Scope of Employer's Liability Exclusion in Commercial General Liability Policy Narrowed by PA Supreme Court

The Pennsylvania Supreme Court recently issued a notable decision in the case of Mutual Benefit Ins. Co. v. Politsopoulos, 60 MAP 2014 (Pa. May 26, 2015) in which the Court essentially eviscerated the scope of the employer's liability exclusion found in most commercial general liability insurance policies as applied to additional insureds.

The decision applies to the following typical fact scenario:  Company A owns a property and leases it to Company B to run a store on the premises.  The lease requires Company B--the store--to add Company A--the owner--as an additional insured under the store's commercial general policy.

An employee of Company B--the store--is hurt on the job in a slip and fall.  The employee cannot sue the store for personal injury under the store's immunity under the framework of applicable worker's compensation law.

Accordingly, the injured store employee instead sues Company A--the owner of the premises for a recovery over and above any worker's compensation benefits secured.

When the suit is served on Company A--the owner--that party will send the claim over to the commercial general liability carrier and request a defense.  Prior to the Pennsylvania Supreme Court case noted above, most commercial general liability carriers took the position that the employer's liability exclusions in the commercial general liability policy supported a denial of liability coverage not only to the store that obtained the policy but also to Company A--the owner.

Here, in the Mutual Benefit Ins. Co. v. Politsopoulos case, the Pennsylvania Supreme Court ruled that the “employer’s liability” exclusion in a restaurant’s umbrella commercial liability policy did not preclude coverage for a negligence suit brought by a restaurant employee against the policy’s “additional insureds,” who were the owners of the property on which the restaurant conducted its business.

The Court ruled that the exclusion, which provided that the policy barred coverage for injuries to employees of “the insured,” was ambiguous.  Accordingly, under general principles of contract construction applicable in Pennsylvania, the ambiguity was construed against the commercial general liability carrier and the exclusion was more narrowly construed as applying only to claims asserted by employees of “the insured” against whom the claim was directed.  The court held that because the property owners in this case were not the underlying plaintiff’s employers, the exclusion did not apply.

The Majority Opinion written by Chief Justice Saylor can be read online HERE. 

The Concurring Opinion by Justice Eakin can be viewed HERE.

Notably, commentators have indicated that this decision would be applicable to any type of contractual arrangement where one party agrees to list another as an additional insured in a commercial liability policy, which are typical in construction and vendor contracts as well.

I send thanks to Attorney Richard Fine of the Scranton, PA law firm of Fine & Wyatt for bringing this case to my attention.