Second Department Upholds Application of Employee Exclusion to Named Insured and Additional Insured

In an appeal brought by our attorneys in Campoverde v. Fabian Builders, LLC, 83 A.D.3d 986, 922 N.Y.S.2d 435 (2d Dept 2011), the Appellate Division, Second Department, reversed an order of the Supreme Court, Kings County, and adopted our argument that neither the named insured nor the additional insured was entitled to defense or indemnity in a lawsuit arising out of a construction site accident brought by an employee of a contactor that was retained by or for one of the insureds, even if the precise identity of that contractor could not be determined..

Here, the named insured was hired by a builder to perform work on a construction site and, pursuant to the trade contact, named the builder as an additional insured under its policy. Although it was originally alleged that the plaintiff was an employee of the named insured, this was later disputed, and it was alleged that the plaintiff was actually employed by another subcontractor on the site having no direct relation to the named insured but which was hired by the additional insured builder. The Appellate Division found that the insurer had no obligation to defend or to indemnify either the named insured or the additional insured. It so holding, the Court pointed out that, since the worker alleged that he had sustained bodily injuries in the course of his employment for an entity hired by or for one of the insureds, the “only possible interpretation” of these allegations was that the worker’s claims fell “wholly within the employee exclusion” of the policy.

The importance of this decision is two-fold: First, it explicitly brings the Second Department in accord with Appellate Division, First Department, the United States District Courts for the Eastern and Southern Districts of New York, and at least one trial-level court, that the language of the employee exclusion at issue is not ambiguous. Second, it establishes that the operation of the employee exclusion is not limited to precluding coverage only where suit is brought by an employee of either a named or additional insured, but will apply as long as it can be established that the injured employee worked for a contractor “hired or retained by or for any insured.”

This decision once again highlights the importance of obtaining and carefully analyzing the trade contracts among the defendants, including your insured, in the underlying personal injury suit, in order to make an informed coverage decision.