Why it matters: A New York federal court recently ruled that an "Employer's Liability" exclusion in a CGL policy applies only when an Insured or Named Insured is sued by its own employee, not when sued by an employee of another Insured or Named Insured covered by the same policy. In this case, the exclusion provided that there was no coverage for any suit arising out of bodily injury to an employee of "the Named Insured." The insurer argued that the exclusion precluded coverage for claims arising out of bodily injury to an employee of any insured under the policy. The policyholder countered that the exclusion must be construed more narrowly to apply only to an injury claim brought by its own employee. The court concluded that there was an ambiguity as to what the exclusionary language "employees of the Named Insured" means—does it refer to only the Named Insured who employed the injured worker or does it refer to any of the Named Insureds? Finding the exclusion ambiguous, the court applied the rule of contra proferentem and adopted the policyholder's interpretation, ruling the exclusion did not apply.
Detailed discussion: A number of contractors were involved in a construction project, including Hastings Development, Universal Photonics, Inc. (UPI) and others. Each contractor was listed as "Named Insureds" in a commercial general liability (CGL) policy issued by Evanston Insurance Company.
In 2014, Aaron Cohen, an employee of UPI, was injured while operating a mixing machine at the worksite. He filed suit against both Hastings and UPI.
Hastings turned to its insurer Evanston for coverage. Evanston denied coverage, arguing that the employer's liability exclusion applied because Cohen was an employee of a named insured (even though he was not employed by the specific named insured being sued, i.e., Hastings). In turn, Hastings argued "the phrase, 'the named insured,' refers narrowly to only the named insured who employed the injured employee and not to the other named insureds under the policy."
The employer's liability exclusion provides, in pertinent part:
This insurance does not apply to any claim, suit, cost or expense arising out of bodily injury to ... an employee of the named insured arising out of and in the course of employment by any insured, or while performing duties related to the conduct of the Insured's business ... (emphasis added).
The exclusion also states: "Wherever the word employee appears [in the exclusion], it shall also mean any member, associate, leased worker, temporary worker of or any person or persons loaned to or volunteering services to, any named insured" (emphasis added).
The court found that based on the referenced policy language, both parties' interpretation of the phrase "an employee of the Named Insured" was reasonable.
"Both the plaintiff [and the actual employer of the employee suing the plaintiff] are 'named insureds' under the policy and the phrase 'the named insured' is not defined by the policy. Thus, the phrase 'employee of the named insured,' could conceivably encompass employees of any of the named insureds, as the [insurer] contends, or be limited only to the named insured who employed the injured employee, as the plaintiff contends."
In reaching this conclusion, the court was influenced by "the broad definition of 'employee' as including any individual performing work on behalf of 'any Named Insured,'" which the court believed "appears to be in tension with the language in the exclusion precluding coverage to suits by 'employees of the Named Insured'" (emphasis in the original).
Finding that the policy language supports both parties' interpretations, the court concluded that the exclusion is ambiguous as a matter of law, requiring the court to construe the ambiguity in favor of the insured.
To read the order in Hastings Development, LLC v. Evanston Insurance Company, click here.