Third Circuit Rules Subcontractor’s Insurer Must Defend, Indemnify Construction Project Owner

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PHILADLEPHIA, Feb. 17 – The U.S. Third Circuit Court of Appeals has ruled that the insurer of a subcontractor who employed an injured worker must defend the project owner  in the personal injury litigation brought by worker, regardless of the subcontractor’s immunity under Pennsylvania workmens’ compensation law.

In Ramara v. Westfield, the Court provided a succinct statement of the facts:

Appellee, Ramara, Inc. (“Ramara”), the garage owner, engaged Sentry Builders Corporation (“Sentry”) as a general contractor to perform work at its parking garage, and, in turn, Sentry engaged a subcontractor, Fortress Steel Services, Inc. (“Fortress”), to  install concrete and steel components as part of the work. As  required by its subcontracting agreement with Sentry, Fortress obtained a general liability insurance policy (“the Policy”) from Westfield Insurance Group (“Westfield”) naming Ramara as an additional insured under the Policy. While Fortress was working on the project in April 2012, one of its employees on the job, Anthony Axe, was injured in an accident. As a result of his injury, Axe filed a tort action against Ramara and Sentry but he did not include Fortress as a defendant as it was immune from actions at law by its employees for injuries suffered on the job if they were entitled to compensation for their injuries under the Pennsylvania Workers’ Compensation Act (“Act”).   Ramara tendered its defense in Axe’s action to Westfield. But Westfield declined to defend Ramara as it claimed that Axe’s complaint against Ramara did not include allegations imposing that obligation on it under its Policy with its applicable endorsements.

The policy secured by Fortress naming Ramara as an additional defendant contained an Additional Insured Endorsement, under which Ramara was entitled to defense and indemnity if the underlying personal injury action alleged that the plaintiff’s injuries were in whole or in part caused by Fortress, the named insured.    Westfield claimed that since the complaint, which did not name Fortress as a defendant, contained no express averments of wrongdoing against Fortress, Ramara was not entitled to defense and indemnification.

Judge Morton Ira Greenberg undertook an examination of the underlying personal injury complaint, and concluded there were sufficient allegations implicating Fortress’ role in causing the accident, its legal immunity notwithstanding:

Taken together and construed liberally in favor of Ramara for purposes of this insurance coverage case, these allegations partially base Ramara’s liability on its failure to supervise the work of its contractors or subcontractors who used equipment improperly and disregarded a site specific fall protection plan, all while performing their work in violation of the industry’s standard of care. Fortress, though engaged by Sentry, was one of Ramara’s subcontractors, and Axe’s employment by Fortress was the sole reason that Axe was at the job site and was injured. Clearly, Axe made factual allegations that potentially would support a conclusion that Axe’s injuries were “caused, in whole or in part” by Fortress’s acts or omissions.

Of course, we need not and, indeed, cannot decide whether Axe will succeed on these claims at trial. Ramara only must show that the Axe complaint, when liberally construed in favor of Ramara, includes allegations to support a conclusion that Fortress was potentially negligent and that its negligence was a proximate cause of Axe’s injuries. We conclude that it does. Accordingly, Ramara comes within the Additional Insured Endorsement of the Policy with respect to the Axe case. Therefore, Ramara is entitled to a defense in the Axe case even under Westfield’s narrow interpretation of the Additional Insured Endorsement limiting coverage to situations in which an insured’s contractor’s actions proximately caused a plaintiff’s injuries.

(emphasis added).

The Court ruled that the workmen’s compensation immunity which Fortress enjoyed was not dispositive of whether the factual allegations of the complaint made out a case that but for Fortress’ acts or omissions, the injury would not have occurred, thereby entitling Ramara to defense and indemnity under the Westfield policy insuring Fortress.  The Court affirmed the District Court judgment holding Westfield liable for the defense and indemnity of Ramara in the underlying personal injury litigation.

Ramara v Westfield Ins. Co., (Third Cir., Feb. 17, 2016)

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Author: CJ Haddick

C.J. Haddick is a Director with the law firm of Dickie, McCamey, & Chilcote, PC, based in Pittsburgh, Pa. He has advised and represented insurers in insurance coverage and bad faith litigation for more than a quarter of a century, and written and spoken throughout the United States on insurance coverage and bad faith prevention and litigation. He is Managing Director of the firm's Harrisburg, Pa. office. Reach him at chaddick@dmclaw.com or 717-731-4800.

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