tracey kennedy michael kennedy and tiffany holland see defense and indemnity coverage for an incident that the primary policy and the umbrella policy at issue in this case explicitly exclude under three distinct exclusions in the policies the exclusions are number one  exclusion for business pursuits number two and exclusion that bars coverage for any business that requires a license and the third exclusion is an exclusion of bars coverage when the insured has in her care someone who is under the age of twenty one now for the first exclusion is found not to be an exclusion because there's an exception the other two don't matter do that or do that that first exclusion has imbedded in it a clarification that the exclusion and the policy in the primary policy does not cover any business that requires a license period it does not cover it but independent of that exclusion the business pursuits exclusion is a separate and distinct exclusion that bars coverage for persons under the age of twenty one in the care of the insured and those exclusions yes are mutually exclusive and i don't believe  are independent bases to avoid coverage in this post to those two and i would argue three really because the business pursuits exclusion first of all requires a non business pursuit that's number one but it also states that regardless of whether there is a business pursuit activity luzhin does not apply to a business that requires the exclusion is set up in a way that is very simple it's just two sides of the same coin the exclusion says that the power and primary policy exclude coverage for business pursues and business activity and then the supposes give back or exception says that it doesn't apply to activities that are non business they are entirely compatible and consistent ideas within the exclusion and they say virtually the same thing i would posit your honor that even without the exception the exclusion it does not add any meaning to the engine without the for the option in other words an exclusion that says we don't cover business pursuits is the same as an exclusion that says we don't cover business and we don't cover business pursuits but we do cover pursuits that are non business it's six of one and one have thus no the other and the argument that the holland in this case is the one that filed the underlying case is trying to name is that the exception to the exclusion dramatically changes the analysis that this court should conduct and we disagree with that proposition there is no case law in illinois in the third district or any other district that supports that proposition and more directly to your point justice holdridge there is no case in illinois that sets up the dichotomy that holland seeks to impose on this court that there is some tension between premises liability and the business pursuits exclusion there are five cases that we have identified that are that address this exclusion and we have somewhat of a close universe of case law in this area there is no disagreement about this beginning in one thousand nine hundred eight in the basket case the fifth district decided that the exclusion which did contain an exception in that case barred coverage when there was an accident in a driveway where the insured was conducting a day a business a day care business out of out of her home importantly in one case which was decided in one nine hundred eighty eight it is of the few cases that cited the more case on which holland places all of her argument here and that suppose it particular activities case particular activities that was in bass was cited and rejected on a case that involved and accident in the driveway and the court in the fifth district found that the accident in the driveway was related enough to the business activity of daycare operations that the exclusion applied and if driving in the driveway to get to and from the daycare operation is sufficiently related to be a particular activity related to a business exclusion for daycare operations then certainly the pool in this case where the children under the care of tracy kennedy were swimming must be related to the daycare operation even after bassett in the full case in the seventh circuit decided in one nine hundred ninety four another case that involved the exclusion and the exception to the exclusion virtually identical language to the wording in this case the court upheld the exclusion in facts involving a choking accident following fall in one thousand nine hundred ninety six the case the second district in smiling again up held the exclusion and smiley is indistinguishable the incident in smiley is in is indistinguishable from the facts in this case it is a drowning case and that's exactly what we have here we have a drowning and smiley in the second district in one thousand nine hundred ninety six said that the drowning was excluded by the business perceived exclusion in the policy exception in the halls there was not an exception in our policy there wasn't but again our position is that the exception does not give back any coverage that is already taken away by the exclusion itself it simply says non business activity it's not excluded and in smiley the court specifically determined that the pool was related to the business activity at the daycare facility we don't know that you're on there's no indication in the record we do know however that it was a two year old yes but we do know however that the two year old was in the care of tracy kennedy for months and we do know that tracy kennedy was running the day care operation out of her home for eleven months and had as many as eleven children under her care and charged one hundred fifty dollars to one hundred seventy five dollars per child per week to take care of them there's no there's no question that's all considered yes but the ok yes now let's go back to that exception the language actually in the policy which is relevant in this case what does it say exactly ottilie injury property damage and personal really personal injury arising out of business pursuit of anyone we protect is excluded we do cover activities normally considered non business  kids at daycare that's a very different scenario from a child brought to the premises for the purpose of daycare i would agree with that judge i would i would agree with that and in this case the the the  child who drowned was in the care of tracey kennedy for her day care operation cases have decided every one of the cases has decided that the over all requirement in the overall duty that the daycare operator has the children in its charge is to keep a safe operation and bought includes safe conditions on the property the cape the decision  more discusses safe conditions on the property and the decision info