FILED
United States Court of Appeals
Tenth Circuit
April 12, 2010
PUBLISH Elisabeth A. Shumaker
Clerk of Court
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
SAFECO INSURANCE COMPANY
OF AMERICA,
Plaintiff-Appellee,
v. No. 08-3225
RANDY HILDERBRAND, and
RANDY HILDERBRAND AS
SPECIAL ADMINISTRATOR OF
THE ESTATE OF HALEY R.
HILDERBRAND, Deceased,
Defendants-Appellants,
KEITH BILLINGSLY; DOUGLAS
BILLINGSLY; ANIMAL
ENTERTAINMENT PRODUCTIONS;
and LOST CREEK ANIMAL
SANCTUARY FOUNDATION, INC.,
Defendants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
(D.C. NO. 6:06-CV-01299-MLB-DWB)
Thomas M. Warner, Jr., Warner Law Offices, P.A., Wichita, Kansas, for
Appellants.
Paul Hasty, Jr., Schmitt, Manz, Swanson, Mulhern, Overland Park, Kansas, for
Appellee.
Before KELLY, EBEL, and TYMKOVICH, Circuit Judges.
TYMKOVICH, Circuit Judge.
This insurance case arises out of a tragic accident in which a Siberian tiger
attacked and fatally injured Haley Hilderbrand, a 17-year-old high school student,
during her senior picture photo shoot. The accident occurred on the property of
Keith and Sharon Billingsley, who used their farm to shelter exotic animals. The
Billingsleys ran the Lost Creek Animal Sanctuary, a non-profit foundation
designed to rescue exotic animals, and Animal Entertainment Productions, a for-
profit partnership meant to fund the Sanctuary by exhibiting the rescued animals
at magic shows and other events. The tiger involved in the incident was one of
the Billingsleys’ rescued animals. At the time of the accident, the Billingsleys
held a homeowners insurance policy issued by Safeco Insurance Company of
America.
Haley’s father, Randy Hilderbrand, brought suit against the Billingsleys in
state court, seeking monetary damages for Haley’s wrongful death. The
Billingsleys claimed liability coverage from Safeco. Safeco then filed a
declaratory judgment action in federal court, arguing it was not required to
provide coverage to the Billingsleys, because the incident arose out of the
operation of a business, and the Billingsleys’ homeowners policy contained an
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exclusion for business pursuits. After a bench trial on the merits, the district
court concluded the insurance policy did not cover the incident in question. This
appeal followed.
Exercising jurisdiction under 28 U.S.C. § 1291, we conclude the district
court correctly applied Kansas law to the insurance policy in question. The
homeowners policy does not apply to the Billingsleys’ exotic animal rescue and
exhibition business, nor does any other exception in the policy apply to the facts
of this case.
Accordingly, we AFFIRM.
I. Background
A. Lost Creek Animal Sanctuary
The facts are largely undisputed. Keith and Sharon Billingsley, along with
their son Doug Billingsley, operated Lost Creek Animal Sanctuary on their
Kansas farm. The Sanctuary sheltered a variety of exotic animals—including
tigers, bears, lions, cougars, monkeys, and alligators—no longer wanted by zoos
or circuses. It was incorporated as a non-profit organization in 1994, with the
hope that it would be financed through donations.
Donations, however, ultimately proved insufficient to maintain the
Sanctuary. In 1999, the Billingsleys created Animal Entertainment Productions
(AEP). AEP was formed to generate income by exhibiting the Sanctuary’s exotic
animals in educational settings or entertainment events such as magic shows.
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AEP was a general partnership co-owned by Keith, Sharon, and Doug. To assure
AEP’s legitimacy as a business, the Billingsleys obtained licenses from state and
federal agencies to house and exhibit the animals.
Doug received extensive training in animal handling. He spent time
working with magic shows involving large cats, in both Malaysia and on a
Singapore-based cruise ship. He also worked in the lion habitat of the MGM
Grand Casino in Las Vegas. At times, Doug received a salary from AEP, and
engaged in substantial marketing efforts to obtain business for the partnership,
even traveling to various locations to meet with potential customers. Although
not a large success, AEP did produce a few performances, and occasionally leased
its animals to other companies as a source of income.
In 2001, AEP received a Small Business Administration (SBA) loan in the
amount of $131,000. Those funds were used to purchase equipment, build a shop,
and pay Doug’s salary. In general, the Billingsleys used income from other
sources—such as Keith and Sharon’s full time jobs as social workers—rather than
income derived from AEP, to service the loan.
