In the past, a standard CGL policy issued to a contractor contained a straightforward employer’s liability exclusion. In the event a contractor’s employee was injured on the job, they would be precluded from making a claim under the CGL policy, and would instead look to the contractor’s separate Employer’s Liability Insurance policy and/or Workers’ Compensation.  However, plaintiffs will often bring third-party action-over claims, which seek to get coverage under the CGL policy through an exception to the standard employer’s liability exclusion.

As a result, many insurers have specifically included so-called Action-Over Exclusions in CGL policies which completely remove any exceptions to the standard employer’s liability exclusion. The wording of such an Action-Over Exclusion was at issue in Endurance American Specialty Ins. Co. v. Century Sur. Co. 2015 WL 6717686 (2nd Cir (N.Y.) 2015).

Endurance surrounds an appeal from the Southern District which granted Endurance summary judgment against Century, finding that Century owed a defense to its additional insured. Century issued a CGL policy to subcontractor Pinnacle Construction Corp, and Endurance issued a similar CGL policy to general contractor Hayden Building Maintenance Corp. Pursuant to a subcontractor agreement, Pinnacle agreed to indemnify and procure insurance for the benefit of Hayden. Hayden was classified as an Additional Insured on Pinnacle’s policy with Century. In 2011, an employee of Pinnacle was injured and brought suit against Hayden for negligence.

Pinnacle’s CGL policy included an Action-Over Exclusion which precluded insurance for bodily injury to an “employee” of the named insured arising out of an in the course of (a) employment by the named insured. (emphasis added). The lower court found that since Hayden was an additional insured, the Separation of Insureds section in the Century policy permitted a reading that insurance was only excluded for bodily injury to an “employee” of [Hayden] arising out of and in the course of employment by [Hayden]. Therefore, since the injured employee worked for Pinnacle rather than Hayden, Century owed Hayden defense and potential indemnification in the underlying suit.

The Second Circuit found that the lower court erred by reading [Hayden] into the wording of the exclusion, and reversed. The Court held the Action-Over Exclusion specifically replaced the previous employer’s liability exclusion which applied to “the insured”, and therefore Century clearly sought to preclude claims for bodily injury arising out of employment with Pinnacle, its named insured. The Second Circuit concluded the lower court was incorrect to ignore the clear, unambiguous wording of the Action-Over Exclusion.

This case exemplifies how changing one word in an insurance contract can shift the scales of coverage. For Century, by replacing “the insured” with “the named insured,” the insurer effectively limited coverage to additional insureds. This case serves as an important reminder for GCs to thoroughly review the insurance policies of their subcontractors, particularly keeping an eye out for changes regarding employer’s liability.  Thanks to Dan Beatty for his contribution.  Please email Brian Gibbons with any questions.