According to one well-respected insurance treatise, the general purpose of the commercial general liability (CGL) policy is "to provide coverage . . . to protect the insured against losses . . . arising out of the operation of the insured's business. . . for liability to the general public for the negligence of the employer's agents . . . and employees."
"The distinction between an insured's employees on the one hand and the public on the other is typically maintained through two employment related exclusions, the workers' compensation exclusion and the employer's liability exclusion." 1
While the above statement as to the general purpose of the CGL policy is not intended to be definitive (for example, a private club would certainly expect coverage in its CGL policy if a member alleges the club is liable for the member's bodily injury—even if the member is not considered the general public), the statement is helpful to put into context the overall reason for CGL policy's workers compensation and employers liability exclusions. In other words, the workers compensation and the employers liability exclusions of the CGL policy are intended to eliminate coverage in the CGL policy for claims made against the named insured by the named insured's own employees.
A separate policy that is very often required by state law—the workers compensation and employers liability policy—is normally purchased by the employer as protection against most claims by employees for work related injuries.
Workers Compensation and Similar Laws Exclusion
As this exclusion, exclusion d. of the Insurance Services Office, Inc. (ISO), CGL policy, eliminates coverage for statutory benefits the employer may owe under a workers compensation or similar law, the exclusion is generally clear and not in dispute. Claims by employees of the named insured for statutory benefits—such as medical, wage loss or other obligations under similar law—are simply not covered by the CGL policy. As this is rarely the subject of litigation, the focus of this article will be on the employers liability exclusion.
Employers Liability Exclusion
Exclusion e. of the ISO CGL policy is the employers liability exclusion. It states the CGL policy does not apply to bodily injury to an employee of the insured. Exactly what is meant by "employee of the insured" is the subject of substantial litigation and merits its own analysis.
Employee—Leased Worker and Temporary Worker. "Employee" is a defined term in the CGL policy. However, if you are looking for the definition to distinguish between an employee and independent contractor, you will be disappointed; the CGL policy makes no such delineation.
However, to know when the employers liability exclusion applies, it is important to note that "employee" includes a "leased worker" but not a "temporary worker." In other words, if the person working for you has been leased to you by a labor leasing firm, such as a Professional Employers Organization (PEO) or otherwise falls under the definition of "leased worker," any claims for bodily injury made by that person against the named insured are eliminated from the CGL policy by the employers liability exclusion—because that person is, by the CGL definition, an "employee" of the named insured.
A "temporary worker" is not an "employee," and thus a claim by that person against the named insured for bodily injury is not excluded by employers liability exclusion as that person is not an "employee" by definition. But be careful here—a "temporary worker" may quickly morph into a "leased worker," in which case the employers liability exclusion will apply. For more on the CGL coverage issues regarding "leased workers"and "temporary workers," see When Workers Aren't Employees (September 2007).
Arising Out of and in the Course of Employment by the Insured. For this section of the exclusion to apply, the employee must suffer bodily injury arising out of and in course of employment by the insured. This means two things must occur: (1) the bodily injury must "arise out of" employment, which usually means the employment was only a minimal factor in causing the injury; and (2) the bodily injury must also occur during employment. In other words, this section of the employers liability exclusion applies only if the employee's injury is caused by his or her employment (albeit a minimal cause) and the injury must occur during the employment.
Performing Duties Related to the Conduct of the Insured's Business. Even if the bodily injury does not arise out of and in the course of employment, the employers liability exclusion will still apply if the employee suffers bodily injury that arises out of (again, a minimal causal connection) and is in the course of performing duties that are related to the insured's business. While determining when this section of the exclusion applies requires a very fact-specific inquiry and analysis, the exclusion might apply to an employee on vacation (thus, not in the course of employment) who is injured in a car accident while attempting to respond to a customer's email on his company phone. The attempt to answer a customer's email may well be considered arising out of and in the course of performing duties related to the employer's business, particularly if the culture of the employer is that employees are expected to keep up with emails—even when the employee is not working.
Exclusion e. Does Not Apply—Illustration #1. A cashier at a retail clothing store returns to the store solely to purchase an article of clothing that is on sale. While selecting her item, she falls over a loose shelf and suffers bodily injury. She brings claim against her employer—the clothing store—for her injury. As her injury did not arise out of and in the course of employment, or arise out of and in the course of performing duties related to the conduct of the clothing store's business, the employer's liability exclusion in the clothing's CGL policy will not apply to this claim.
Exclusion e. Does Apply—Illustration #1. A cashier at a retail clothing store returns to the store on her day off because she forgot to print out the monthly sales report for the store manager. After taking the report off the printer, she falls over a loose shelf and suffers bodily injury. She brings claim against her employer—the clothing store—for her injury. Even though she was in the store when she was not scheduled to work, it is likely (at the least) her injury arose out of and was in the course of performing duties related to the conduct of her employer's business. The store's CGL policy will not apply to her claim due to the exclusion e., the employers liability exclusion. 2
More of the Employers Liability Exclusion
The employers liability exclusion does not end here, however.
