A Sign of Things to Come in PA CGL Coverage?

In the case of [i]Heller v. Pennsylvania League of Cities, et al.[/i], Pennsylvania’s Supreme Court was faced with the question of whether a workers’ compensation exclusion in an employer-sponsored insurance policy violated public policy. The Court held that it did and thus was unenforceable.

Some background is in order. In this case, Heller was involved in an on-the-job auto accident. He recovered the full $25,000 policy limit from the tortfeasor’s insurance carrier. However, his damages exceeded that limit. So, Heller notified his employer’s insurer of an underinsured motorist (“UIM”) claim. The employer policy had an exclusion that stated that UIM coverage did not attach to “[a]ny claim by anyone eligible for workers[’] compensation benefits that are the statutory obligation of the Member.” Based upon this exclusion, Heller’s claim was denied.

Heller found this problematic. He argued that the language rendered the policy illusory since, after all, the vast majority of claims under the employer policy were going to be by employees who were eligible for workers’ compensation.

The Supreme Court agreed. It held that “our own analysis fails to reveal a scenario where the coverage will meaningfully apply to the intended beneficiaries — the Borough’s employees. Under the facts of the case, the exclusion renders the coverage illusory.”

This decision bears watching to all CGL carriers with an expanded employee exclusion in their policies. No doubt the illusory argument will be raised in the next coverage action in which an employee exclusion is run.

If you have any questions about this post, please contact Bob Cosgrove at rcosgrove@wcmlaw.com.