i believe discusses safe conditions on the property and that is the over arching theme of the cases that when you are running a daycare operation you must keep it safe and the conditions must be safe so the idea that this was where we're where we draw that conditions that kind of wanted you to continue with your exception but now that you've gotten there because the language is important and then insurance but obviously ok and construed against the drafter as a general principle ok so where do we wagons around the conditions as we say of the property and there's nothing in this record suggests that the business activity included groups describe what her daycare offered but we do know from the record quite conclusively that the that tracy kennedy allowed the children in her care to use the pool which is what triggered the d c investigation and there is no dispute that d c s d c s off initiated an investigation and found that there were seven children swimming in the pool and they initiated that investigation and they warn cerys that if she didn't have a wife sense that she would be operating that she would be subject to criminal penalties and moreover d injuries in the letter and on june eighth that if she didn't have a widest sense that she would not have liability coverage for any accident that occurred on her property she knew she was warned in advance and indeed not only did d c s d c fs warn her and tell her that she needed a license because she was have because she was running a commercial daycare facility out of her house that involved children swimming in her pool they prosecuted her and tracy kennedy went to prison because of what she was doing at her home she she was charged she was charged was several counts one of those counts was operating a day care facility without a license she pled guilty to in danger of a child i believe that that was count three but one of the charges was operating the daycare facility without a license it is undisputed that is getting back to the the mechanics of an insurance dispute the duty to defend is determined by the the wording in the policy in the allegations in the complaint it is alleged in the complaint that tracy kennedy advertised that she had a license and didn't have one it is it is also undisputed that d c fs advised tracy that she must have a way since in tracy applied for that license and never got one well i assume that if she were licensed and that she would have to follow of a litany of regulations promulgated by state of illinois to comply with whatever makes the safe daycare i'm sorry if the exception is simply as i said we do cover activities normally considered non business so a non business activity would be covered again it's just the other side of the same coin to further than that it doesn't mention daycare like that well it says occasional business activities of any we do cover occasional business activities of anyone we protect these include but are now not limited to babysitting catting long care newspaper delivery and other similar activities occasional business activities including daycare this was not an occasional activity this was an ongoing levon month  daycare operation that tracey was running continuously in her home for as many as eleven children and that does tales there at that the economy where you say yes we cover occasional business that exception again to me was big the exception is we do cover a activities normally considered non business and then elliptical phrase and down to d occasional business activities of not see that's a question i have is what i would how do we define we've we've got that subsequent phrase where you're saying business activities ok but then there's we also cover activities oh what is this activity that the insured was engaged in or not engaged in at the time of the incident activity was the day care operation which was a business that tracey kennedy was running out of her  home and it wasn't occasional it was consensus created either but mayor position is that somehow this is premises liability which would be covered that has no basis in the policy it also has no basis in the case law about the activity of maintaining it or having and maintaining a pool as part of creating is safe environment for the day care facility then is that established that the pool is part of the environment of the day care yes yes we believe that the record substance the record corroborates that without a doubt and that was part of the business activity from that the government part of that they care operation oh it certainly was your honor the when the d c fs investigator came to the kennedys home she discovered seven children in the pool and a complaint against a daycare facility operating without a license it tracey were only in her house with her own children and their friends i don't believe the d c fs would have any authority or jurisdiction over that any more than they could come to my house i don't have a pool but any more than they could come to my house and say to me when i'm having a birthday party for my children and there's ten people there that there is something wrong i get it not yet anyway but fraid were headed that's that is a different story are accurate what i asked you before except for this the child from the services appearance and finding people were swimming to conduct a licensing of additional licensing complaint unless the children at the kennedy home were part of the daycare operation and the kennedys only had four children themselves and i think one of them was one year old so i doubt that the one year old was in the pool well yeah but i think maybe this isn't clear on my part but most children have friends who come and play in their yards and vice versa and i'm not sure that does the best you know that might have triggered an investigation where there are and where in there is a finding that th we don't know that from the d c of report there's no question that we don't know about but what we do know is that from the case law the daycare facility operator must keep safe conditions on and egress to the sil where they're dropping off children and i can kind of understand where they're saying that's an edible part of the daycare operation but here i don't know what the record says mathis a case that you are familiar with mathis is the only case in the third district it is controlling and the only mathis set for to enforce the exclusion one is the business regular in continuous and two did ensure derive a portion of her livelihood from that business that is what mat lights to see one one three two in separate graph two d it talks about the business activities including babysitting but isn't isn't there also an exception to the exception and that is business activities