Consequential Bodily Injury. The next paragraph of the exclusion applies to bodily injury to other than the employee—and eliminates from the CGL policy coverage for bodily injury to the employee's spouse, parent, brother, or sister that is a consequence of the bodily injury to the employee. 3
Illustration—Consequential Bodily Injury. Michael Ferriter was seriously injured on May 18, 1979 while working for his employer. His injuries resulted in paralysis from the neck down. Judith Ferriter, Michael Ferriter's spouse, along with their minor children, sued Mr. Ferriter's employer, alleging that observing Michael Ferriter's injuries at the hospital immediately after the accident resulted in their mental and physical health to be impaired. The court determined the physical health impairment amounted to a showing of substantial physical injury—bodily injury. 4
The above claim by Judith Ferriter and her children is excluded under the CGL policy as it is bodily injury to the spouse or children as a consequence of bodily injury to an employee of the insured—in this instance, Michael Ferriter. But the employers liability applies only if the bodily injury to Michael Ferriter either arises out of and in the course of his employment by his employer or his bodily injury arises out of and is in course of his performing duties related to the conduct of his employer's business.
COVID-19 Illustration—Consequential Bodily Injury and Loss of Consortium. Corby and Robert Kuciemba filed a complaint in California against Mr. Kuciemba's employer, Victory Woodworks, Inc., alleging that Mr. Kuciemba had contracted COVID-19 at Victory's jobsite. Mrs. Kuciemba also alleged severe and traumatic injuries suffered from COVID-19 as a result of being infected by Mr. Kuciemba. This is an example of consequential bodily injury—Mrs. Kuciemba suffered bodily injury allegedly as a consequence of Mr. Kuciemba's alleged work-related bodily injury resulting from COVID-19. In addition to counts for consequential injury, Mrs. Kuciemba also included a loss of consortium count against Victory. While the matter was dismissed, in part because California's exclusive remedy does not permit suits against an employer by an employee or that employee's dependents, the judge did allow the complaint to be amended. Kuciemba v. Victory Woodworks, Inc., No. 20-cv-09355-MMC (U.S.D.C. N.D. Cal. Feb. 22, 2021).
The Employers Liability Exclusion Continues To Apply—Even in Other Situations. The penultimate paragraph of the exclusion explains that the employers liability exclusion applies even when the situation changes a bit.
Employer Liable in Another Capacity. Some states recognize that an employer may have liability for injuries to its employees in a capacity other than as an employer. This so-called dual capacity is the notion that an employer can have a second capacity (and corresponding second duty) to its employees.
If the duty flows solely from the employment relationship and the injury "arises out of"and "during the course of" that employment, then the recited policy considerations behind the exclusive remedy in workers' compensation mandating that the employer be immune from tort liability have viability. If, however, an additional concurrent duty flows from an "extra" employer status or a relationship that is distinct from that of employer-employee and invokes a different set of obligations, then a second capacity arises and the employer status is coincidental. The employer should then be treated as any third-party tortfeasor, not immune from a common law tort action. 5
The CGL policy employers liability exclusion specifically excludes liability an employer may have in its "second capacity," provided the bodily injury to the employee either arises out of and is in course of (1) employment or (2) performing duties to the related to the insured's business. 6
Illustration—Other Capacity Bodily Injury. William Bell was severely injured in a fire when he was delivering his employer's flammable gas to a customer. Mr. Bell alleged that his employer's product was defective and brought suit against his employer—not as an employer but as a manufacturer of a defective product—a cause of action permitted under the "dual capacity" doctrine. 7
A note of caution: this paragraph eliminating coverage for the liability of the insured in a capacity other than as an employer does not stand alone; the paragraph must be read in conjunction with the entire employers liability exclusion. Thus, the plain meaning of this paragraph is that for the "other capacity" exclusionary wording to apply, the bodily injury still must be to employees of the insured who suffer bodily injury arising out of and in the course of (1) employment by the insured; or (2) performing duties related to the insured's business. Attempts to apply this exclusion to any insured (whether or not that insured is the employer—such as an additional insured) is misplaced as such an interpretation fails to take into consideration the context of this paragraph and to properly place it in the entirety of the employers liability exclusion.
