Employee Injury Exclusion and the Additional Insured

The plaintiff brought an action for declaratory relief arising out of an insurance policy issued by the insurer. This case is Szeles Real Estate Development Company v. The Hartford Casualty Insurance Company, 2013 WL 3865104.

Szeles leased commercial real estate to Berkshire Health Partners pursuant to the terms of a lease agreement. Berkshire is insured under a general liability policy issued by Hartford. As part of its obligations under the lease, Berkshire listed Szeles as an additional insured under the policy.

In 2006, Gausch, a Berkshire employee suffered an injury while opening a door on Berkshire's premises. She sued Szeles and the installer of the door. Szeles attempted to tender its defense under the Hartford policy but the insurer refused the request. Szeles filed the lawsuit seeking a declaration that Hartford had a duty to defend and indemnify Szeles.

The complaint alleged that the policy requires Hartford to defend and indemnify Szeles but Hartford claimed that the policy's employee injury exclusion bars coverage for injuries suffered by Berkshire employees; the insurer also said that the lease entered into by Berkshire and Szeles does not qualify under the insured contract exception to this exclusion.

The United States District Court for the Eastern District of Pennsylvania noted that under Pennsylvania law, the employee injury exclusion applies to additional insureds seeking coverage under the policy, and not just to the primary purchaser of the policy. The court ruled that Pennsylvania case law bars coverage for claims brought by Berkshire employees against Berkshire as the named insured, and also applies with equal force to claims brought by the employees against Szeles as an additional insured.

Szeles argued that the employee injury exclusion did not apply in this instance because the lease entered into by Berkshire and Szeles triggers the exception to the exclusion since the lease was an insured contract as defined in the policy. The court noted that because the insured contract exception applies to liability assumed by the insured and because both Szeles and Berkshire are insureds under the Hartford policy, it had to determine whether either Szeles or Berkshire assumed liability for another party under the lease's indemnification provision.

The court said that it was evident that Szeles did not assume any liability for another party under the lease. So, with respect to Szeles's assumption of liability, the lease does not qualify under the insured contract exception to the exclusion. As for Berkshire, the court noted that the language in the lease stated that Berkshire “shall indemnify Szeles in lawsuits, actions, damages, liability, and expense arising out of any occurrence in, upon, or at the premises”. This provision did not expressly state that Berkshire will indemnify Szeles in claims brought by Berkshire employees based on Szeles's negligence, and to the court, this meant that the lease's indemnification clause does not meet the requirements of state law concerning express waiver.

The court concluded that, because Berkshire did not assume liability for injuries to Berkshire employees caused by Szeles's negligence in the indemnification provision, the lease did not qualify as an insured contract under the exception to the exclusion. It followed that the employee injury exclusion was controlling and precludes coverage for the claim made by Gausch.

The motion by Hartford to dismiss was granted.

Editor's Note: In this case, the U.S. District Court discussed the applicability of an exclusion to the additional insured under a general liability policy, and also ruled on whether the lease of the premises was an insured contract. The opinion of the court was that the additional insured did not have coverage for the claim because the exclusion applied to it and the insured contract exception to the exclusion did not apply in this instance.

Discharge of a Pollutant

The insured fuel oil seller brought an action against the insurer alleging breach of pollution and remediation legal liability policy and seeking damages for the insurer's refusal to defend and indemnify the insured with respect to costs incurred from the transfer of contaminated fuel oil. This case is Colonial Oil Industries v. Indian Harbor Ins. Co., 528 Fed.Appx. 71 (2013). (Note that this case was not selected for publication in the Federal Reporter.)

Colonial is a corporation whose business involves the transportation, storage, and sale of fuel oil. Colonial received a delivery of oil in 2009 and it was unloaded into one of Colonial's storage tanks. A portion of this oil was delivered to customers and it was then discovered that the fuel oil was contaminated with PCBs, a pollutant that resulted in harm to Colonial in the form of lost oil and decontamination and remediation costs.

The insured sought coverage for these costs from its insurer, Indian Harbor. The insurer denied coverage and the insured commenced this action. The U.S. District Court for the Southern District of New York entered judgment in favor of the insurer and the insured appealed.

The United States Court of Appeals, Second Circuit, noted that the District Court found that the insured's entire argument turned on whether oil that is transferred from a tanker truck into another containment vessel is “discharged” as that term is used in the policy, even if no spill, leak, or other accidental release occurs. The insured argued that the act of unloading the contaminated fuel oil created a pollution incident within the terms of the policy by discharging a pollutant. The insurer disagreed.

The Circuit Court said that New York courts have held that, in the context of pollution exclusions, “discharge” and “dispersal” are terms of art in environmental law used with reference to damage or injury caused by disposal or containment of hazardous waste. The three places for discharge contemplated by the policy language—into or upon land, the atmosphere, or any water course or body of water—read together support the conclusion that the clause was meant to deal with broadly dispersed environmental pollution.

New York case law made clear to the Circuit Court that the reasonable expectations of a businessperson viewing this contested policy language would be that it is intended to provide coverage for environmental harm resulting from the disposal or containment of hazardous waste. This case, which merely involves the unwitting introduction and transfer of polluted oil into containers otherwise meant to hold that oil did not, in the court's opinion, fall within those parameters. Accordingly, the court concluded that the events giving rise to this action did not create a pollution condition under Indian Harbor's pollution and remediation legal liability policy.

The ruling of the District Court was affirmed.

Editor's Note: This decision of the Second Circuit Court of Appeals follows the current judicial trend that pollution exclusions and coverages are aimed at environmental injuries. In this instance, the transfer of contaminated oil was simply that, a transfer of the oil from one container to another. There was no discharge or dispersal of the contaminated oil into the land, water, or atmosphere and so, there was no “pollution condition” as required by Indian Harbor's policy.

