(Article from Insurance Law Alert, July/August 2017)
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The Second Circuit ruled that an employer’s liability exclusion is ambiguous and that an insurer is obligated to defend and indemnify underlying claims against an insured. Hastings Develop., LLC v. Evanston Ins. Co., 2017 WL 2923921 (2d Cir. July 10, 2017).
Evanston issued a general liability policy to Universal Phonics, Inc. (“UPI”) that provides coverage for certain Named Insureds, including Hastings, a subsidiary of UPI. When a UPI employee was injured in Hastings’ building, he sued UPI, Hastings, and several other companies. Hastings tendered the action to Evanston, which denied coverage based on the employer’s liability exclusion. In ensuing litigation, a New York federal district ruled that the exclusion does not bar coverage. The Second Circuit affirmed.
The exclusion provides that there is no coverage for claims arising out of 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.” Evanston argued that this language unambiguously bars coverage for injured employees of all listed Named Insureds. In support of this position, Evanston noted that the policy defines “employee” to include “any member, associate, leased worker, temporary worker of or any person or persons loaned to or volunteering services to, any Named Insured.” In contrast, Hastings argued that the phrase “the Named Insured” (as opposed to “a Named Insured” or “any Named Insured”) creates ambiguity as to the scope of the exclusion. Additionally, Hastings argued that the Separation of Insureds provision (which requires each Named Insured to be treated individually for purposes of determining coverage) supports its contention that the exclusion applies only if the employee is employed by the specific Named Insured that is seeking coverage. Thus, Hastings reasoned, the exclusion does not bar coverage as to claims against Hastings, because the injured worker was an employee of UPI. The Second Circuit agreed, finding the policy language ambiguous under the circumstances.