regular or business activities which i think the distinction for placing it that way means occasional business activities for which a person is required to be license it should that be construed as an exception to the exception i think it's a clarification because the licensing requirement doesn't talk about the difference between business and in non business activities what it says is we bar business activity but we don't bar beginning the exclusion says we don't cover business pursuits and then the exception to the exclusion says occasional business activities like babysitting is covered but by the way one thing is for sure we do not the idea of is there a give back is there an exception is there this is there that there is no disagreement about what the language says for the licensing requirement there is no case law that says that the wise in requirement is ambiguous and police have not provided this quirk with any the only argument that the apple leaves have made on this issue is that not all daycare business is require a license but that is not what the exclusion says it says any business that does require a license is excluded the allegations in the complaint specifically say that that tracy kennedy advertised her she was operating an unlicensed business already under penalty of law gave her an application that traci began to fill out but never filled out before the incident it is uncontroverted there is nothing in big us about this expression in the policy yes yes alleged in the complaint and what is a reading of the insurance policy but there is no doubt there can be no doubt that alleged in the in in the complaint is that she advertised that she was a licensed day care facility operator and that she was not in fact such part of the day care operation and out of the canyons business pursuits also the court finds of the second very similar exclusion without a restoration of coverage was appended is capable to interpretations and is and they was when the policy is looked at as a whole and the the judge of bonds of those of those aspects as i said judge i think that the trial court mistakenly followed the idea of the racy kennedy was running a consistent daycare operation out of her home but he focused incorrectly on whether the pool was an interval part of the daycare operation and as i said we believe even if we are required to show that that it was but that is not the standard set forth in the case law most recently would be that is mathis mathis did not talk about any dichotomy between premise s liability and business pursuits and it didn't talk about whether the suffocation which was the incident in that case was an integral part of the gate care facility it said very bluntly is it irregular and continuous activity and number two did the insured derive a portion of her livelihood from the tick of it and we answer those questions in this case with then with a resounding yes and there is no  good morning me it please the court my name is jennifer turley yellow i'm here representing the defendant tiffany holland who is the special administrator of the a state of abigail holland deceased with me today at counsel table is the test that's going to be employed in this case to be whether or not mr kennedy was conducting a business first and whether or not the injury arose out of a business pursuit that's that two prong test regarding is it continual activity and did she derive a profit which actually aren't issues in this case but if that's what they want to rewrite their policy because they have this non business activities exception running around in their policy and that language mandates that we engage in this particular activity analysis that's what's been done in illinois there are cases that support the application of that test more is the first one mr looks good with the discussion of economy vivacity because he likes the brazil at the end result before economy basket the more more employed the particular activities tast in a case where a child pulled a hot cup a pan of hot water onto himself while the caregiver was fixing lunch for both herself her children who were also in her care at the time and the child who was injured and the particular activities test says we have to examine the activity that produced the injury review that very narrowly and we look to see what's the connection to an entrepreneur will endeavor and that's how in point that task which again the only illinois case that we have more an economy basket those are the only ones all the other cases that he wants to talk about the and if they don't like it if they want the analysis to be like it isn't smiling and me thermos then they need to remove the exception from their promises that the absolutely because i want to get your question that you asked mr lee and as i'm hearing him talk about what the policy language is it's not just that we don't cover a business that requires a life sentence if you look at it's we don't cover regular business activities or business activities again we're still talking about activities the word activities is still running around in this policy even in that provision business activities for which a person is required to have a license by the state i don't lose on that exclusion because the underlying suit isn't about a business activity it's this is this this accident could have happened even if there had been a piece of paper from the state of illinois given to mrs kennedy allowing her to operate a day care in fact if you look at most of the cases the people are licensed by the state is who are it because it's about property maintenance and these are the purposes of liability that's correct and and the underlying torkham point makes that clear and it's very important although i didn't hear mr talk about it today that when this complaint the tort complaint hit the desks of the i would agree with fact more frequent permanent longer duration not just the typical parents going out at night chair absolutely but i do think it's important that when the complaint hit the desk and we're supposed to be looking we're just here on a duty to defend so we've got to consider all of those things too we've got to construe the complaint liberally in favor of coverage we've got to give them all benefits the benefits of any doubt go to the insurance no the insurance company and here they looked at the complaint and said the suit alleges premises negligence and that's the key for us in saying that the exception is what applies because pool maintenance is something the kennedys had to do even if they didn't have a home daycare their property owners they had their own children living at the premises there's kids in the neighborhood you have to secure your pool you have one that's a