Injury to Employees Endorsement Eliminates Coverage for Insured Employer

Tred R. Eyerly | Insurance Law Hawaii

    The court granted summary judgment to the insurer based upon an endorsement which barred coverage for injuries to employees. Northfield Ins. Co. v. Z&J Mgt. LLC, 2020 N.Y. Misc. LEXIS 10801 (N.Y. Sup. Ct. Dec. 18, 2020).

    Ravi Sooklal sued his employer, Z&J Management LLC (Z&J), for injuries at the job site. Northfield, who had issued a CGL policy to Z&L, denied coverage based upon two endorsements. The first was titled “Injury to Employees of Insureds” and the second was “Employers’ Liability.” Northfield sued for a declaratory judgment and now moved for summary judgment. 

    Northfield argued Sooklal was injured during the course of his employment with Z&J. Under the “Employer’s Liability” exclusion, the policy did not apply to bodily injury to an employee of the insured arising out of and in the course of employment by the insured. Under the”Contracted Persons” exclusion there was no coverage for bodily injury to any person who was an employee and the injury arose out of employment by the insured. 

    Northfield met its burden of establishing that the exclusions applied in this case. Under the “Employer’s Liability” and “Contracted Persons” exclusions, the policy did not apply to bodily injury to employees of the insured. Therefore, summary judgment was awarded to Northfield. 

In Brief: Commercial General Liability Policies in USA

Mary Beth Forshaw | Simpson Thacher

Standard commercial general liability policies

Bodily injury

What constitutes bodily injury under a standard CGL policy?

CGL policies generally provide coverage for bodily injury or property damage sustained by third parties (rather than the policyholder) as a result of an occurrence.

Insurance coverage litigation frequently centres on whether the underlying claims against the policyholder allege bodily injury or property damage within the meaning of the applicable insurance policy, and whether the events giving rise to the injury or damage were caused by an occurrence.

The phrase ‘bodily injury’ in insurance contracts generally connotes a physical problem. However, a number of courts have ruled that the term also encompasses non-physical or emotional distress, either standing alone or accompanied by physical manifestations.

The question of whether bodily injury exists may also arise where an underlying complaint alleges non-traditional or quasi-physical harm, such as biological or cellular level injury or medical monitoring claims. Courts addressing these and other analogous bodily injury questions have arrived at mixed decisions. Bodily injury determinations are often case-specific, turning on the particular factual record presented.

Property damage

What constitutes property damage under a standard CGL policy?

Property damage typically requires injury to or loss of use of tangible property. Therefore, the mere risk of future damage is generally insufficient to constitute property damage. Similarly, it is generally held that the inclusion of a defective component in a product, standing alone, does not constitute property damage. Numerous other allegations of harm or potential harm to property have generally been deemed to fall outside the scope of covered property damage, including the following:

  • injury to intangible property (such as computer data);
  • injury to goodwill or reputation;
  • pure economic loss; and
  • diminished property value.

However, although economic loss is not equated with property damage, courts may use a policyholder’s economic loss as a measure of damages for property damage where physical damage is found to exist.


What constitutes an occurrence under a standard CGL policy?

Virtually all modern-day general liability insurance policies provide coverage for an occurrence that takes place during the policy period. The insurance term ‘occurrence’ is typically equated with or defined as an accident or an event that results in damage or injury that was unexpected and unintended by the policyholder.

Insurance litigation frequently involves several issues relating to the occurrence requirement:

  • whether intentional conduct that results in unexpected or unintended harm constitutes an occurrence;
  • whether negligent conduct that results in expected or intended harm constitutes an occurrence;
  • whether an event or series of events constitutes a single occurrence or multiple occurrences;
  • whether the occurrence falls within a given policy period (ie, what is the operative event that triggers a policy?); and
  • how insurance obligations should be divided among multiple insurers (or the policyholder) when an occurrence spans multiple policy periods (ie, allocation).

Although it is a widely accepted principle that insurance policies provide coverage only for fortuitous events, and cannot insure against intentional or wilful conduct, it is less clear whether (and under what circumstances) intentional conduct that results in unexpected and unforeseen damage can constitute a covered occurrence. This question has arisen in a multitude of factual contexts, including claims arising out of faulty workmanship, pollution and fax blasting in violation of federal statutes. In evaluating the occurrence issue, some courts focus on the initial conduct of the policyholder, while other courts look to whether the resulting harm was unexpected or unintended.

How is the number of covered occurrences determined?

