In Hastings Development, LLC v. Evanston Insurance Company, No. 14-cv-6203 (ADS)(AKT) (Oct. 30, 2015), the U.S. District Court for the Eastern District of New York correctly determined that an “Employer’s Liability” exclusion in a commercial general liability (“CGL”) policy only applied and precluded coverage when an insured is sued by its own employee(s) and not by an employee(s) of a co-insured. Believing that the exclusion was ambiguous, and based on “the lack of any probative extrinsic evidence” concerning the parties’ intent, the district court applied “the rule of contra preferentem” and found it “appropriate to adopt the Plaintiff’s interpretation of the exclusion because the Plaintiff is the insured and its interpretation of the exclusion is the narrower interpretation.”
The Employer’s Liability exclusion at issue in Hastings Development 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).
Plaintiff, a Named Insured, sought coverage from its insurer after it was sued in an underlying tort action by an employee of another Named Insured. The insurer denied coverage, arguing that the Employer’s Liability exclusion applied because the individual who brought suit was an employee of a Named Insured (even though he was not employed by the specific Named Insured being sued, i.e., the Plaintiff). Plaintiff – the policyholder – argued that “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.” Thus, Plaintiff contended that the exclusion did not apply.
Granting in part and denying in part the insurer’s motion to dismiss and the policyholder’s motion for summary judgment, the district court found that the interpretations of the phrase “an employee of the Named Insured” offered by the policyholder and the insurer were both “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). Therefore, 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 Insured[s] ….”
As a result, and after finding “no probative extrinsic evidence as to the parties’ intent,” the court found “it appropriate to apply the contra-preferentem rule, which … requires the court to construe an ambiguity in favor of the insured and also, to construe policy exclusions narrowly.” Then, “applying the narrow interpretation of the ‘Employer’s Liability’ exclusion, the Court [found] as a matter of law that the ‘Employer’s Liability’ exclusion does not bar coverage” – because, here, the employee who sued Plaintiff was not employed by Plaintiff.
The court’s decision clearly was complicated by the definition of “employee” in the exclusion – language that does not appear in every Employer’s Liability exclusion. That said, other considerations could, and should, have made it even easier for the court to reach the same, correct decision. For one, it could, and should, have placed more emphasis on the policy’s “Separation Of Insureds” provision, which requires, except in certain inapplicable circumstances, that, inter alia, “this insurance applies … [a]s if each Named Insured were the only Named Insured ….” Instead, the court found that this provision was “not a model of clarity[,]” because it “does not explicitly refer to the ‘Employer’s Liability’ exclusion, nor any other exclusion.” However, there is no requirement that to be effective this provision must reference any specific exclusion; to the contrary, the provision makes clear that “the insurance” (as a whole), with certain limited inapplicable exceptions, “applies … [a]s if each Named Insured were the only Named Insured ….”
Additionally, the court could, and should, have emphasized the use in the Employer’s Liability exclusion of the definite article, “the insured,” as opposed to the indefinite article, “any insured.” Although it discussed a decision by the U.S. District Court for the Southern District of New York that recognized the importance of that distinction, the Eastern District of New York never itself gave the distinction sufficient, serious consideration.
Nevertheless, the court, in Hastings Development, still clearly reached the right result: The Employer’s Liability exclusion in a CGL policy only applies when an insured or Named Insured is sued by its own employee(s), not when it is sued by an employee(s) of another insured or Named Insured covered by the same policy.