for the horse.
- Penny Pennington answered the advertisement and, during her interview, was asked to ride Viking Vanny.
- While Pennington was riding the horse, it reared, causing her to fall off, and the horse then fell on top of her, crushing her pelvis.
- After the accident, Lochte began treating the horse as a business asset for tax purposes, claiming depreciation on his federal income tax return from the date of purchase.
Procedural Posture:
- Penny Pennington sued Gary Lochte for personal injuries.
- Lochte's insurer, USAA, investigated the claim and refused to defend him, asserting the policy's 'business pursuit' exclusion.
- A trial court entered a judgment against Lochte for $277,576.07.
- Lochte assigned his claims against USAA to Pennington in exchange for her agreement not to execute the judgment against him.
- Pennington sued USAA in trial court for breach of contract and negligence, among other claims.
- A jury found the horse ownership was not a business pursuit and that USAA was negligent, awarding Pennington the full prior judgment plus additional damages for mental anguish and exemplary damages.
- The trial court entered a judgment against USAA for $327,576.07.
- USAA, as appellant, appealed the judgment to the intermediate court of appeals; Pennington is the appellee.
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Issue:
Does an insured's ownership of a horse, purchased to experiment with a new training method with the hope of future profitability, constitute a 'business pursuit' that is excluded from coverage under a homeowner's insurance policy?
Opinions:
Majority - Reeves, Chief Justice
No. The insured's ownership of the horse was not a 'business pursuit' under the policy because it lacked the requisite elements of continuity and profit motive at the time of the incident. The court established a two-part test for defining a 'business pursuit': 1) continuity or regularity of the activity, and 2) a profit motive. Here, the jury had sufficient evidence to find that the ownership of Viking Vanny was a new, one-month-old experiment, distinct from Lochte's established breeding business, and thus lacked continuity. Furthermore, the jury could reasonably conclude that Lochte's primary intention at the time of the accident was experimental, with profit being a future hope rather than a present motive. The court also held that USAA's wrongful refusal to defend Lochte was a breach of contract, not a tort. Because the duty to defend arises solely from the insurance contract, damages are limited to those available for breach of contract, such as the policy limits and defense costs, not extra-contractual damages like mental anguish or punitive damages, unless a separate tort (e.g., breach of the duty of good faith and fair dealing) is pleaded and proven.
Analysis:
This case establishes a key two-part test (continuity and profit motive) for interpreting the 'business pursuits' exclusion in Texas insurance law, clarifying the distinction between a hobby and a business. It solidifies the principle that an activity's potential for future profit does not automatically classify it as a current business pursuit. Critically, the decision reinforces the boundary between contract and tort law in insurance disputes, holding that a wrongful refusal to defend is a breach of contract, not an independent tort. This precedent limits an insurer's liability to policy limits and defense costs in such cases, preventing insureds from recovering extra-contractual or punitive damages without establishing a recognized tort like bad faith.
