Executive officers of non-construction companies are typically exempt from workers’ compensation coverage. They may also be exempt from general liability insurance coverage, due to the “employee injury exclusion” sometimes found in those policies. One employer fell almost one million dollars into this “coverage gap” and the Ontario Court of Appeal won’t make their insurer pay.
On March 28, 2013 the Ontario Court of Appeal ruled in the case of Sam's Auto Wrecking Co. Ltd. (Wentworth Metal) v. Lombard General Insurance Company of Canada, 2013 ONCA 186 on whether an employer could look to its general liability insurer to indemnify injury claim costs.
Wentworth’s executive officer Mr. Ferber was badly injured in a May 1998 accident. Some years prior, Wentworth had amended its coverage under the Ontario workers’ compensation law – the Workplace Safety and Insurance Act (“WSIA”) to ensure it did not pay premiums for its executives. Mr. Ferber alleged negligence on the part of his employer and a co-worker, sued and the matter was settled for just under one million dollars in damages. The employer – Wentworth – then pursued its insurer, Lombard, seeking indemnification.
The insurance policy contained this key provision: This insurance does not apply to:
- “Bodily injury” to an employee of the Insured arising out of and in the course of employment by the Insured.
This language is an exact replica of the standard workers’ compensation law which provides WCB coverage to persons who suffer “personal injury by accident arising out of and in the course of employment.” It appears that the insurer and insured, agreeing to such language, would ordinarily expect workers’ compensation to apply to any such injury case. Where the injured employee is excluded from WCB coverage, however, there is the “gap.”
Lombard, the insurer, pointed to that gap in its refusal to indemnify Wentworth for the large damage sum it had paid to Mr. Ferber.
To address this, Wentworth sued Lombard for indemnification. Losing at trial, Wentworth attempted to persuade the Court of Appeal that an executive officer was not “an employee” within the meaning of the policy exclusion. The Court did not accept this, reciting a list characteristics of Ferber’s engagement which matched that of an “employee” (including the regular reference to him as one).
At trial, a Wentworth owner “testified he did not appreciate the relationship between Workers’ Compensation and the coverage purchased from Lombard.” Ultimately this proved a very costly mistake. The “coverage gap” is an area of potential risk for organizations, which should carefully examine the insurance coverage available for executives to avoid the costly liability which befell Wentworth in this case.