Part I – The Problem
The scenario is not at all uncommon: a worker suffers injury at a worksite, and through the vagaries and vicissitudes of life, and for manifold reasons, the business owner has a CGL policy but no applicable workmen’s compensation coverage. The injured employee was fairly new, and has now filed suit against his (assumed) employer and another company also on the worksite.
This seems straightforward enough: The applicable CGL policy contains a well-worn, well-known Employers’ Liability Exclusion which disclaims the duty to defend or indemnify the insured business owner for any claims arising out of injuries to employees. It commonly reads:
EXCLUSIONS
This insurance does not apply to:
…
d. Employer’s Liability
“Bodily injury” sustained by:
1) Any “employee” (other than a “residence employee”) as a result of his or her employment by the insured;
…
This exclusion applies whether the insured may be held 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.
The difficulty lies, sometimes, in the Definition of who is an “employee,” some of which commonly reads as follows:
DEFINITIONS
…
“Employee” includes a “leased worker”. “Employee” does not include a “temporary worker”.
…
“Temporary worker” means a person who [i]s furnished to you to substitute for a permanent “employee” on leave or to meet seasonal or short-term work load conditions.
Rarely do the interests of injured employees and employers looking for protection converge. But in seeking to avoid the Employers’ Liability Exclusion, such rare common ground appears. An injured employee wants a fund against which recovery can be made for his or her injuries. An employer, who for one reason or another finds himself without workmens’ compensation coverage, needs protection from liability for the loss. The CGL carrier is a convenient solution for everybody — except, of course, for the CGL insurer, who has neither priced, nor underwritten, nor issued workmens’ compensation coverage for the insured business owner.
Square Peg, Round Hole, No Matter
Thusly, the elegant dance begins. In examinations under oath, the insured business owner refers to the injured worker as an “employee,” and spoke of “hiring” him or her. No mention is made of the employee being furnished by a co-employer, nor is there any mention of the fact that the injured employee was actually brought on temporarily, or to substitute for another employer who was going on medical leave.
Several months later, however, the injured employee files suit for his injuries , and the insured business owner has received a reservation or rights letter f rom the CGL insurer, agreeing to provide a defense but reserving all rights to disclaim coverage under the Employers’ Liability exclusion. The landscape has changed — and the Employers’ Liability Exclusion now poses a grave problem for both the injured employee and the insured business owner. The definition of “temporary worker” definition to the rescue…
The business owner, now represented, now paints a murkier picture at his deposition in the coverage action compared to his recorded statement. The injured employee did come on, the business owner now testifies, several months before someone in the same position was to go off on medical leave. The business owner got both permission and a recommendation to hire the worker from another contractor for whom the injured employee continued to do work while working for the insured business owner.
For his part, the injured employee testified in much the same manner, although he admits that neither employer controlled his hours or performance at the other employer. He also testifies he didn’t believe the insured business owner needed permission from the injured worker’s co-employer to hire him, even though the co-employer recommended the injured worker highly.
All eyes now turn to the CGL insurer, and the insured business owner’s counsel tenders and re-tenders the defense and indemnity of the insured business to the CGL insurer . What is the CGL insurer to do?
We will answer that question in Part II of this post.
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