Employer Liable To Share Damages. Some states allow a third party against whom the employee makes a claim for bodily injury to seek common law contribution or common law indemnity from the employer. In other words, the third party that the employee is suing may allege the employee's injuries were caused, at least in part, by the negligence of the employer, and therefore the employer should pay some or all of the damages for which the third party may be liable. 8
Illustration—Common Law Contribution or Common Law Indemnity. Samuel Definnis, an employee of Brisk, was working in the course of his employment on a scaffold in a parking garage. As third-party William Westerlind drove by Definnis, his car hooked onto a rope dangling from the scaffold, causing Definnis to fall and suffer injuries as a result. In a subrogation action against Westerlind to recover from Westerlind payments made to Definnis, Westerlind attempted to implead Brisk, Definnis's employer, alleging Brisk was negligent in failing to require Definnis to wear a safety belt, failing to properly hook the scaffolding to the wall, and that Brisk also failed to meet other safety requirements. 9
The above is commonly called an "action over" or "third-party action over" claim—to the extent that the basis of the claim is the alleged tort liability of the employer, the employers liability exclusion of the CGL policy excludes such "action over" claims. 10
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Employers Liability Exclusion—Exception for "Insured Contract"
The employers liability exclusion does not apply to injuries to employees of the insured if and to the extent that the employer has assumed liability in an "insured contract."
Illustration—Insured Contract Exception. Subcontractor B has agreed to hold harmless and indemnify General Contractor A for bodily injuries caused in whole or in part by Subcontractor B's negligence. Subcontractor B's employee is injured at the jobsite. The facts indicate Subcontractor B failed to provide its employee with the proper safety equipment, which contributed in part to the employees injuries. The employee sues General Contractor A for failing to maintain a safe place to work. In turn, General Contractor A demands contractual indemnification, i.e., is enforcing the hold harmless and indemnity agreement against Subcontractor B, to recover damages it may have to pay for the injuries to Subcontractor B's employee. Even though the claim by General Contractor A is for bodily injury to an employee of the insured (the employer/insured is Subcontractor B) that arises out and is in the course of employment by Subcontractor B, this claim is NOT excluded by the employers liability exclusion due to the "insured contract" exception. For more on the workings of "insured contracts," see Contractual Confusion—Assuming the Liability of Others (July 2009).
Employers Liability Exclusion—Employee of the Insured
It is often debated (and litigated) as to what is meant by "employee of the insured." For example, in Florida, the courts have determined that "employee of the insured" means not only those employees hired directly by the insured, but also employees of subcontractors engaged by the insured—because such persons are "statutory employees" and thus fall within "employee of the insured."
Under Florida law, a contractor who sublets part of its work to a subcontractor develops a statutory employment relationship with the employees of that subcontractor. As the district court correctly noted, the concept of a "statutory employee" derives from Florida's Workers' Compensation Law … Under Florida law, "[s]tatutory employees have been treated identically to actual employees in relation to standard employee exclusion clauses. 11 [Emphasis supplied.]
As is evident, the employers liability exclusion applies more broadly in Florida than in many other states.
The Insured versus an or Any Insured. The coverage argument usually focuses on whether "employee of the insured" means any employee of anyone with the status of an insured (or all insureds) or if "employee of the insured" means only the direct employees of the insured against whom the claim is being made. The argument turns on whether definite article "the" has the same meaning as the indefinite article "an" or "any." Of course, the insurer is free to use either "the" or "an" or "any" in drafting the policy—and actually does so in various clauses of the CGL policy. Some exclusions, other than the employers liability exclusion, apply to "any" insured, 12 while other exclusion apply to "the" insured. Thus, the argument that "the" has the same meaning as "any" rings hollow.
Overturning prior precedent, the Pennsylvania Supreme Court recently stated:
Upon consideration of the broader range of authorities and the reasoning which they provide—which were not overtly considered in PMA—we decline to extend PMA's expansive construction of the term "the insured" to an instance in which a commercial general liability policy variously makes use of the terms "the insured" and "any insured." Rather, we are persuaded that, at least where a commercial general liability policy makes varied use of the definite and indefinite articles, this, as a general rule, creates an ambiguity relative to the former, such that "the insured" may be reasonably taken as signifying the particular insured against whom a claim is asserted. 13 [Emphasis supplied.]
In short, the purpose of employers liability exclusion is to eliminate coverage for those who work directly for the insured and does not exclude bodily injury to employees who do not work directly for the insured, such as employees of the named insured that make a claim against an additional insured.
Conclusion
As in many instances employees will not be allowed to bring a tort claim against their direct employer—the named insured—the exclusion appears deceptively simple. It is not until there is a serious bodily injury claim that this exclusion is tested, commonly with attempts to expand the application of this exclusion to either an employee of any insured or to persons who most would not normally consider to be employees.
In addition, insurers do change the employer's liability exclusion on a CGL (or umbrella) policy to specifically remove "the insured" and replace with "any insured," greatly expanding the exclusion and, as a practical matter, removing coverage for any insured, including additional insureds that often expect coverage for bodily injury claims brought by employees of the named insured. Further, insurers may remove the "insured contract" exception, eliminating coverage for the named insured for any obligation to hold harmless and indemnify another for bodily injury to that named insured's employees.
Finally, insurers may amend the employer's liability exclusion to apply not only to employees of the insured, but also to apply to exclude bodily injury claims made by employees of any contractors and subcontractors, removing important liability coverage for that named insured.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.
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