Pennsylvania Supreme Court Limits Application of Employer’s Exclusion in General Liability Insurance Policies
In Mut. Benefit Ins. Co. v. Politsopoulos, 2015 Pa. LEXIS 1126, 21-22 (Pa. May 26, 2015), the Pennsylvania Supreme Court held that an additional insured under a commercial general liability policy is entitled to coverage, even if the claim is brought by an employee of the original named insured. In doing so, the Pennsylvania Supreme Court criticized, but did not reverse, its holding in Pennsylvania Manufacturers' Association Insurance Co. v. AETNA Casualty & Surety Insurance Co., 426 Pa. 453, 233 A.2d 548 (1967) (PMA).
The Supreme Court summarized the holding as follows: The common pleas court explained that PMA's holding reflected that the term ‘the insured,’ as it appears in an employer's exclusion appearing in a liability policy, encompasses the named insured, regardless of whether coverage was sought by a different insured. Thus, the court reasoned, the exclusion prevented coverage from extending to redress harm to Ms. Denovitz, since she was an employee of the named insured (Leola Restaurant), and her injuries were occasioned in the course of such employment, even though suit was brought against additional insureds (i.e. the Property Owners).
This decision had caused great headaches for companies that had secured additional insured status, only to have coverage taken away because the plaintiff was an employee of the named insured. The decision also had the potential to deny coverage for large conglomerates who insured all of their subsidiaries under the same policy. In theory, under the old Supreme Court decision, if one company employed the plaintiff all other insureds on the policy could be denied coverage.
After identifying many questionable leaps of logic in the original PMA decision, the Pennsylvania Supreme Court chose to take a more liberal view of the employer’s exclusion in a general liability policy (see page 14, paragraph 2).
The decision is a significant step forward in providing value to indemnification agreements and insurance requirements in contracts and leases. Pennsylvania Courts, though, continue to have very specific requirements for an indemnification agreement. Despite this development, all such contractual clauses must be carefully reviewed to ensure that they provide the protection desired.