An "employee" of the
insured arising out of and in the course of:
- Employment by the insured;
or
- Performing duties related to the conduct of the insured's business; or ...
This exclusion applies whether the insured may be liable
as an employer or in any other capacity and to any obligation to
share damages with or repay someone else who must pay damages because of
the injury.
This exclusion does not apply to liability assumed by the
insured under an "insured contract".1
"In Any Other Capacity"
One way that courts have expanded the reach of the employers liability
exclusion to non-employer insureds is through the reference to the
insured's liability as "an employer or in any other capacity." In combination with a
broad definition of the term "employee," the "in any other
capacity" language may be interpreted as applying the exclusion to
insureds that are not employers of the injured claimant.
In one appellate-level case out of New York, the court denied coverage
to an insured for injuries sustained by an employee of a stage
subcontractor the insured had hired to perform work at an event it planned
and managed. See Nautilus Ins. Co. v. Matthew
David Events, Ltd., 69 A.D.3d 457 (N.Y. App. Div. 1st Dep't
2010). In addition to the standard employers liability language, the
insured's policy contained a broad definition of "employee"
that encompassed any person "hired by, loaned to, leased to,
contracted for, or volunteering services to the insured, whether or not
paid by the insured." Id. The
court, noting the insured was liable "as an employer or in any other
capacity," concluded that, in order to give effect to the language
defining "employee," the exclusion could not be read narrowly to
only preclude coverage for claims by persons who directly worked for the
insured.
Although courts have not reached a consensus regarding the proper
definition of the "in any other capacity" language in an
employers liability exclusion, the Nautilus decision undermines the widely held
presumption that an employers liability exclusion will only apply in the
context of the traditional employer-employee relationship. Accordingly, a
more apt interpretation would focus on the evolutionary nature of that core
relationship, that the exclusion applies "even if an employee seeks to
hold an employer liable in a capacity other than its 'employer'
capacity," Forgues v. Heart of Tex.
Dodge, Inc., 2003 Wis. App. 188, at *122–23 (Wis. Ct. App. 2003), or
that it "refers to multiple theories of liability as to the employer,
and not to multiple entities to which the exclusion may apply."
Thomson Inc. v. Insurance Co. of N.
Am., 11 N.E.3d 982 (Ind. Ct. App. 2014).
Nevertheless, the Nautilus decision
highlights the importance of scrutinizing the language used to define
"employee," as used in the employers liability exclusion.
See also Kelleher v. Admiral Indem.
Co., 958 N.Y.S.2d 308 (N.Y. Sup. Ct. 2010) (finding that the
"in any other capacity" language of the employers liability
exclusion did not operate to preclude coverage for the non-employer insured
where the definition of "employee" did not extend to independent
contractors).
Given the potential for courts to interpret "in any other
capacity" to encompass non-employers and thus exclude coverage for
insureds irrespective of an employer-employee relationship with the
claimant, construction industry professionals must be wary of relying on
general expectations or preconceived notions regarding the applicability of
an employers liability exclusion to coverage claims.
"The" Insured versus "Any" Insured
An additional avenue that some courts (albeit, a minority) have utilized
to expand application of the employers liability exclusion to CGL policies
is interpreting the exclusion's reference to "the" insured as
referring to all insureds, both named and additional, under the contract.
See Kelly v. State Auto. Ins.
Ass'n, 228 F.2d 734 (6th Cir. Ky. 1961). The usual scenario
involves an additional insured seeking coverage for bodily injury claims
brought by an employee of the named insured. In some cases, even though a
policy will vary between using "the" insured and "any"
insured, courts will focus on the term "insured," which is
defined as "any person or organization qualifying as such [under the
[policy],"2 and conclude that, because the
term "insured" encompasses the named insured, it necessarily
follows that the language "the insured" in the employers
liability exclusion includes the named insured, even when viewing the
coverage analysis from the perspective of the additional insured making the
claim. As a result, an additional insured
would likely be unable to receive coverage for bodily injury claims of the
named insured's employees. In support of this interpretation, courts
have reasoned that reading "the" insured as being limited to only
the additional insured seeking coverage would "lead to the curious (if
not absurd) result that the [unnamed] insured would have greater protection
under the policy than the named insured who pays the premiums."
Limon v. Farmers
Ins. Exch., 465 P.2d 596 (Ariz. Ct.
App. 1970).
Unsurprisingly, the majority of courts disagree with this position.
Instead, it is commonly understood that, where a CGL policy distinguishes
between "the" insured and "any" insured, the language
of an employers liability exclusion referencing "the" insured
applies only to the insured seeking coverage, not all insureds on the
policy. This is due in large part to the "severability of
interests" provision in most CGL policies, which requires an insurer
to ascertain coverage under the policy from the perspective of each insured
against whom a claim is made. Thus, the employers liability exclusion must
be applied individually to each insured seeking coverage under the policy
and not collectively to all insureds on the policy. See Sacharko v. Center Equities Ltd. P'ship,
479 A.2d 1219 (Conn. App. Ct. 1984).
Which brings us back to the recent Pennsylvania Supreme Court decision
that aligned with the majority rule. See
Mutual Benefit Ins. Co. v. Politsopoulos, No. 60 MAP 2014, 2015 Pa.
LEXIS 1126 (Pa. May 26, 2015). Prior to Politsopoulos, Pennsylvania courts followed the
analysis that "the" insured, as used in an employers liability
exclusion, encompassed the named insured, regardless of whether an
additional insured was the party seeking coverage.
Recognizing the contradictory nature of such a rule, applied
irrespective of "contextual cues or comparative usage across the wider
terms of a policy" and the presence of a severability provision, the
court sided with the majority of authority and limited application of the
exclusionary language to only the insured seeking coverage. By paving the
way for lower courts to grant coverage to additional insureds seeking
coverage for claims brought by employees of the named insured, this ruling
has effectively modernized Pennsylvania's approach to the employer
liability exclusion.
Ultimately, even in favorable jurisdictions, parties need to pay close
attention to the use of "the" insured versus "any"
insured in an employers liability exclusion (and throughout the policy
generally) to avoid potential losses of coverage. A court will be much more
likely to apply an employers liability exclusion referencing
"any" insured to preclude coverage for an additional insured sued
by the named insured's employee, even if doing so produces the
illogical result of excluding coverage for insureds that are not employers
of the claimant. See Endurance Am. Specialty
Ins. Co. v. Century Sur. Co., 46 F. Supp. 3d 398 (S.D.N.Y. 2014).
This is because even where there is a severability of insureds clause, the
plain meaning of the term "any" insured in an exclusionary clause
is a strong indicator of application as to all insureds under the
policy.
Conclusion
In theory, employers liability exclusions in CGL policies preclude
coverage for an insured only where its employee is the party seeking
compensation for bodily injury. Operating against this backdrop, general
contractors and other upstream parties procuring CGL insurance feel
protected from suits by downstream parties' injured workers. However,
as indicated above, in certain circumstances—depending on the facts and
language at issue—courts may be constrained to expand the applicability of
the employers liability exclusion to preclude coverage for insureds absent
an employer-employee relationship.
Consequently, upstream parties should not rely on assumptions regarding
protections available under employers liability exclusions but, rather,
should be vigilant in scrutinizing a CGL policy's exclusionary language
and defined terms, or the relevant contractual insurance requirements, to
ensure the appropriate application.
1CG 00 01 04 13, at pg. 2.
2CG 00 01 04 13, at pg. 1.