In employment law, it’s a hot topic whether workers in the new On Demand Economy count as “employees” under traditional worker protection statutes. New-paradigm companies insist that their workers are independent contractors, enabling them to reduce overhead costs like overtime and insurance. But recently there has been pushback: notably, the California Labor Commission ruled that Uber’s drivers qualify as employees entitled to reimbursement for their out-of-pocket expenses. As this battle continues to unfold in agency hearing rooms and courts across the country, the Eleventh Circuit issued a ruling that introduces an interesting wrinkle to the dilemma: if a company employs independent contractors, should those workers be treated as employees for purposes of insurance policy exclusions that bar coverage for suits brought against an insured by its employees?

In Progressive Mountain Ins. v. Madd Transportation, LLC, D.C. Docket No. 4:13-cv-00254-WTM-GRS (11th Cir., Dec. 8, 2015) the Eleventh Circuit decided that an insured’s independent contractor should be considered an employee, and denied coverage because of an exclusion for claims brought by employees. The case involved a trucking company’s driver who was injured when pipes he was securing to his truck fell on him. The driver’s guardian sued the pipe company in Pennsylvania state court. The pipe company then joined the trucking company, Madd, as a third-party defendant. Madd notified its auto liability insurer (Progressive) and tendered a claim for defense of the suit. Progressive sought a declaratory judgment against Madd in federal district court in Georgia. The insurer alleged that it owed Madd no defense or indemnification because the policy excluded bodily injury to “employees” of the named insured. Madd countered that the exclusion should not apply because the injured driver was an independent contractor (or, alternatively, asked the court to defer deciding the issue until the Pennsylvania state lawsuit established the driver’s employment status). Siding with Progressive, the district court held that the driver qualified as an employee and that the exclusion absolved Progressive of its duty to provide a defense. On appeal, the Eleventh Circuit upheld the decision.

Both the district and circuit courts reasoned that, although the policy did not define “employee,” the court could look to federal interstate transportation regulations to supply an appropriate definition for that term. The employee claim exclusion was contained in an endorsement called “MCS-90,” which federal law requires to be included in insurance policies issued to motor carriers subject to federal regulation. The courts cited Georgia statutory and case law to justify their reliance on the regulation to interpret the terms of the insurance policy. In the regulations that govern the endorsement, the definition of “employee” includes “an independent contractor while in the course of operating a commercial motor vehicle.” Given the relationship between the exclusion endorsement and the regulations containing the definition of “employee,” the courts found that the exclusion applied and the carrier had no duty to defend.

Federal transportation regulations may not resolve most issues surrounding the classification of contractors as employees for insurance and benefit purposes. But the Madd decision presents an interesting corollary to the recent trend in the On Demand Economy, as companies strive to reap the benefits of employing independent contractors.