Dig a Little Deeper
Exploring the employers liability exclusion
Court Decisions is one of the most popular features of Rough Notes magazine. One reason may be that the courtroom often is where the paper promises made in an insurance contract become real. All insurance professionals can develop “what if” scenarios, but until those scenarios are tested with an actual loss and a court decision, they remain mental exercises. In this column, the editors of PF&M Analysis, a publication of The Rough Notes Company, will dig a little deeper into the coverage provided in one of those court decisions as a way to identify a coverage problem and then provide possible solutions.
This court decision is about a man who became a quadriplegic after being struck in the neck by a large pine limb. The claim was made under his employer’s commercial general liability (CGL) policy issued by Scottsdale Indemnity Company in accordance with Georgia’s surplus lines insurance law. Coverage was denied because bodily injury to “an employee, leased worker, temporary worker, or volunteer worker of any insured” or “[a]ny contractor, subcontractor, sub-subcontractor or anyone hired or retained by or for any insured” was excluded if the injury “arises out of and in the course of their employment or retention.”
Employees are insureds, but because temporary workers are not employees, they are not insureds.
The employers liability exclusion is an important part of commercial general liability coverage forms. Rather than discussing Scottsdale’s exclusion, which is far more restrictive than the standard, let’s consider the exclusion used by Insurance Services Office, Inc. (ISO).
ISO’s Commercial General Liability Employers Liability exclusion in the 04 13 edition reads:
“Bodily injury” to:
(1) 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; or
(2) The spouse, child, parent, brother or sister of that “employee” as a consequence of Paragraph (1) above.
This exclusion applies whether the insured may be liable as an employer or in any other capacity and to any obligation to share damages with or repay someone else who must pay damages because of the injury.
This exclusion does not apply to liability assumed by the insured under an “insured contract.”
To understand this exclusion, we must consider the definition of “employee.” When a word or phrase in an ISO form is in quotation marks it is subject to the definition provided in the coverage form, not the common or dictionary definition of that word or phrase.
In the CGL coverage form Definitions section, the definition of employee is:
“Employee” includes a “leased worker.” “Employee” does not include a “temporary worker.”
Because this definition includes two defined words, to understand the definition we must explore the following terms:
“Leased worker” means 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.”
“Temporary worker” means a person who is furnished to you to substitute for a permanent “employee” on leave or to meet seasonal or short-term workload conditions.
Based on the CGL definition of “employee,” would the employer in this court decision have had coverage if the injured man had sued him? And here is the tricky part. Was the employee a temporary worker? It didn’t matter in this case because the Scottsdale exclusion applied to “anyone hired or retained by or for any insured.” But when the ISO CGL form is used, it matters a great deal. A person hired as a substitute for an employee on leave (no time limit provided) or hired to meet seasonal or short-term workload conditions (no time limit provided) is not an employee. This means that injury to a temporary worker, as defined in the CGL, would not be subject to the employers liability exclusion.
The use of temporary workers can have serious consequences for employers beyond injuries to such workers because of how it affects the insuring agreement. The first sentence of Coverage A – Bodily injury and Property Damage Liability Insuring Agreement—reads:
We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies.
This means that only obligations of the insured are covered. This leads to the question: Who is an Insured? The CGL answers that question precisely in Section II – Who is An Insured. The pertinent portion states:
“your ‘employees’ are insureds.”
Employees are insureds, but because temporary workers are not employees, they are not insureds. Therefore, obligations of temporary workers are not covered obligations under the insuring agreement. This means that when the named insured is sued for damages because of the actions of a temporary worker, coverage could be denied. Yes, many workarounds may be used to find coverage, but would you like your client to be tangled up with a possible denial of coverage because of a definition?
The use of temporary or “gig” workers is becoming more common and will increase in the future. The assets of your clients may be at risk because a temporary worker was used instead of a permanent employee or a leased employee. Consider asking clients: Do you hire temporary workers? It could lead to your solving a problem your clients didn’t even know they had.
Linda D. Ferguson, CPCU, has more than 30 years of underwriting experience with national commercial lines carriers. She is vice president of Technical and Educational Products at The Rough Notes Company, Inc.