duty that would be ever present even absent the daycare and that's why the pool maintenance it's not tied or associated with the babysitter function like in the economy if you basket case where you know it's part of a babysitters function are associated with babysitting that you're going to have parents coming in picking up their children that you would need to be careful about the activities in the driveway here and i also really want to make this clear as i think some liberties are being taken with the record there is zero evidence that mrs kennedy allowed daycare children in that swimming pool there is no evidence of that this pool was not part of any profit motive it was not something that the example and it's one that i made at the trial court level is swimming lessons if she would have said sign your kids up at my daycare or give them swim lessons while they're here completely different upon on erie on aries part is all of the documentation which is an authenticated it contains hearsay statements we objected to its use but even if we consider what's in it it doesn't identify the children that were in the pool on the day fs investigator came out and i would dispute mr blix teams representation that d c fs came out there because there were all these kids in the pool that's not in fact what we've learned is that mr kennedy and mrs kennedy at the time this was all happening were having some marital strife and he suggested that he was the one who actually contacted d c f f s he didn't want her running a daycare out of the home he called the c f s on her it wasn't but somebody reported a bunch of the care kids were in the pool in the investigator showed up so that that is not in fact what occurred but the main point in our argument is that the case law and ellen why the only cases that we have t pertain to this policy language are the more case in the economy basket case the case law that harry wants to focus on are all cases where there wasn't a non business activities exception and if that's what he wants if that's the analysis  we can delve into the ambiguity argument because in my view it's just as equally important as the argument about the exception applying i mean here you look at this it's not whether or not it makes sense to erie it's not whether or not it makes sense to raise awkward lawyer it's what the average policyholder would pick up this document and understand it to mean and where the licensing clause is and i think mr blix seems counting that as an additional exclusion i read it as part of the business pursuits exclusion it's one exclusion it's just got a lot of parts it makes what's already a bad situation even worse in terms of ambiguity what are we looking at the various parts there's no endeavor on eries part to explain how those components work with one another and all the while mind you eries telling its insurance and its prefatory language you know we write our policies with really clear language so you can really understand  hardly that's my response to that hardly and not to mention they tell their insurers in the prefatory language of their policies we're going to give you what is near perfect protection and coverage as possible red together are unclear and susceptible of multiple interpretations courts from across the country have looked at this exact language and concluded the same thing the only illinois case we have on point more also concluded that this policy language was ambiguous and had to be considered in favor of coverage for the policyholders so again even even some of the key small that eury has cited the feel case out of the seventh circuit has talked about that this particular language it's not its meaning is not clearly evident it's very if you don't want to cover a home daycare here's what you say it's very easy you could define business as some cases have done let's look at smiley and make this in most cases business included the operation of a home daycare the term business eery could do that here you could say a business includes the operation of a home daycare and we don't cover it period no exception none done that's clear language what we have here unclear completely unclear and that lack of clarity carries over to the other exclusion which we the court didn't get into with mr looks to me but i want to examine now to that that second exclusion that's being asserted as a thesis for not providing a duty to defend to the kennedys  the house no i consider the licensing the same as the business pursuits exclusion that's one provision for the house or at the household residence exclusion yes that is the way for that to work to eries favor the term if residence of your household has to apply only to relatives it couldn't carry over to persons under the age of twenty one in the care of the insurer this language has also been looked at by other courts found to be ambiguous and it is  our reading is supported by one illinois case that's the country mutual case and the point of that case it was the death of a foster care child while in the care of foster parents and the court engaged in an analysis as to whether or not that foster child was a resident of the foster parents home if there is right then that analysis that the appellate court and agent would have been necessary would have been necessary at all there had to be a determination about residency our reading of that exclusion also comports with how erie defines anyone we protect with respect to insured status under the policies residency is taken into account and that's the point of the household residence exclusion is that we abby would have had to have been correct abby would have had to have been our resident for the exclusion to have been applicable that's correct and we believe both findings are correct and supported by the only illinois case that we know to be in existence that discusses this issue i know that erie has its own set of cases they're all from out of state talking about a different result but that just again emphasizes that the courts have gone either way on this particular provision and clearly it's capable of argument is if i understand it correctly a two year old is under the age of twenty one and the two year old was in here you are correct but that's not what the exclusion says she's got to be a resident for it to apply and she's not absolutely all right now i'm with ok so sorry and then the judge also found that the provision was ambiguous as well which we would agree with that finding the one we just read yes clearly correct and we pointed that out if the definition of business can mean occasional regular it talks about all different kinds of tempore all aspects if you will then what's it mean to our argument is centered on the the the underlying tort