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Vol. 6, Iss. 6
July 12, 2017

Insurers Can Do Nothing And Expand The Employer’s Liability Exclusion

Over the past few years insurers have been taking various affirmative steps, such as adding endorsements, to attempt to limit their exposure for bodily injury claims on construction sites (not to mention for property damage). But it can also be accomplished by doing nothing -- other than applying the terms of a standard CGL policy. In other words, even insurers that have taken no affirmative steps, to attempt to limit their exposure for construction site bodily injury claims, still very likely have the tools at hand to do so. Keep going. This needs some background. But it’s worth it.

One way that insurers have affirmatively attempted to limit their exposure for construction site BI claims has been to amend their CGL policy’s “employer’s liability” exclusion to preclude coverage for bodily injury to employees of “any insured” -- as opposed to the standard language, which applies to preclude coverage for employees of “the insured.” In this way, coverage may not be owed to general contractors, that are additional insureds under policies issued to subcontractors, for injuries to employees of the subcontractor.

This is a very common claim when there is a construction site injury. Since the amended exclusion precludes coverage for bodily injury to employees of “any insured,” no coverage is owed to the general contractor, even though the injured party is not an employee of the GC. In other words, it does not matter that the insured seeking coverage is not the employer of the injured party. The injured party is an employee of the named insured, which qualifies as “any insured.” There can be other variations of this scenario. And there are sometimes issues whether this interpretation can be supported when a policy has a separation of insureds provision.

Another tack insurers have taken has been to add exclusions that preclude coverage for an employee of any contractor at the site – period -- regardless of the employee’s relationship, or not, to a party seeking coverage.

Over the past couple of years some courts have demonstrated another method for insurers to limit their exposure for bodily injury claims on construction sites. However, its significance, unlike these other methods just described, is that it requires no changes to standard policy language. So those insurers that have made no changes to standard policy language, to attempt to limit their exposure for construction site BI claims, are not precluded from attempting to do so.

Now add Mid-Continent Casualty Co. v. Arpil & Sons LLC, No. 16-21341 (S.D. Fla. May 22, 2017) to the list of those courts that have gone down this road. At issue was coverage for a construction site bodily injury claim. Faith Deliverance Center was the owner of a property and hired Arpin & Sons to serve as general contractor. Lee Blue, an employee of FDC, was working on the project when he was electrocuted and seriously injured.

Putting aside some issue over the scope of Arpin’s work and worker’s compensation, Blue filed a negligence claim against Arpin. Arpin’s insurer, Mid-Continent Casualty, undertook Arpin’s defense under a reservation of rights, including on the basis of the Employer’s Liability Exclusion, which excluded coverage for “‘bodily injury’ to an employee of the insured arising out of and in the course of (a) employment by the insured; or (b) performing duties related to the conduct of the insured’s business.” (emphasis added).

Mid-Continent argued that the Employer’s Liability Exclusion precluded coverage for Arpin for a defense. And the court agreed. But how? The exclusion precludes coverage for “bodily injury” to an employee of the insured, and Blue was an employee of FDC. Therefore, he was not an employee of the insured, Arpin. Ordinarily, when an Employer’s Liability Exclusion precludes coverage for “bodily injury” to an employee of the insured, it is limited to employees of the insured seeking coverage.

Here’s the rub. Florida statutory law provides: “In case a contractor sublets any part or parts of his or her contract work to a subcontractor or subcontractors, all of the employees of such contractor and subcontractor or subcontractors engaged on such contract work shall be deemed to be employed in one and the same business or establishment, and the contractor shall be liable for, and shall secure, the payment of compensation to all such employees, except to employees of a subcontractor who has secured such payment.”

The court concluded that the Employer’s Liability Exclusion applied to Aprin’s “actual and statutory employees.” (emphasis in original). Following an analysis of the issue, the court held that “Arpin was the project’s general contractor and was, by extension, Blue’s statutory employer on the date of the incident.” Thus, the claim fell within the scope of the Employer’s Liability Exclusion.

There are other aspects of the decision that I omitted here in an effort to make the point as succinctly and clearly as possible.

What makes Arpin, and other “statutory employer” decisions like it, is that the Employers Liability Exclusion, contained in the standard ISO commercial general liability policy, precludes coverage for “bodily injury” to an employee of “the insured.” Thus, even those insurers that have made no efforts to expand the scope of their Employers Liability Exclusion still have a potential basis to do so.


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