As this exclusion, exclusion d. of the Insurance Services Office, Inc. (ISO), CGL policy, eliminates coverage for statutory benefits the employer may owe under a workers compensation or similar law, the exclusion is generally clear and not in dispute. Claims by employees of the named insured for statutory benefits—such as medical, wage loss or other obligations under similar law—are simply not covered by the CGL policy. As this is rarely the subject of litigation, the focus of this article will be on the employers liability exclusion.
Employers Liability Exclusion
Exclusion e. of the ISO CGL policy is the employers liability exclusion. It states the CGL policy does not apply to bodily injury to an employee of the insured. Exactly what is meant by "employee of the insured" is the subject of substantial litigation and merits its own analysis.
Employee—Leased Worker and Temporary Worker. "Employee" is a defined term in the CGL policy. However, if you are looking for the definition to distinguish between an employee and independent contractor, you will be disappointed; the CGL policy makes no such delineation.
However, to know when the employers liability exclusion applies, it is important to note that "employee" includes a "leased worker" but not a "temporary worker." In other words, if the person working for you has been leased to you by a labor leasing firm, such as a Professional Employers Organization (PEO) or otherwise falls under the definition of "leased worker," any claims for bodily injury made by that person against the named insured are eliminated from the CGL policy by the employers liability exclusion—because that person is, by the CGL definition, an "employee" of the named insured.
A "temporary worker" is not an "employee," and thus a claim by that person against the named insured for bodily injury is not excluded by employers liability exclusion as that person is not an "employee" by definition. But be careful here—a "temporary worker" may quickly morph into a "leased worker," in which case the employers liability exclusion will apply. For more on the CGL coverage issues regarding "leased workers"and "temporary workers," see When Workers Aren't Employees (September 2007).
Arising Out of and in the Course of Employment by the Insured. For this section of the exclusion to apply, the employee must suffer bodily injury arising out of and in course of employment by the insured. This means two things must occur: (1) the bodily injury must "arise out of" employment, which usually means the employment was only a minimal factor in causing the injury; and (2) the bodily injury must also occur during employment. In other words, this section of the employers liability exclusion applies only if the employee's injury is caused by his or her employment (albeit a minimal cause) and the injury must occur during the employment.
Performing Duties Related to the Conduct of the Insured's Business. Even if the bodily injury does not arise out of and in the course of employment, the employers liability exclusion will still apply if the employee suffers bodily injury that arises out of (again, a minimal causal connection) and is in the course of performing duties that are related to the insured's business. While determining when this section of the exclusion applies requires a very fact-specific inquiry and analysis, the exclusion might apply to an employee on vacation (thus, not in the course of employment) who is injured in a car accident while attempting to respond to a customer's email on his company phone. The attempt to answer a customer's email may well be considered arising out of and in the course of performing duties related to the employer's business, particularly if the culture of the employer is that employees are expected to keep up with emails—even when the employee is not working.
Exclusion e. Does Not Apply—Illustration #1. A cashier at a retail clothing store returns to the store solely to purchase an article of clothing that is on sale. While selecting her item, she falls over a loose shelf and suffers bodily injury. She brings claim against her employer—the clothing store—for her injury. As her injury did not arise out of and in the course of employment, or arise out of and in the course of performing duties related to the conduct of the clothing store's business, the employer's liability exclusion in the clothing's CGL policy will not apply to this claim.
Exclusion e. Does Apply—Illustration #1. A cashier at a retail clothing store returns to the store on her day off because she forgot to print out the monthly sales report for the store manager. After taking the report off the printer, she falls over a loose shelf and suffers bodily injury. She brings claim against her employer—the clothing store—for her injury. Even though she was in the store when she was not scheduled to work, it is likely (at the least) her injury arose out of and was in the course of performing duties related to the conduct of her employer's business. The store's CGL policy will not apply to her claim due to the exclusion e., the employers liability exclusion. 2
More of the Employers Liability Exclusion
The employers liability exclusion does not end here, however.
Consequential Bodily Injury. The next paragraph of the exclusion applies to bodily injury to other than the employee—and eliminates from the CGL policy coverage for bodily injury to the employee's spouse, parent, brother, or sister that is a consequence of the bodily injury to the employee. 3
Illustration—Consequential Bodily Injury. Michael Ferriter was seriously injured on May 18, 1979 while working for his employer. His injuries resulted in paralysis from the neck down. Judith Ferriter, Michael Ferriter's spouse, along with their minor children, sued Mr. Ferriter's employer, alleging that observing Michael Ferriter's injuries at the hospital immediately after the accident resulted in their mental and physical health to be impaired. The court determined the physical health impairment amounted to a showing of substantial physical injury—bodily injury. 4
The above claim by Judith Ferriter and her children is excluded under the CGL policy as it is bodily injury to the spouse or children as a consequence of bodily injury to an employee of the insured—in this instance, Michael Ferriter. But the employers liability applies only if the bodily injury to Michael Ferriter either arises out of and in the course of his employment by his employer or his bodily injury arises out of and is in course of his performing duties related to the conduct of his employer's business.
