In Ohio, employees injured on the job may receive benefits under Ohio’s workers’ compensation system. They can also sue their employer in court to recover damages for an employer intentional tort. Such lawsuits, which fall outside of the workers' compensation system, can be very expensive to defend and can result in large damage awards against employers.
For years, insurers have offered a “stop-gap” insurance endorsement to their commercial general liability policies in Ohio, and many employers have purchased them believing that this endorsement provided a duty to defend the insured in the event of an employer intentional tort suit against it.
Such was the case with United Foundries, Inc. But, when the Ohio Supreme Court decided Ward v. United Foundries, Inc. on July 6, 2011, United learned it did not have the coverage it thought it had and, thus, its insurer, Gulf Underwriter’s Insurance Company, did not have a duty to defend it in the employer intentional tort action.
The parties agreed that Gulf did not have a duty to indemnify United if liability was established. The issue before the Court was whether the policy required Gulf to defend United in the underlying tort action.
The coverage the employer desired and thought it was purchasing through the stop-gap endorsement was coverage for “substantial certainty” employer intentional torts. The endorsement at issue included a typical exclusion for intentional injuries which provided as follows:
“This insurance does not apply to:
e. Bodily injury caused or aggravated by you, or bodily injury resulting from an act which is determined to have been committed by you with the belief that an injury is substantially certain to occur.” (Emphasis added.)
Based on this language, United asserted that Gulf must provide a defense in the intentional tort lawsuit until a judge or jury has determined that the described conduct/injury occurred.
The trial court concluded that if the stop-gap endorsement excluded coverage for the employer intentional tort at issue, as Gulf argued, then the insurance policy was illusory. The trial court ordered Gulf to defend its insured in the lawsuit. The Court of Appeals reversed.
The Ohio Supreme Court rejected the theory that the policy was illusory, stating that, “[a]lthough the stop-gap endorsement may not have added the coverage that United intended,” it did add coverage that had been excluded from the CGL policy without the endorsement -- such as for claims alleging liability under the “dual-capacity” doctrine (liability both as employer and in another capacity). Because the insured obtained some benefit from the endorsement, the Court held it was not an illusory contract. The Court’s decision was based on the policy language, which the Court found to be “plain, unambiguous, and not misleading.”
This decision underscores the need for employers to understand their insurance coverage. As a result of this 7-0 decision (with Justice Pfeifer concurring in judgment only), employers with similar stop-gap endorsements should be prepared to handle employer intentional tort actions entirely on their own, including paying all defense costs (such as attorney fees), any settlement, or any judgment rendered in favor of the employee.
Although this case did not involve an employer intentional tort under Ohio’s latest intentional tort statute (R.C. 2745.01), because the injury pre-dated the statute, the decision will likely impact cases involving claims brought under the statute. The decision suggests that the Ohio Supreme Court will (1) uphold similar exclusions precluding coverage for “deliberate intent” torts under the statute and (2) reject arguments that the insurance offered in the standard stop-gap endorsement is illusory as long as some additional coverage is provided by the endorsement -- even if it is not the coverage the employer believed it was purchasing.