Drawing heavily from an amicus brief authored by Reed Smith Insurance Recovery Group (“IRG”) attorneys in Pittsburgh, the Pennsylvania Supreme Court just issued a pivotal decision that effectively shuts down an avenue that insurance companies had been exploiting to deny Pennsylvania policyholders coverage under commercial general liability (“CGL”) insurance policies.
In Mutual Benefit Insurance Company v. Politsopoulos, No. J-85-2014 (May 26, 2015), the commonwealth’s Supreme Court addressed an employer’s liability exclusion. That exclusion, which often appears in CGL policies, typically provides that an insured is not entitled to insurance coverage when an employee of “the insured” brings a claim against the insured for “bodily injury … arising out of and in the course of: … [e]mployment by the insured; or, … [p]erforming duties related to the conduct of the insured’s business.”
In Politsopoulos, Appellant Mutual Benefit Insurance Company (“MBIC”), like other insurance companies, sought an expansive interpretation of that exclusion in instances when more than one insured is covered by the same insurance policy. MBIC argued that, pursuant to the exclusion, an insured is not entitled to coverage when sued not only by its own employees, but also by employees of any entities that are co-insured by the same policy.
The court, however, rejected that argument: “Application of governing principles of insurance policy construction yields the understanding that the ambiguous exclusionary language pertains only to claims asserted by employees of ‘the insured’ against whom the claim is directed ….”
In reaching this conclusion, the court relied on an amicus brief drafted by George L. Stewart II and Michael H. Sampson (Reed Smith partners and IRG members), and filed on behalf of Koppers Holdings Inc; Matthews International Corporation; Mine Safety Appliances Company, LLC; Dravo Corporation; E.W. Bowman, Inc.; and United Policyholders. Joining George and Mike on the brief were Douglas E. Cameron, Reed Smith Insurance Recovery Group’s Global Practice Leader, and Douglas C. Allen, a member of the firm’s Appellate Group. In their brief, amici argued that “the phrase ‘the insured’ [is used] as a reference to ‘the insured against whom a claim is asserted or a suit is brought.’”
The court was “persuaded that, at least where a commercial general liability policy makes varied use of the definite and indefinite articles, this, as a general rule, creates an ambiguity relative to the former, such that the ‘insured’ may be reasonably taken as signifying the particular insured against whom a claim is asserted.”
In reaching this conclusion, the court clearly drew from the Reed Smith brief, which it also referred to, cited, and quoted in its opinion:
Supplementing Appellees’ arguments, their amici offer sharper focus. Initially, a group of insurance policyholders [Reed Smith’s amici clients] elaborate on the common pleas court’s perspective concerning the use of the definite article “the” – as opposed to an indefinite form such as “an” or “any” – in connection with the word “insured.” In this regard, the Policyholder Amici stress that, in various provisos, the policy at issue employs each of these phrases to achieve distinct aims and effects. For example, these amici observe the term “the insured” is utilized in one proviso to articulate the insurer’s indemnity obligations and rights respecting bodily injury and property damage …. Self-evidently, the Policyholder Amici assert, “the insured” in this passage refers to the particular insured against whom a claim has been asserted. The Policyholder Amici contrast instances in which the policy employs the terms “an” or “any” insured, which they believe reflects the intent to capture the broader range of insureds, for example, in the policy’s pollution exclusion provisions. (Citations omitted.)
The court also found that the policy’s “separation-of-insureds clause … serves only to reinforce” the understanding that, as used in the exclusion and throughout the policy, “the ‘insured‘ means the insured against whom the claim is asserted. That clause states that the insurance provided by a CGL policy is to be applied “[s]eparately to each insured against whom claim is made or suit is brought.”
Notably, by its decision, the Supreme Court declined to extend the application of Pennsylvania Manufacturers’ Association Insurance Co. v. Aetna Casualty and Surety Insurance Co., 426 Pa. 453, 233 A.2d 548 (Pa. 1967), the case on which insurers, including MBIC, have based their coverage-defeating argument.
Instead, as a result of Politsopoulos, insurers will not be able to rely on an employer’s liability exclusion to deny coverage owed to Insured A when sued by the employee of Insured B. That represents a victory for policyholders across Pennsylvania.