The determination of whether damage or injury is caused by a single occurrence or by multiple occurrences has significant implications for available coverage. The number of occurrences may impact both the policyholder’s responsibility for deductible payments and the per occurrence policy limits that are available. Thus, it is a hotly contested issue in insurance litigation. Most courts utilise a cause-based analysis to determine the number of occurrences. Under the cause-oriented approach, if there is one proximate cause of the injury, there is one occurrence, regardless of the number of claims or incidents of harm.

In contrast, under an effects-oriented analysis, the focus is on the number of discrete injury-causing events.

A number of occurrences disputes arise in virtually all substantive areas of insurance litigation, including claims arising out of asbestos, environmental harm, natural disasters, and the manufacture or distribution of harmful products.


What event or events trigger insurance coverage?

Litigation that centres on whether a given policy period has been implicated by an occurrence is generally referred to as a ‘trigger of coverage’ dispute. ‘Trigger’ describes what must happen within the policy period for an insurer’s coverage obligations to be implicated. In cases involving ongoing or continuous property damage or personal injury, the question of what triggers policy coverage may be complex. From a legal perspective, courts employ several different methods to resolve trigger disputes. For bodily injury claims, the operative trigger event has been held to be:

  • at the time of exposure to a harmful substance;
  • at the time the injury manifests itself;
  • at the time of actual ‘injury in fact’; or
  • a combination or inclusion of all of the above.

Property damage claims have also given rise to multiple trigger approaches, some of which focus on the initial event that set the property damage into motion, while others look to the time that physical damage became evident. From a factual perspective, parties are often required to submit voluminous evidence in support of their position as to when property damage or bodily injury actually occurred. Expert witnesses are often retained to address trigger issues.

How is insurance coverage allocated across multiple insurance policies?

When an occurrence triggers multiple policy periods, disputes frequently arise as to how indemnity costs should be allocated among various insurers. The emerging trend in courts in the United States is a pro rata approach, which apportions loss among triggered policies based on insurers’ proportionate responsibilities. In applying pro rata allocation, courts have considered:

  • the time that each insurer is on the risk;
  • the policy limits of each triggered policy;
  • the proportion of injuries during each policy; or
  • a combination of these and other factors.

Pro rata allocation also typically contemplates policyholder responsibility for periods of no coverage or insufficient coverage. The pro rata allocation approach stems from policy language that limits insurers’ obligations to damage ‘during the policy period’. Some jurisdictions that utilise a pro rata approach recognise an ‘unavailabilty’ exception. The unavailability exception provides that apportionment to the insured for uninsured periods is not warranted if insurance was unavailable in the marketplace during the relevant time frame. If this unavailability is established, losses during the uninsured periods are allocated among the insurers.

A minority of courts endorse a joint and several liability approach, under which a policyholder is entitled to select a single policy from multiple triggered policies from which to seek indemnification. This approach stems from common policy language requiring an insurer to pay ‘all sums’ that the policyholder becomes legally obligated to pay. Notably, even courts that endorse all sums allocation typically allow a targeted insurer to pursue contributions from other triggered insurers.

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18 December 2019

Dealing with the Opioid Threat in the Construction Industry

Bridget Blinn-Spears | Nexsen Pruet

Opioids pose a substantial threat to the construction industry. According to the National Institute of Occupational Safety and Health (NIOSH), “Opioids have commonly been prescribed to construction workers to treat pain caused by these occupational injuries. Workers in the industry also have higher rates of opioid overdose death compared with other groups.”

The hard physical work undertaken in construction jobs can lead to injuries for which doctors may prescribe strong prescription drugs. Workers can become addicted to these substances and related street drugs like heroin. Additionally, construction workers are more likely to use drugs than workers in other professions, Science Daily reported, based on a study published in the journal Drug and Alcohol Dependence. According to the study’s lead author, New York University Associate Professor of Epidemiology Danielle Ompad, drug testing cannot distinguish between recreational and medicinal use of opioids (or marijuana). Ompad suggested that “prevention and harm reduction programming is needed to prevent drug-related risks and mortality” in construction workers.

A recent article in the Wall Street Journal highlighted connections between the increase in opioid use, deaths from overdoses during the COVID-19 pandemic, and the shortage of manual labor already facing the construction industry. Even before the pandemic, deaths due to drug overdoses were on the rise across the country. South Carolina’s governor declared the state’s opioid crisis a public health emergency in 2017 and established a team that developed a response plan. North Carolina also has an action plan addressing its opioid crisis.

