It seems like every day brings new developments in the world of insurance
coverage litigation and, today, we are back with two brand-new decisions. In
June 2015, we wrote about a concerning trend in the case law interpreting and
applying the CGL employers liability exclusion. In that article, we discussed
how the employers liability exclusion could be used to deny coverage for bodily
injury litigation that implicates nonemployers. That article came on the heels
of a Pennsylvania Supreme Court decision (Mutual Benefit Ins. Co. v.
Politsopoulos, 115 A.3d 844 (Pa. 2015)) and now, only a few months later,
two federal courts applying to New York law have weighed in on the issue.
Acknowledgment
The author would like to acknowledge and thank
coauthor Nicole C. Bikakis, an attorney with Saxe Doernberger & Vita, P.C., in Hamden,
Connecticut for her contributions to this commentary.
On November 4, 2015, the Second Circuit Court of Appeals issued a ruling in
Endurance American Specialty Ins. Co. v. Century Surety Co., 2015 U.S.
App. LEXIS 19194 (2d Cir. Nov. 4, 2015), which said that the employers
liability exclusion unambiguously excluded coverage for an additional
insured that had been sued by an employee of the named insured. Of critical
note, the employers liability exclusion at issue had been modified by an
"Action Over Exclusion" endorsement that substituted "the named
insured" for "the insured" as follows.
"Bodily injury" to:
(1) An "employee" of the named insured arising
out of and in the course of:
(a) Employment by the named insured; or
(b) Performing duties related to the conduct of the named
insured’s business….1
The insurer, Endurance American Specialty Insurance Company, issued a
commercial general liability (CGL) policy to a subcontractor, Pinnacle
Construction & Renovation Corp., which agreed to add the general
contractor, Hayden Building Maintenance Corp., as an additional insured on
Pinnacle’s policy. An injured Pinnacle employee sued Hayden, who, in turn,
sought coverage under the Endurance policy. Endurance denied coverage based on
the employers liability exclusion because the injured person was a Pinnacle
employee and Pinnacle was the named insured.
The trial-level court in Endurance initially concluded that the
exclusion did not apply, honing in on the separation of insureds
provision.2
That court explained that the employers liability exclusion "is used in
general liability policies to avoid duplication of an employer’s workers
compensation insurance by excluding coverage for claims by an injured employee
against his own employer."3 The trial court further noted that
"separation of insured provisions require that each insured be treated as
if separately covered by the policy and indeed as if he (additional insured)
had a separate policy of his own."4
The trial court’s logic is sound and its conclusion is appropriate, but only
in the context of the standard employers liability exclusion referring to
"the insured" and not "the named insured." In fact, the
Second Circuit Court of Appeals agreed with that logic but was constrained to
reverse the decision by the modified—but plain—language because the policy had
only one "named insured."
While the decision has a superficially negative outcome for additional
insured coverage, it adds value in two key ways. First, the case is a reminder
for upstream and downstream parties alike to be aware that this type of
modified language (also including the potentially problematic "any
insured") is being used in the market. Second, the Second Circuit
reinforces that the standard language—"the insured"—should not have
the same effect as "the named insured."
Another Case, Same Issue
Less than a week before Endurance, a district court in New York was
faced with a similar employers liability exclusion using "the named
insured" as opposed to "the insured." In Hastings Dev., LLC
v. Evanston Ins. Co., 2015 U.S. Dist. LEXIS 147558 (E.D.N.Y. Oct. 30,
2015), the insurer denied coverage to a named insured on the policy who was
sued by an employee of a different named insured. The
Hastings court reasoned that the exclusion was ambiguous—and, thus,
there was coverage—because, on the one hand, the exclusion applied to claims by
an employee of "the named insured," suggesting the exclusion
only applied to the direct employer, but "employee" was defined to
include individuals who work on behalf of "any insured."
The Hastings court ultimately reached the correct result based on
the policy’s language, but clearly wrestled with competing arguments, even
acknowledging that the insurer had presented a reasonable interpretation.
Conclusion
The key takeaway is that application of the employers liability exclusion,
in any given scenario, is likely to be a quintessential insurance coverage
debate that turns on a single word. Policyholders—especially those in bodily
injury litigation-rich environments like New York—would do well to be keenly
aware of the relevant language in their practice policies and in those policies
providing additional insured coverage.
Acknowledgment
The author would like to thank and acknowledge the
coauthor of this Commentary, by Nicole C. Bikakis, an attorney with Saxe Doernberger & Vita,
P.C., in Hamden, Connecticut.
1 Id. at *2 (emphasis in
original).
2 Endurance Am. Specialty Ins. Co. v.
Century Sur. Co., 46 F. Supp. 3d. 398 (S.D.N.Y. 2014), rev’d by
2015 U.S. App. LEXIS 19194 (2d Cir. Nov. 4, 2015).
3 Id. at 415 (emphasis
added).
4 Id. at 416 (internal quotations
and citations omitted).