Additional Insured and Notice of Occurrence Requirement

The insurer brought an action seeking a declaration that it had no duty to defend or indemnify the additional insureds in a personal injury lawsuit. This case is Mt. Hawley Insurance Company v. Robinette Demolition, 994 N.E.2d 973 (2013).

Robinette and Cobra Concrete Cutting Service entered into an ongoing subcontract agreement under which Cobra would perform concrete cutting services for Robinette on future projects. The agreement required Cobra to hold harmless Robinette and required that the insurance policy obtained by Cobra include Robinette as an additional insured.

Mt. Hawley issued a commercial general liability policy to Cobra that required Cobra as named insured to notify Mt. Hawley as soon as practicable of an occurrence and to provide written notification to the insurer of a claim or lawsuit against any insured. The policy also provided coverage for all persons or organizations where required by written contract.

On February 25, 2009, Bucholz, a Cobra employee, was injured while working on a project. Bucholz filed a personal injury lawsuit against Robinette. Robinette tendered its defense and indemnification to Mt. Hawley. The insurer denied coverage and filed this action seeking a declaration that it had no duty to defend or indemnify Robinette.

The trial court ruled in favor of the insurer and this appeal followed.

The appeals court noted that Cobra, the named insured, did breach the policy notice provision in that it did not notify the insurer in a reasonable amount of time of the occurrence wherein Bucholz was injured. The issue to be resolved, said the court, was whether the named insured's breach of its duty to notify bars coverage for additional insureds who have complied with their duty under the policy notice provisions.

In this case, the court held that only the named insured was required to comply with the notice requirements by providing notice of Bucholz's accident and the lawsuit to Mt. Hawley. The additional insured did comply in that it immediately tendered its defense and indemnification requests to the insurer (less than two month after the lawsuit was filed). Mt. Hawley argued that for purposes of the policy notice requirements, Cobra as the named insured and Robinette as the additional insured are under one policy; therefore, Cobra's breach of the notice requirements bars coverage for Robinette as well. The appeals court did not agree. The court said that only Cobra had the duty to provide notice and nothing in the policy changed the terms to make coverage for the additional insured contingent on Cobra's compliance with its duty. The policy language of the notice provision did not evidence the intent to make the coverage for the additional insured contingent on the named insured's compliance with its duty under the notice provision of the policy.

The ruling of the trial court was reversed.

Editor's Note: The Appellate Court of Illinois, First District, Sixth Division, ruled that, even though additional insureds are required to follow the notice requirements of the liability policy, the failure of the named insured to do so does not prevent coverage for the additional insured if, in fact, the additional insured did fulfill its notice duties. In this instance, the additional insured did send the legal papers it received in connection with the lawsuit against it to the insurer in the proper amount of time and so, the policy did provide coverage for the additional insured even though the named insured failed in its notice requirements.

Business Pursuits Exclusion

The insured brought a declaratory judgment action against the insurer seeking a declaration that the insurer owed a duty to defend against a lawsuit claiming defamation on the part of the insured. This case is Hardenbergh v. Patrons Oxford Ins. Co., 70 A.3d 1237 (2013).

Hardenbergh maintained a homeowners insurance policy with Patrons Oxford that insured Hardenbergh for claims for injury arising out of libel, slander or defamation of character. The policy contained an exclusion for injury arising out of the business pursuits of any insured.

Pan Am Systems and two other plaintiffs filed a complaint against Hardenbergh alleging that he published as fact untrue information regarding Pan Am in Atlantic Northeast Rails & Ports Newsletters and E-Bulletins. Pan Am stated that Hardenbergh's publications contained false and defamatory statements. Hardenbergh forwarded the lawsuit to Patrons Oxford but the insurer declined to defend him.

Hardenbergh filed a lawsuit seeking a declaratory judgment against Patrons and the trial court ruled in favor of the insured. This appeal followed.

The insurer argued that it had no duty to defend against the original complaint because the allegations against the insured fell within the policy's business pursuits exclusion. The Supreme Judicial Court of Maine said that whether Patrons has a duty to defend depends on whether the complaint could fall within the coverage afforded by the policy. Examining the complaint and the policy language, the court said that Patrons could have a duty to defend Hardenbergh; however, the exclusion needs to be examined for its relevance to the coverage.

The court turned to the complaint against the insured to determine whether it contained any allegations that could fall under the scope of the exclusion. According to the complaint, all of the alleged false or defamatory statements appeared in Atlantic Northeast Rail & Ports publications. Therefore, said the court, it had to decide if this falls within the definition of “business pursuit”. The court found that all of the alleged defamatory statements appeared in a trade publication for which Hardenbergh is in charge. The complaint is definite, said the court, that the statements Hardenbergh allegedly made all appeared in pursuit of a trade, that is, the publishing of an electronic and print trade publication for which Hardenbergh serves as the editor, publisher, owner, and principal. Statements published in a trade publication by the publication's editor, publisher, owner, and principal arise out of that person's business pursuits.

Because, the allegations in the Pan Am complaint fall entirely within the business pursuits exclusion of the policy, the court ruled that Patrons has no duty to defend Hardenbergh. The trial court's ruling was vacated.

Editor's Note: The Supreme Judicial Court of Maine noted that the policy did not define the term “business pursuits”, but did define “business” to include trade, profession, or occupation and based on the facts, the court found that the complaints against the insured were based on his trade, profession or occupation. Thus, the exclusion clearly applied to the situation in this instance and the insurer had no duty to defend the insured.