PRACTICAL POLICYHOLDER ADVICE
When reviewing commercial general liability (CGL) policies for the new year, policyholders should pay particular attention to the employer’s liability exclusion. A recent case decided under New York law, Hastings Development, LLC v. Evanston Insurance Co., F. Supp. 3d , 2015 WL 6618634 (E.D.N.Y. Oct. 30, 2015), held that an employer’s liability exclusion was ambiguous as to whether it precluded coverage for a personal injury claim brought by one insured’s employee against another insured because the exclusion referred to both “the named insured” and “any named insured.” Although the court resolved the ambiguity in favor of coverage based on the contra proferentem rule, the case suggests that policyholders can avoid this type of dispute, and preserve coverage for claims brought by another insured’s employee, by adopting the version of the exclusion that refers only to “the named insured.”
Many policyholders are insured under CGL policies that provide coverage for multiple entities, including other named or additional insureds. Policy references to the insureds, such as distinctions between “the named insured” or “any named insured,” have led to disputes over liability coverage for claims brought by one insured’s employees against a different insured. A New York federal court’s recent ruling in Hastings Development, LLC v. Evanston Insurance Co. highlights the significance of the language used to identify insureds when it comes to preserving coverage for lawsuits brought by another insured’s employee.
In Hastings Development, LLC, the defendant insurer had issued a CGL policy to four “Named Insureds,” including the plaintiff Hastings Development, Universal Photonics, Inc. (UPI), and two other entities. UPI’s employee filed tort claims against Hastings Development and others based on an alleged injury he suffered while operating a mixing machine during the course of his employment. The claimant also initially sued UPI, but voluntarily dismissed the claim after receiving workers compensation benefits. The claimant alleged that Hastings Development was a wholly owned subsidiary of UPI and that Hastings Development owned and operated the equipment and the building in which he was injured.
Hastings Development submitted the claim pursuant to the CGL policy for the UPI employee’s lawsuit. The insurer denied coverage based on an Employer’s Liability Exclusion endorsement (Exclusion). The Exclusion barred coverage for “any claim, suit, cost or expense arising out of bodily injury to . . . an employee of the Named Insured arising out of and in the course of employment by any Insured, or while performing duties related to the conduct of the Insured’s business.” The insurer contended that the Exclusion applied because UPI, a Named Insured, employed the claimant and he was injured in the course of his employment. Hastings Development countered that the claimant did not qualify as “an employee of the Named Insured” necessary to trigger the Exclusion because the language refers only to the Named Insured who employed the injured employee.
The court found that both interpretations were plausible under New York law. The court considered that the Exclusion referred to “an employee of the Named Insured,” distinguishing an earlier New York federal case in which the court had ruled that a similar type of exclusion that referred to “any insured” precluded coverage. The court found, however, that the Exclusion’s use of that language was not determinative because the Exclusion also contained a broad definition of “employee.” The Exclusion defined “employee” to include individuals who work on behalf of “any Named Insured.” The court held that the Exclusion’s reference to “any Named Insured” in the definition of “employee” created an ambiguity as to the meaning of “an employee of the Named Insured.”
The court held that the policy’s Separation of Insureds clause did not resolve the ambiguity. The Separation of Insureds clause provided that coverage applies as if each Named Insured were the only Named Insured, and separately to each insured. The court noted that another New York federal court previously relied on a Separation of Insureds clause to support its holding that “the named insured” language unambiguously limited the reach of a similar exclusion to the employer of the injured worker. The court found, however, that the Separation of Insureds clause did not provide any additional clarity because, unlike in the prior case, the Exclusion also used the language “any Named Insured” in defining “employee.”
The court noted that previous courts have considered that employer’s liability exclusions developed for the purpose of carving out liabilities covered by workers compensation to avoid duplicative coverage. Although the court acknowledged that this purpose would only support application of the exclusion to the employer of the injured worker, the court seems to have given no weight to this argument in resolving the ambiguity.
After holding that the Exclusion was ambiguous, the court evaluated the extrinsic evidence, which included correspondence relating to the coverage dispute and a declaration by the president of UPI confirming the claimant’s employment by UPI. The court found that the evidence was not probative of the parties’ intent as to the scope of the Exclusion. Accordingly, and consistent with New York law, the court resolved the ambiguity in favor of coverage for Hastings Development, applying the contra proferentem rule.
In light of Hastings Development, policyholders should carefully consider references to the insured in the employer’s liability exclusions of their CGL policies, including any definitions of “employee” or “employer.” Be careful of language that broadens the exclusion to include employees of “any” insured, as this might be interpreted to eliminate coverage for liability claims brought by another insured’s employee. The most practical approach may be to adopt a form of the employer’s liability exclusion that refers only to employees of “the named insured.”