Why it matters: Was a worker assisting with a contracting job an “employee” that fell under a policy exclusion for bodily injury to employees? According to a federal district court judge in Mississippi, the answer was “yes,” leaving the insured without defense coverage in a suit brought by the injured worker. Nallmark Electrical Contractors, a sole proprietorship, performed a contracting job at a dry ice facility, where one of the workers was seriously injured. He sued Nallmark, and the company tendered defense to American Southern Insurance Co. The insurer denied coverage, pointing to an exclusion for bodily injury to “[a]n ‘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. In a declaratory action, the court said the company had the right to—and actually did—control the worker’s tasks and the worker performed work that was part of the company’s regular business, bringing him under the exclusion.

Detailed discussion: Donald Nall operated Nallmark Electrical Contractors as a sole proprietorship, using workers as necessary for various jobs. In April 2010, George Randy Williamson assisted Nall in an electrical contracting job at a dry ice facility and suffered significant burns to his face, head, hands, and arms, leaving him in a coma for almost two months.

Williamson filed suit against Nall’s estate (he passed away from unrelated causes) in Mississippi state court. The estate tendered defense of the suit to American Southern Insurance Company pursuant to a commercial general liability policy purchased by Nall for the relevant time period.

The insurer responded with a declaratory judgment action, seeking a declaration that it owed no coverage to Nall or Nallmark based upon the Employer’s Liability Exclusion in the policy. Williamson countered that he was not Nall’s employee when the injury occurred.

But U.S. District Court Judge Daniel P. Jordan III sided with the insurer on the issue of employment status.

Looking first to the policy itself, the court noted that it excluded coverage for “bodily injury” to “[a]n ‘employee’ of the insured arising out of and in the course of: (a) Employment by the insured; or (b) Performing duties related to the conduct of the insured’s business.” The policy provided that an “employee” included a “leased worker” but excluded a “temporary worker,” with no additional definition.

Williamson was not a “leased worker” under the policy because he was not leased by a labor leasing firm, nor was he a “temporary worker” because he was not “furnished” to Nall. Given the limited guidance from the policy on the definition of an “employee,” the parties all looked to Mississippi common law.

Under state law, courts consider a host of factors to determine whether a worker is an employee, including the skill required in the particular occupation and the method of payment, with the primary factor the right to or degree of control exhibited by the employer.

Applying the four principal factors under the control test, Judge Jordan ruled that Williamson acted as Nall’s employee. Although Williamson contended that Nall did not control his work, the court noted that his complaint used the terms “employee” and “employer” and averred that Nall “controlled the means, manner, and details of the work to be performed by [Williamson].”

In addition, the court noted Williamson acted as an assistant to Nall on the day of the accident, lacked expertise in the electrical field with unrelated employment history, and was not bonded or insured to do electrical work. Nall dictated his assignments, telling him where to report and when, as well as what he wanted done.

“These facts show that Nall exercised control over Williamson,” the court said. Even though the worker had “some discretion” about which assignment he wanted to perform when multiple tasks were available to multiple workers, the court said it was insufficient. “This is the decisive factor in the analysis.”

Turning to the second and third factors, the court said Williamson’s hourly rate favored employee status, as did the fact that Nall furnished the most significant equipment for jobs, despite Williamson’s argument that he brought his own “little old tool pouch” along on jobs. Finally, Judge Jordan said Nall had the right to fire Williamson, which also favored employee status.

“In short, nothing about Williamson’s testimony indicates that he was working independently from Nall’s direction, supervision, and control,” the court wrote. “Instead, it supports his admission that he was working as Nall’s assistant.”

Although neither Williamson (who claimed to be an independent contractor) nor Nall (who stated on his application for the policy that he had no employees) labeled Williamson as an employee, the court added that “the labels the parties attached to their relationship ‘are only a part of the inquiry…. The true test incorporates a consideration of all the facts and the economic realities.’ ”

Concluding that Williamson was Nall’s employee, the judge found that the Employer Liability Exclusion was triggered, eliminating coverage.

To read the order in American Southern Insurance Co. v. Williamson, click here.