Home Business Exclusions Saves Insurer from Dog Bite Claim by Firearms Broker

Nationwide General Insurance has avoided payment of a dog bite claim filed by a homeowner it insured who ran a firearms business out of his garage.

A federal district court for Alabama ruled that the business exclusions in all three Nationwide policies issued to David Hope applied even though the man his dog bit was as much a friend as he was a customer and there was no money involved in the transaction taking place when the dog bit him.

Hope manufactured and brokered firearms out of his home garage. As part of that business, Hope maintained a federal firearms license that allowed him to sell firearms and legally transfer firearms bought by others from third parties. He typically charged $20 for the brokerage services, but often did not charge acquaintances or regular customers.

Cecil Keith Chapman was friends with Hope and had purchased silencers for multiple firearms from Hope. Chapman also used Hope’s brokerage services for the transfer of several firearms.

This case began with Chapman using Hope’s brokerage service. Chapman bought a firearm from an out of state dealer and had it shipped to Hope. But because Chapman was either a social acquaintance or regular customer or both, Hope did not charge Chapman the usual fee.

When Chapman went to pick up the firearm from Hope, Hope’s dog bit him and caused injuries. Chapman sued Hope in state court for negligence and wantonness.

The Hopes had three policies through Nationwide: one for their primary residence, one for another residence, and a personal umbrella policy that provided excess personal liability coverage. Under each of those policies, coverage for personal liability and medical payments is excluded for bodily injury arising out of or in connection with a business conducted at the insured location. The Hopes did not have additional insurance for the firearms business Hope ran on the property.

Nationwide sought a declaratory judgment that it did not owe the Hopes a defense or indemnity in the state court action because the claims asserted against the Hopes were barred by the business exclusion in the insurance policies. Nationwide asserted that the dog bite arose out of, or was connected to, the business Hope ran on the Hopes’ property. His wife, Tammy, was later substituted as a party in the state court action after David Hope’s death in March 2022.

Chapman argued that the business exclusion did not apply because he did not pay Hope for brokering the firearm that he was picking up, so Hope was not conducting business. He was simply doing a friend a favor. Chapman asked the court to deny Nationwide’s motion for summary judgment.

The court said the question was whether Chapman’s visit to the Hope house arose out of, or was connected with, Hope’s firearm business even though Chapman was not paying Hope money to broker the firearms deal.

According to Nationwide, the dog bite had to arise out of Hope’s business because `but for’ the business, Chapman would not have been at Hope’s house when the dog bit him. Even though Chapman didn’t pay for the service this time, Nationwide points to evidence that Hope often waived the brokerage fee for acquaintances and regular customers. And Chapman had purchased silencers from Hope and used Hope’s brokerage services, so Nationwide argued that Hope could have been anticipating future business with Chapman by waiving the fee. Plus, regardless of Chapman not paying Hope for the transfer, Hope still provided a service associated with his business as a firearms manufacturer and broker that led to the incident. Thus, Nationwide said, the injuries arose out of and were connected to Hope’s business.

Chapman disagreed. He claimed there was no evidence Hope’s transfer of the firearm was causally related to any prior purchase Chapman made or to any potential future business transaction. Instead, Chapman pointed to his testimony and to the Hope’s testimony to establish that the transfer of the firearm arose out of the social relationship between the two, not Hope’s business.

Hope’s wife testified that while Chapman was both a customer and friend, her husband didn’t charge him because he “didn’t charge friends that would have guns sent there.” She added that she knew her husband didn’t charge Chapman “because he was friends, he usually doesn’t, or repeat customers.”

Chapman testified that Hope had received guns for him before, that they were friends and had known each other for more that 10 years, and that the silencers he had purchased were not the reason he went to the Hope’s to pick up the firearm. He said that he had been to Hope’s shop 12-15 times before, and that sometimes he would go there to hang out and shoot guns.

Both parties pointed to the Esurance Ins. Co. v. Grissett case to support their position. In this case, a father performed repair work on his daughter’s car, drove it to a separate location to have it painted, and was in an accident while driving it back to his shop. The father planned to charge his daughter for the repairs but decided not to after the accident.

The Grissett court held that even though no money changed hands for the repairs, no reasonable jury could conclude that the “engaged in business” exclusion in the insurance policy did not apply. Thus, the insurer had no duty to defend or indemnify the defendant under the insurance policy.

In Nationwide’s view, Grissett suggests that a business exclusion in an insurance policy will apply even when no money changes hands. Nationwide argued that the Grissett court rejected the daughter’s argument that the exclusion did not apply because the repair was ultimately gratuitous.

Chapman, on the other hand, argued that the business exclusion applied in Grissett only because the father originally planned to charge the daughter for the repairs and later decided not to do so after the accident. Chapman said this case is different because Hope never planned to charge him for the firearm transfer.

The court sided with Nationwide. It concluded that Chapman’s presence at the Hope’s house arose out of, and was connected to, Hope’s firearms business. “Chapman would not have been at Hope’s house but for his need to pick up a gun that Hope helped broker—a business service that Hope provided and paid taxes on,” the court found.

“True, Chapman did not pay Hope for this brokerage service, but Chapman had paid Hope before, and Hope often waived the small brokerage fee for repeat customers. This is typical, good business practice. And because the incident was connected to Hope’s business, it is excluded from coverage,” Justice Corey L. Maze wrote in granting Nationwide’s motion for summary judgment.