As construction employers work to keep their job sites safe and productive, they should keep in mind some key points regarding employee drug use:

  • Recovering addicts (and employees properly using prescription drugs) may be protected under the Americans with Disabilities Act (although illegal drug use is never protected).
  • Leave to seek treatment for substance abuse is ordinarily covered by the Family and Medical Leave Act.
  • The Occupational Safety and Health Administration has focused in recent years on post-accident drug testing. The agency encourages testing when there is reasonable suspicion that drug use was a factor in a workplace accident or injury when post-accident drug testing is part of the established safety culture of a company. The testing cannot be used to penalize an employee for reporting injuries or illnesses.
  • North and South Carolina permit employers to screen for drugs and alcohol but impose technical requirements on sample collection and testing methods.

Employers should already have clear policies regarding drug use and testing. Well-drafted policies can be helpful in dealing with workers’ compensation and unemployment benefits claims. In addition to legal compliance, construction employers benefit from establishing employee assistance programs or otherwise determining how to refer employees for help with substance abuse problems. Employees who seek treatment for addiction may be able to remain in the workforce without posing a threat to themselves or others with appropriate monitoring and support. NIOSH points construction employers to resources provided by the Center for Construction Research and Training (CPWR) to help combat opioid use in the workplace. CPWR also offers PDF alerts that employers can post to increase employee awareness of issues around opioids.

In response to the opioid crisis, which has been exacerbated by the current pandemic, employers should ensure that their supervisors and managers are trained to recognize signs of impairment and addiction; are prepared to take effective action in a crisis; and know-how to properly document ongoing performance issues, misconduct, attendance problems, and other concerns that could be related to substance abuse. Each substance abuse issue is complex and nuanced, and employers should seek legal counsel when navigating substance abuse issues.

New York Appellate Court Addresses “Trigger of Coverage” for Asbestos Claims and Other Coverage Issues

Paul A. Briganti | Complex Insurance Coverage Reporter

On October 9, 2020, the New York Supreme Court, Appellate Division, Fourth Department, decided an appeal from a trial court’s 2018 summary judgment ruling on a number of coverage issues arising out of asbestos-related bodily injury claims against plaintiffs Carrier Corporation (Carrier) and Elliott Company (Elliott). See Carrier Corp. v. Allstate Ins. Co., No. 396 CA 18-02292, Mem. & Order (N.Y. Sup. Ct. App. Div. 4th Dep’t Oct. 9, 2020).

The Fourth Department reversed the trial court’s ruling that, under New York’s “injury in fact trigger of coverage,” injury occurs from the first date of exposure to asbestos through death or the filing of suit as a matter of law. The parties agreed that, because the policy language at issue required personal injury to take place “during the policy period,” “the applicable test in determining what event constitutes personal injury sufficient to trigger coverage is injury-in-fact, ‘which rests on when the injury, sickness, disease or disability actually began.’” Id. at 3 (quoting Cont’l Cas. Co. v. Rapid-American Corp., 609 N.E.2d 506, 511 (N.Y. 1993)). The Fourth Department concluded that, in resolving the issue, the trial court erred by relying on inapposite decisions in other cases where: (1) the parties had stipulated or otherwise not disputed that first exposure triggered coverage[1]; or (2) the issue had not been resolved on summary judgment, but rather at trial based on expert medical evidence[2]. The Fourth Department further explained that, even if plaintiffs here had met their initial burden on summary judgment by submitting admissible evidence that asbestos-related injury actually begins upon first exposure, the defendant-insurer’s opposition – which included affidavits of medical experts contradicting that evidence and averring instead that “harm occurs only when a threshold level of asbestos fiber or particle burden is reached that overtakes the body’s defense mechanisms” – raised a triable issue of fact. Id. at 4. The Fourth Department also rejected plaintiffs’ argument that the defendant-insurer was collaterally estopped on the “trigger” issue by a California appellate court’s decision in Armstrong World Industries, Inc. v. Aetna Casualty & Surety Co., 52 Cal. Rptr. 2d 690 (Cal. Ct. App. 1996). The Fourth Department reasoned that the issues litigated in the two cases were not identical because, among other things, California and New York “apply different substantive law in determining when asbestos-related injury occurs.” Carrier, Mem. & Order at 4.