AEP filed tax returns indicating it always operated at a net loss, despite
earning some income from shows and sales of animals and equipment. AEP’s
operating expenses always outweighed the income the partnership generated.
Keith, Sharon, and Doug also deducted AEP’s losses on their personal tax returns.
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B. August 2005 Accident
In August 2005, Haley Hilderbrand, who had been volunteering at the
Sanctuary, asked to have her high school senior pictures taken with one of the
large cats. The Sanctuary had been used for this purpose before, so Doug agreed
to the photo shoot. He did not charge Haley for the opportunity. Doug selected
one of the tigers, Shaka, based on his assessment of the tiger’s mood and his
knowledge of its past behavior. During the photo shoot, something went wrong.
Despite Doug’s training as an animal handler, he lost control of the tiger. It
attacked Haley, and she later died from her injuries.
C. Homeowners Insurance Policy
While the Billingsleys had at times carried business insurance for AEP, no
business insurance policy was in effect when the attack occurred. The
Billingsleys, however, did hold a Safeco homeowners insurance policy in August
2005.
The homeowners policy contained language excluding losses for business
activities:
LIABILITY LOSSES WE DO NOT COVER
1. Coverage E - Personal Liability and Coverage F - Medical
Payments to Others do not apply to bodily injury or property
damage: . . .
b. arising out of business pursuits of any insured . . .
This exclusion does not apply to:
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(1) Activities which are ordinarily incident to non-
business pursuits[.]
* * *
‘Business’ includes trade, profession or occupation.
Aplt. App. at 42, 49 (italics in original). 1
The district court denied liability coverage under this provision.
II. Analysis
In cases arising under federal diversity jurisdiction, we apply the law of the
forum state, in this case, Kansas. Wankier v. Crown Equip. Corp., 353 F.3d 862,
866 (10th Cir. 2003). Here, we thus defer to the most recent judgments of the
Kansas Supreme Court, and if no controlling precedent exists, we attempt to
predict how that court would rule. Id. The decisions of lower state courts are
persuasive, but not binding. Long v. St. Paul Fire & Marine Ins. Co., 589 F.3d
1075, 1081 (10th Cir. 2009).
The interpretation of an insurance policy is a matter of law. MarkWest
Hydrocarbon, Inc. v. Liberty Mut. Ins. Co., 558 F.3d 1184, 1190 (10th Cir. 2009);
AMCO Ins. Co. v. Beck, 929 P.2d 162, 165 (Kan. 1996). Therefore, we review
the district court’s construction of the insurance policy de novo. Valley
Improvement Ass’n v. U.S. Fid. & Guar. Corp., 129 F.3d 1108, 1115 (10th Cir.
1997). We review the trial court’s fact findings for clear error.
1
Italics indicate terms that are defined elsewhere in the policy, such as the
term “business.”
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A. Business Pursuits Exclusion
Safeco contends it is not required to provide coverage because the incident
in question arose out of a business pursuit of the insured. To defeat the
exclusion, Mr. Hilderbrand argues that AEP had ceased to be a business pursuit
under the policy before the accident. In his view, the Billingsleys’ care of the
animals had become more akin to a hobby, and therefore the exclusion should not
apply.
To apply the business pursuits exclusion, Kansas courts adopted a test
“overwhelmingly followed” by other state courts. Krings v. Safeco Ins. Co., 628
P.2d 1071, 1074 (Kan. App. 1981). “To constitute a business pursuit, there must
be two elements: first, continuity, and secondly, the profit motive.” Id. (emphasis
added). See also Appleman on Insurance § 4501.10, n.4 (in general, business
pursuits exception requires “continuity consisting of customary engagement or
stated occupation and profit motive requiring that activity be shown as a means of
livelihood, gainful employment, means of earning a living, procuring subsistence
or profit, commercial transactions or engagements”).
As to the first element, “there must be a customary engagement or a stated
occupation.” The second element requires a showing of “such activity as a means
of livelihood, gainful employment, means of earning a living, procuring
subsistence or profit, commercial transactions or engagements.” Krings, 628 P.2d
at 1074; see also Beck, 929 P.2d at 166.
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1. Continuity
Kansas case law provides an instructive application of the continuity
element. In Krings v. Safeco Insurance Co., the insured was sued in his capacity
as an officer on the board of a savings and loan association. 628 P.2d at 1073.