complaint concerns a non business activity it concerns maintaining that swimming pool and that that's something for which there's not a connection to profit motive that there's something completely extraneous to the daycare operation that was the actual thing that harmed abby where's i expect that they would be supervised and within arm's reach of the daycare provider and there are i to speak candidly there are different ways different lines of interpretation for this particular policy language and there have been courts that have focused on that and said anytime we're talking about premises or condition of the premises and a failure to supervise exclusion applies there are courts that have done that the stanley case is a good example of that that's the one most frequently cited but in illinois the only case law we have is the more case and passe which are the case law that's a different line of thinking and we apply that particular activities test and argument as if you do that here it's a different result and if erie wants something different a different analysis they need to well i'm and perhaps i'm being a little facetious saying it that way but i mean certainly other carriers and some consequences that's true of case law absolutely but there have been other carriers look at the cases that eerie citing the mayfest the smiley cases those are all little bit later in the mid one nine hundred ninety s they dropped there's no reference to an exception and there and they're being able to enforce that exclusion if they have the analysis  and there i can see where there could have been an argument main that there's this kind neck center affiliation with the babysitter function in that case in terms of where you put an infant down to sleep and putting it near a dresser in that case we're  much more difficult time making a separation of the activity from the baby sitting function as i'm doing on her before he ability to perhaps yes i could see the result being different yes i mean i could see an argument a more persuasive argument being made that the exclusion could apply had the facts been different in that case but again it when oil law isn't that we just look at supervision and we just look at always the premises condition and its failure to supervise and that's not what our facts are  it doesn't but i suppose if i were arguing now i would try to make the argument that the placement of the child there where you have now a lot of daycare is i know have designated areas for the child to sleep in and if there was a misjudgment  which iraq there's no evidence but with regard to the activity of supervision and so forth when you've got a tavor room a baby in a crib believe what happened in the sense since it was a pull to a had been left up against the gate so that it didn't actually latch and that's how it was  everything if we're going to shift the law and walk away from the war in the particular activities fast and make it about supervision of the conditions of promise ease and then the not so much more difficult argument for me to make that the exception would apply but that hasn't been the argument in this case that's not been the argument eries made and i don't know that that was the finding necessarily of the judge nothing really changed on on abby and what he and her s i i don't necessarily think it does i mean the policy says what it says and the policy mandates and and an examination of the activity that harm the abyan here it's the poll it's it's not even the underlying suit doesn't focus on a lack of supervision it focuses on that the gates were secure and the dad wasn't secure it's not that she wasn't that's not the grab a man of the underlying complaint instead it was about premises liability and that's a risk that the daycare didn't inhance or create it's it's something that was there or if another child wandered into the back yard and had to have encountered that would be coverage for that and it shouldn't matter here that she was in the day care that's our position thank you very much for your consideration of the case we did ask for in a firm end of the trail court's partial summary judgment ruling and that the court should adopt the particular activities test purportedly issued by the more decision when more issued its decision in ninety one it gave a fairly lengthy description and analysis of the exclusion in that case and in so doing more foretold the result in this case when more discussed some of the cases outside of illinois in the facts of those cases more stated that when reviewing those cases  the exception does not apply to a child drowned in the insurance pool while the insured was feeding her baby and quote more has already passed pelleas are correct that more is the controlling decision because more is one of the few cases in illinois that includes both the exclusion and the exception moore has all ready said that drowning in a pool is not cover and the exception does not alter that driveway was sufficient to fall within the exclusion and determined that that was related to daycare active to the operation of a daycare business i would also like to point out your honor that the idea that there would be any difference in this case even if there were no exception is contradicted by the analysis in both mathis and smiley first of all in the smiley again the drowning case smiley which did not have the exception the court said it is clear connors injuries arose out of wayne's miley's business activities these acts these services included a duty to exercise due care to protect connor from any dangerous household conditions were guarded lists of how defendants attempt to characterize smiley's actions as a failure to supervise coner as a failure to restrict conner's access to the pool or a failure to provide adequate locks on the gate conner's death unquestionably originated or came about from the day care services when smiley was paid to provide and the same is true in the mathis case and the idea that there was no connection or that there was a kid that there's a premise there's a distinction between premises and the business activity mathis explicitly stated that there was a quote direct that the obligations were directly correlated to providing daycare services so these are all conditions on the property there these are all directly related to the daycare operation that the insurers were supposedly running there is no difference in this case we start with more which already said that a drowning incident is not covered including in cases and policies that have the exception to the exclusion and that idea is followed through through smiley and all the way to mathis there is no authority in illinois to support the idea that this exclusion should not be enforced