COVID-19 Illustration—Consequential Bodily Injury and Loss of Consortium. Corby and Robert Kuciemba filed a complaint in California against Mr. Kuciemba's employer, Victory Woodworks, Inc., alleging that Mr. Kuciemba had contracted COVID-19 at Victory's jobsite. Mrs. Kuciemba also alleged severe and traumatic injuries suffered from COVID-19 as a result of being infected by Mr. Kuciemba. This is an example of consequential bodily injury—Mrs. Kuciemba suffered bodily injury allegedly as a consequence of Mr. Kuciemba's alleged work-related bodily injury resulting from COVID-19. In addition to counts for consequential injury, Mrs. Kuciemba also included a loss of consortium count against Victory. While the matter was dismissed, in part because California's exclusive remedy does not permit suits against an employer by an employee or that employee's dependents, the judge did allow the complaint to be amended. Kuciemba v. Victory Woodworks, Inc., No. 20-cv-09355-MMC (U.S.D.C. N.D. Cal. Feb. 22, 2021).
The Employers Liability Exclusion Continues To Apply—Even in Other Situations. The penultimate paragraph of the exclusion explains that the employers liability exclusion applies even when the situation changes a bit.
Employer Liable in Another Capacity. Some states recognize that an employer may have liability for injuries to its employees in a capacity other than as an employer. This so-called dual capacity is the notion that an employer can have a second capacity (and corresponding second duty) to its employees.
If the duty flows solely from the employment relationship and the injury "arises out of"and "during the course of" that employment, then the recited policy considerations behind the exclusive remedy in workers' compensation mandating that the employer be immune from tort liability have viability. If, however, an additional concurrent duty flows from an "extra" employer status or a relationship that is distinct from that of employer-employee and invokes a different set of obligations, then a second capacity arises and the employer status is coincidental. The employer should then be treated as any third-party tortfeasor, not immune from a common law tort action. 5
The CGL policy employers liability exclusion specifically excludes liability an employer may have in its "second capacity," provided the bodily injury to the employee either arises out of and is in course of (1) employment or (2) performing duties to the related to the insured's business. 6
Illustration—Other Capacity Bodily Injury. William Bell was severely injured in a fire when he was delivering his employer's flammable gas to a customer. Mr. Bell alleged that his employer's product was defective and brought suit against his employer—not as an employer but as a manufacturer of a defective product—a cause of action permitted under the "dual capacity" doctrine. 7
A note of caution: this paragraph eliminating coverage for the liability of the insured in a capacity other than as an employer does not stand alone; the paragraph must be read in conjunction with the entire employers liability exclusion. Thus, the plain meaning of this paragraph is that for the "other capacity" exclusionary wording to apply, the bodily injury still must be to employees of the insured who suffer bodily injury arising out of and in the course of (1) employment by the insured; or (2) performing duties related to the insured's business. Attempts to apply this exclusion to any insured (whether or not that insured is the employer—such as an additional insured) is misplaced as such an interpretation fails to take into consideration the context of this paragraph and to properly place it in the entirety of the employers liability exclusion.
Employer Liable To Share Damages. Some states allow a third party against whom the employee makes a claim for bodily injury to seek common law contribution or common law indemnity from the employer. In other words, the third party that the employee is suing may allege the employee's injuries were caused, at least in part, by the negligence of the employer, and therefore the employer should pay some or all of the damages for which the third party may be liable. 8
Illustration—Common Law Contribution or Common Law Indemnity. Samuel Definnis, an employee of Brisk, was working in the course of his employment on a scaffold in a parking garage. As third-party William Westerlind drove by Definnis, his car hooked onto a rope dangling from the scaffold, causing Definnis to fall and suffer injuries as a result. In a subrogation action against Westerlind to recover from Westerlind payments made to Definnis, Westerlind attempted to implead Brisk, Definnis's employer, alleging Brisk was negligent in failing to require Definnis to wear a safety belt, failing to properly hook the scaffolding to the wall, and that Brisk also failed to meet other safety requirements. 9
The above is commonly called an "action over" or "third-party action over" claim—to the extent that the basis of the claim is the alleged tort liability of the employer, the employers liability exclusion of the CGL policy excludes such "action over" claims. 10