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Vol. 4, Iss. 1
January 14, 2015

The Vexing “Employee Exclusion” Issue: Is The Occasional Helper An “Employee”?

We’ve all seen this one. A person is injured at a work place and brings a claim against the party that hired him. However, the injured person is not an “employee” in the ordinary sense of the word. He is not someone who comes to work on a regularly scheduled basis, either full-time or part-time, with an expectation that his position is indefinite, until he voluntarily leaves or is involuntarily let go. Rather, he is someone who comes around, now and then, and is paid, probably under the table, to perform random tasks or help out on a certain project. When the task or project is done so is his job.

When this injured person’s claim reaches his employer’s commercial general liability insurer, it may seek to disclaim coverage on the basis of the Employer’s Liability exclusion, which applies, in general, to “bodily injury” to an “employee” of the insured arising out of and in the course of employment by the insured or performing duties related to the conduct of the insured’s business. But the “employer” says not so fast -- the injured person was not my “employee.” He was just someone who came around who I was paying for a day or two to help out with such and such task. So the question becomes this – was the injured person an “employee” at the time he was injured? The answer may have very serious implications. The “employer’s” CGL policy may be the only realistic source of recovery for the injured party – especially if worker’s compensation insurance is unavailable. That opens up a whole other can of worms.

Of course, the first place to look for the answer to the question, whether the injured person was an “employee” of the insured, are the terms of its commercial general liability policy. But, under facts like these, you are unlikely to find the answer in there. The typical CGL policy offers this by way of the definition of “employee”: “‘Employee’ includes a ‘leased worker.’ ‘Employee’ does not include a ‘temporary worker.’”

In situations like this, the injured person is not likely going to qualify as a “temporary worker,” defined as “a person who is furnished to you to substitute for a permanent ‘employee’ on leave or to meet seasonal or short-term workload conditions.” Even though the person sounds just like a “temporary worker” -- they were there helping out temporarily -- such person was very likely not “furnished” by anyone to the insured. The injured person is also not likely going to qualify as a “leased worker,” defined as “a person leased to you by a labor leasing firm under an agreement between you and the labor leasing firm, to perform duties related to the conduct of your business. ‘Leased worker’ does not include a ‘temporary worker.’” Just as the injured person was not, in all likelihood, “furnished” by anyone to the insured, he was also not likely “leased” to the insured by a labor leasing firm.

So with the terms of the commercial general liability policy not providing any help with the question whether the injured person was an “employee” of the insured, it is necessary to proceed to step two – how have courts in the relevant state defined “employee”? And while courts in every state have undoubtedly defined “employee” for some purpose(s), have they done so for determining the applicability of a CGL policy’s Employer’s Liability exclusion?

This lengthy introduction was all to get to the Sixth Circuit’s decision in Western World Insurance Company v. Hoey, No. 13-2388 (6th Cir. Dec. 8, 2014). It goes like this.

Burt Hoey owned a farmers’ market that offered hay rides, pony rides and pumpkin picking. He hired Mary Armbruster to run the hay wagon for eight weekends. An accident with the wagon crushed Armbruster’s spine, leaving her a paraplegic. Litigation ensued against Hoey, as well as against Hoey’s General Commercial Liability insurer, Western World. At issue was whether Armbruster was an “employee” as defined by the CGL policy. The relevance of this was significant -- the policy contained an exclusion for bodily injury to an “employee,” “temporary worker,” or “independent contractor” (among other classifications). The policy defined “employee” to include a “leased worker” but not a “temporary worker.” “Temporary worker” was defined as “a person who is furnished to you to substitute for a permanent ‘employee’ on leave or to meet seasonal or short-term workload conditions.”

Nobody disputed that Armbruster did not fall under the definition of “temporary worker” because she was not “furnished” to Hoey by a third party. Western World argued that Armbruster was therefore an “employee” and not covered. Armbruster countered that she was “covered by the policy because the policy uses ‘temporary worker’ in two different ways—in a broader sense in the definition of ‘employee’ and in a narrower sense in the explicit definition of ‘temporary worker.’” Armbruster argued that, although “she does not meet the explicit definition of ‘temporary worker’ because she was not furnished,” she is nonetheless a temporary worker for purposes of falling outside the definition of “employee.” [Admittedly, this is confusing, but we can get past it to make the point.]

The court sided with Western World: “The contract makes clear that ‘employee’ is the default status for anyone who works for the insured.” So the court next turned to the question -- how to define employee? The appeals court adopted the District Court’s “economic-reality test” – “a multi-factor balancing test that asks whether the employer (1) had control of the worker’s duties; (2) paid her wages; (3) could hire, fire, and discipline her; and (4) whether the worker performed her duties in order to accomplish a goal she shared with the employer. . . . The district court noted that ‘[a]ccording to Armbruster’s deposition, it was Hoey who (1) personally hired her, (2) paid her in cash for her work, (3) directed and controlled her work activities, and (4) had the authority to fire her.’ Thus, the district court concluded, ‘it appears that she fits the common understanding of an employee, albeit a temporary one.’”

The Sixth Circuit agreed: “The language of the contract, though perhaps clumsy, is clear, as is the result: Armbruster is an ‘employee’ and her injuries are not covered by the policy.” The court also noted that its conclusion “comports with the normal purpose of a commercial general liability policy,” which usually do not cover injuries to a businesses’ workers. Instead, the court observed, businesses are required to maintain workers’ compensation insurance and the sole purpose of commercial general liability insurance is to provide coverage for injuries that occur to the public-at-large.”

To summarize -- Armbruster was not a “temporary worker” because she was not “furnished.” On the other hand, she was an “employee, albeit a temporary one.” Therefore she was within the Employer’s Liability exclusion.

Notwithstanding the somewhat unusual policy language here (it is not ISO CGL on this issue), there is a take-away. While there may be some state law variance on this issue, the relationship between the worker, and the party that hires him or her, need not be formal or long-term for the worker to qualify as an “employee” for purposes of the Employer’s Liability exclusion. And the fact that Hoey was paying Armbruster in cash didn’t change this result.

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