Bay State Ins. Co. v. Jennings, No. A-0421-09 (App. Div. June 2, 2011), was a declaratory judgment action brought by plaintiff Bay State Insurance Company ("Bay State") against its insured, Carol Collins, as well as Kirsten Jennings and Kevin Jennings.  Kevin Jennings had filed a personal injury complaint, individually and on behalf of his minor daughter, Kirsten, against Bay State's insured, Collins.  Relying upon her homeowner's insurance policy with Bay State, Collins presented a claim to Bay State for defense and indemnification, which caused Bay State to file the declaratory judgment action in which it sought to void or rescind coverage pursuant to the policy's "business exclusion."  Ruling on the parties' summary judgment motions, the trial court determined that Bay State was required to defend and indemnify Collins in the underlying negligence action.  The Appellate Division reversed and remanded for further proceedings. 

On October 3, 2006, Collins was pushing Kirsten in a shopping cart in a Sam's Club parking lot in Freehold when she lost her balance and fell.  As she fell, she pulled the cart down with her and Kirsten injured her leg in the fall.  On that day, Collins was caring for Kirsten and another child, Ariana.  There was no dispute that Collins normally cared for Kirsten two days a week when Kirsten's mother Tina was working.

In addition to watching Kirsten, Collins would watch other children sometimes as well.  She took care of Ariana for two weeks, and during the 2004-05 school year she cared for two other children for a total of $40 a day.  Collins testified that she also helped out another family with their children occasionally but that she was not paid for that; however, she also acknowledged that sometimes that mother would slip her some money.

Mrs. Jennings gave Collins $35 a day to watch Kirsten.  However, Collins and Mr. and Mrs. Jennings disagreed about what that money represented in terms of it being consideration or simply covering the expenses of watching Kirsten.  Mrs. Jennings did not consider Collins an employee and thought the money was to be used simply for the costs associated with caring for Kirsten.  Collins thought that the compensation was for her time caring for Kirsten.  If Collins spent less than $35 on Kirsten on a given day, then she would keep the balance of the money.  At the same time, if she spent more than $35, she would not ask Mrs. Jennings for reimbursement.  Mrs. Jennings and Collins disagreed about whether Mr. Jennings ever performed household chores for Collins in lieu of the $35 daily payment.

After reviewing the language of the policy's business exclusion, the Appellate Division explained that it had to apply a two-part test to determine whether the exclusion applied to childcare:  1) whether the pursuit involves continuity or customary engagement by the insured in the activity; and 2) whether there was a "profit motive" for the insured.  The trial court had found that the first part was satisfied but that Collins "did not manifest a 'profit motive' sufficient to qualify as a business or 'means of livelihood.'"

However, the Appellate Division reasoned that "the critical issue for the court to decide was not whether Collins took home a profit on the days she watched Kirsten Jennings, but whether her intent in agreeing to watch Kirsten was motivated by financial gain."  Stressing that the insured had the burden of disproving a profit motive, the Appellate Division pointed out that Collins earned a small income because she typically spent only half of the $35 she was given to watch Kirsten.  The court also noted that Collins cared for several other children, which suggested that her arrangement with the Jennings family was more than simply an accommodation for a friend.  Thus, the Appellate Division ruled that "[a]lthough this does not by itself establish a profit motive, we find it raises a genuine issue of fact concerning Collins's intent."  The Appellate Division further bolstered its conclusion that there was a fact issue about Collins's intent by observing that she would keep any unspent monies from her $35 payments.

Accordingly, the court held "that the motion court made a factual finding that failed to view the evidence in a light most favorable to the party opposing the motion.  Here, the issue of 'profit motive' is not so one-sided as to justify the granting of the summary judgment.  We therefore reverse and remand for a plenary hearing."