As an officer, he received a small fee for each board meeting attended. He also
invested a significant amount of his own money in company stock. Id. The court
concluded on these facts that the insured’s service as an officer “was a regular
activity engaged in with a profit motive” and therefore a business pursuit that was
excluded from coverage. Id. at 1074. And in AMCO Insurance Co. v. Beck, the
court addressed the situation of a high-schooler who babysat for two or three days
each week while on summer vacation. The court concluded the high-schooler’s
activity satisfied the element of continuity. 929 P.2d at 170.
The activities of the Billingsleys in operating AEP meet the continuity
requirement. During the period in question, Doug held himself out to be a
professional animal trainer. AEP paid his salary, and the extensive training he
received indicates that this was more than a mere hobby or occasional pursuit.
Also, although certain aspects of the business, such as magic shows or photo
shoots, only occurred sporadically, the ownership and maintenance of the exotic
animals continued uninterrupted from the establishment of the Sanctuary, through
AEP’s founding, and up until Haley’s death. Further, from the time AEP was
created, Doug continually attempted to arrange animal performances. While these
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attempts were largely unsuccessful, they are themselves evidence that the
operation of AEP was a “customary engagement.” Beck, 929 P.2d at 170.
Mr. Hilderbrand suggests that by the time of the accident, the Billingsleys’
business activities were part-time, and therefore do not qualify as business
pursuits. As Krings and Beck attest, however, Kansas has rejected such a narrow
interpretation of what constitutes a business pursuit. See 628 P.2d at 1074; 929
P.2d at 170.
In short, the activities of the Billingsleys in operating AEP show the
engagement in a business over time, including at the time of the accident. The
district court correctly concluded the operation of AEP satisfied the continuity
element.
2. Profit Motive
Turning to the element of profit motive, Mr. Hilderbrand contends that the
business must generate an actual profit capable of supporting one’s livelihood.
He points to Beck, where the Kansas Supreme Court held that “[s]upplemental
income derived from part-time activities may satisfy the profit motive element.
However, . . . the income must be capable of significantly supplementing one’s
livelihood or subsistence and contributing to one’s living requirements.” 929
P.2d at 170 (emphasis in original). Mr. Hilderbrand argues the Billingsleys never
made enough money from these business activities to meet the profit motive
element. We disagree with his reading of Kansas law.
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The Beck court explained that the “case really boils down to whether [the
insured’s] babysitting services were more like occasional babysitting[, which does
not qualify as a business pursuit,] or more like professional day care[, which does
qualify as a business pursuit.]” Id. at 169. While the court did focus on the
amount of income derived in deciding this question, its inquiry did not end there.
Additional relevant factors bolstered the court’s determination: the insured’s
“hourly wage was well below the minimum wage”; she was not a licensed day-
care provider; she did not advertise her services; and she was a “full-time student
on summer break.” Id. at 170–71. The court felt its conclusion that part-time
babysitting did not qualify as a business pursuit was “consistent with the fact a
reasonable person would not believe that babysitting was the trade, profession, or
occupation of this 15-year-old child.” Id. at 171.
Reviewing the facts of this case, it is clear that the Billingsleys operated
AEP with a profit motive, even if no actual profit ever materialized. Their intent
in creating the company was to generate enough income to sustain the Lost Creek
Sanctuary. Further, the Billingsleys had obtained both state and federal licenses
for their business, and Doug was actively involved in advertising and promoting
AEP’s services. Moreover, the SBA loan, which would eventually need to be
repaid, shows that the Billingsleys expected AEP to return a profit at some point.
In addition, Doug held himself out as “a professional animal trainer.” R. at 154.
Finally, AEP filed tax returns during the period in question, and the Billingsleys
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wrote off the business losses of the partnership in their own personal tax returns.
See, e.g., Republic Ins. Co. v Piper, 517 F. Supp. 1103, 1106 (D. Colo. 1981)
(personal tax returns claiming business losses important in finding that
babysitting services were a business of the insured).
Accordingly, based on reasoning and analysis similar to that applied in
Beck, the district court correctly concluded the Billingsleys operated AEP with a
profit motive.
If we adopted Mr. Hilderbrand’s interpretation of this case, homeowners
insurance policies in Kansas could cover any business pursuit that was in the end
unprofitable. The analysis is not so narrowly focused. For instance, other cases
applying the same two-prong test readily acknowledge that “profit motive, not
actual profit, makes a pursuit a business pursuit.” Grain Dealers Mut. Ins. Co. v.
