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Vol. 2, Iss. 21
November 13, 2013


Another Way To Limit Construction Site Exposure (Without Using An Endorsement)

Insurers have been taking various steps to attempt to limit their exposure for bodily injury claims on construction sites (not to mention for property damage). One way has been to amend the employer’s liability exclusion to preclude coverage for employees of “any insured” as opposed to “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. Since the exclusion precludes coverage for employees of “any insured,” and the general contractor is an “insured” (an additional insured), no coverage is owed.

Another tack insurers have taken has been to add exclusions that preclude coverage for an employee of any contractor at the site, even if not an employee of a contractor hired by the insured.

The Eleventh Circuit just demonstrated another method for insurers to limit their exposure for bodily injury claims on construction sites – but this one requires no changes to standard policy language. In Amerisure Insurance Co. v. Orange and Blue Construction, Inc., No. 13-10313 (11th Cir. Nov. 4, 2013) the court held that the employer’s liability exclusion applied to preclude coverage for Epoch Properties, a general contractor, under a policy issued to a subcontractor, for an injury sustained by an employee of another subcontractor. The employee killed on the construction site was employed by a contractor that was three tiers removed from the GC.

Not surprisingly, Epoch, the general contractor, argued that the employer’s liability exclusion did not apply because it excluded coverage for bodily injury to an employee of “the insured” and the decedent, three tiers removed, was hardly an employee the insured – the GC.

But the court was not persuaded. The Eleventh Circuit held that “[a]lthough Mr. Tejeda may not have been one of Epoch’s employees in the traditional sense, Mr. Tejeda was a ‘statutory employee’ of Epoch for purposes of workers’ compensation law. . . . Because Mr. Tejeda was one of Epoch’s statutory employees and was injured during the course of his employment, Amerisure had no duty to defend or indemnify Epoch against his Estate.”

The Appeals Court explained its decision as follows: “Our interpretation of the CGL policy is consistent with the purpose of commercial general liability policies like this one. Unlike worker’s compensation insurance or employer’s liability insurance, which exist to provide employers with coverage for injuries that occur to employees during the scope of employment, the sole purpose of commercial general liability insurance is to provide coverage for injuries that occur to the public-at-large. . . . Because the terms of the CGL policy did not cover injuries to Epoch’s employees or the employees of Epoch’s subcontractors like Mr. Tejeda, Amerisure has no duty to indemnify or defend Epoch in this case.”

In general, a “statutory employee” is an employee of a subcontractor, who is deemed to be an employee of the general contractor, when he sustains bodily injury while acting within the scope of his employment. Even though a “statutory employee” is considered a employee of the general contractor for purposes of workers compensation, some courts have held that the employee is also considered an employee of the general contractor for purposes of the employer’s liability exclusion. There are at least cases in Texas, Tennessee and Idaho (relying on the trial court decision in Orange and Blue) that have so held.

While lots of insurers have been using endorsements, to attempt to limit their bodily injury exposure on construction sites, Orange and Blue demonstrates a possible way to do so using the standard policy that is probably already in the insurer’s hands.

 
 
 
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