Farmers Alliance Mut. Ins. Co., 298 F.3d 1178, 1183 (10th Cir. 2002) (emphasis
added) (quoting Wiley v. Travelers Ins. Co., 534 P.2d 1293, 1295 (Okla. 1974)).
Based on our reading of Kansas law, one need not show actual profit to satisfy the
profit motive element.
* * *
In sum, we conclude the Billingsleys operated AEP with both continuity
and a profit motive when the incident occurred. At the time of the accident,
Doug’s “trade, profession or occupation” was animal trainer for AEP. Therefore,
AEP qualifies as a business pursuit and any incidents arising from its operation,
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including the tiger attack, are not covered by the Billingsleys’ homeowners
policy.
B. Non-Business Activities Exception
Mr. Hilderbrand also argues that even if AEP is a business pursuit, Safeco
is still required to provide coverage. He contends the accident falls within the
“non-business pursuits” exception to the homeowners policy issued to the
Billingsleys. The policy provides coverage for activities that normally would be
excluded as business pursuits if those activities are “ordinarily incident to non-
business pursuits.” Aplt. App. at 42. Mr. Hilderbrand argues that a photo shoot
falls into this category.
“The apparent purpose of the [non-business activities] exception is to
maintain coverage for ordinary ‘nonbusiness’ activities which would generally be
covered under the policy, even though those activities may be performed in the
course of a business pursuit.” Susnik v. W. Indem. Co., 795 P.2d 71, 75 (Kan. Ct.
App. 1990). The exception has most commonly been applied in cases involving
the care of children.
For example, in Heinson v. Porter, 772 P.2d 778 (Kan. 1989), a child was
injured when the insured babysitter momentarily left the child unattended to
check on a barking dog. The lower court had concluded the babysitter’s
homeowners policy covered the incident because checking on a dog is ordinarily a
non-business activity. The Kansas Supreme Court rejected that conclusion,
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instead focusing on the fact that the injury occurred while the insured was
engaged in a business pursuit. “It matters not for coverage purposes whether [the
insured] left the child unattended to check on her barking dog or to get a clean
diaper for the child.” Heinson, 772 P.2d at 783. According to the court, looking
only to the activity directly responsible for the injury would lead to absurd
results. “Presumably, if an automobile rolls off a hoist at a repair shop and
injures someone while the serviceman is tying his shoelace, the accident occurred
as a result of a nonbusiness pursuit.” Id.
Mr. Hilderbrand argues Haley’s injuries arose in connection with a photo
shoot, which he claims is ordinarily a non-business activity, or at least is not a
common business pursuit of the Billingsleys. Under Kansas law, however, the
inquiry must extend to a broader assessment of the incident. In this case, the
accident arose out of the Billingsleys’ exotic animal shelter and entertainment
business. The victim was a volunteer at the Sanctuary, and Doug used business
property and his expertise as a trainer for the photo shoot. While not the
everyday business of AEP, its animals had been used for photo shoots in the past,
and photo shoots were a part of AEP’s business.
While there are no reported Kansas cases directly on point, two cases from
other jurisdictions are worth mentioning. In a Missouri case, North River
Insurance Co. v. Poos, 553 S.W.2d 500 (Mo. Ct. App. 1977), the insured was a
researcher studying wolves. He occasionally kept a subject wolf at his home as a
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matter of convenience for himself. After the wolf injured a boy visiting his home,
the court found that the insured’s homeowners policy did not cover this incident,
because keeping the wolf at his home was a part of his business pursuits and
therefore could not be an activity ordinarily incident to a non-business pursuit.
Id. at 502.
Likewise, in Cincinnati Insurance Co. v. Shelby Mutual Insurance Co., 542
S.W.2d 822 (Tenn. Ct. App. 1975), the insured ran a zoo, but kept a lioness at his
home while the animal was pregnant. The animal injured a child at the insured’s
house. The court found that keeping the lioness at home was connected with the
insured’s business of running a zoo, and was not an activity ordinarily incident to
non-business pursuits, since “[l]ions are not ordinarily kept at home.” Id. at 825.
In this case, as in Poos and Cincinnati Insurance Co., the Billingsleys’
exotic animals were kept at their property in furtherance of their business
pursuits, and are not the type of animals normally kept at home as pets. Thus, we
agree with the district court that the photo shoot during which the tiger attacked
and killed Haley was not an activity “ordinarily incident to non-business
pursuits.” The non-business activities exception does not apply and Safeco is not
required to provide coverage for Haley’s wrongful death.
III. Conclusion
For the foregoing reasons, we AFFIRM the judgment of the district court.
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