As to the other issues on appeal, the Fourth Department affirmed the trial court’s ruling:

  • Transfer of Rights to Coverage: The Fourth Department held that, pursuant to a corporate reorganization agreement that spun off Elliott’s predecessor business from Carrier, Elliott had rights to coverage under policies issued to Carrier for liabilities that arose before the spinoff. The court primarily reasoned that, despite an ambiguity in the agreement, there was no triable issue of fact that the rights were transferred to Elliott. See id. at 2.
  • Application of “All Sums” Allocation and Vertical Exhaustion: The Fourth Department concluded that, based on the language of the non-cumulation clauses contained in the excess policies at issue, “all sums” allocation and vertical exhaustion applied pursuant to In the Matter of Viking Pump, Inc., 52 N.E.3d 1144 (N.Y. 2016). See Carrier, Mem. & Order at 3.
  • Underlying Exhaustion: The Fourth Department disagreed with the defendant-insurer that its excess policies were not and could never be reached because plaintiffs had entered into settlements with underlying insurers that provided for pro rata time-on-the-risk allocation. The court explained that the excess policies incorporated a “loss payable” provision that, by its terms, “plainly contemplates payment by either the insured or the underlying insurer to exhaust the policy’s limits.” Id. at 5 (internal quotation marks and citations omitted). The court concluded that, therefore, the excess policies “attach when the amounts paid by plaintiffs and the underlying insurers reach the attachment point for” the excess policies. Id.
  • Settlement Credits: The Fourth Department found that, “pursuant to the narrow definition of ‘loss’ under the subject non-cumulation and prior insurance provisions,” the defendant-insurer was entitled to a reduction of its limits only for amounts actually paid on a particular claim (i.e., a pro-tanto settlement credit) under a prior excess policy and the defendant-insurer would have the burden of establishing the amount recovered on the claim. Id. at 5-6 (citing Olin Corp. v. OneBeacon Am. Ins. Co., 864 F.3d 130 (2d Cir. 2017); Olin Corp. v. Lamorak Ins. Co., 2018 U.S. Dist. LEXIS 65446 (S.D.N.Y. Apr. 17, 2018)).
  • Coverage for Defense Costs: According to the Fourth Department, the trial court properly interpreted the defendant-insurer’s excess policies to preclude an obligation to pay or reimburse defense costs incurred without the insurer’s consent, which had not been sought or given in this instance. Id. at 6 (citing AstenJohnson v. Columbia Cas. Co., 483 F. Supp. 2d 425 (E.D. Pa. 2007), aff’d in part and rev’d in part, 562 F.3d 213 (3d Cir. 2009, cert. denied, 558 U.S. 991 (2009)).

The Fourth Department’s decision is particularly notable because it rejects the suggestion that, under New York “trigger” law, asbestos-related injury presumptively occurs from first exposure through death or filing of suit. Instead, whether injury has occurred in a particular policy period must be determined based on the factual record established in a given case.

[1] Pac. Emplrs. Ins. Co. v. Troy Belting & Supply Co., 2015 U.S. Dist. LEXIS 130681 (N.D.N.Y. Sept. 28, 2015); U.S. Fid. & Guar. Co. v. Treadwell Corp., 58 F. Supp. 2d 77 (S.D.N.Y. 1999).

[2] Stonewall Ins. Co. v. Asbestos Claims Mgmt. Corp., 73 F.3d 1178 (2d Cir. 1995), op. modified on denial of reh’g, 85 F.3d 49 (2d Cir. 1996); Am. Home Prods. Corp. v. Liberty Mut. Ins. Co., 748 F.2d 760 (2d Cir. 1984); Fulton Boiler Works v. Am. Motorists Ins. Co., 828 F. Supp. 2d 481 (N.D.N.Y. 2011); In re Viking Pump, Inc., 148 A.3d 633 (Del. 2016); Borel v. Fibreboard Paper Prods. Corp., 493 F.2d 1076 (5th Cir. 1973).

Intoxicated Teen/Trespasser Injured On Construction Site At 3 A.M.: Are The Owner/Developer/General Contractor Liable?

Victor Metsch | Smith Gambrell & Russell

If a young adult engages in an athletic competition, and is injured while playing, there may be a defense to third-party liability based upon the doctrine of “assumption of risk“. So does that defense protect a property owner where a person drinks to the point of intoxication; trespasses on a construction site; and is injured in a fall?

In July 2015, Michael Desroches and his friend, Daniel O’Grady, visited Daniel O’Grady’s brother, Ryan O’Grady, who resided in the Timber Creek subdivision in the Town of Ballston Spa, Saratoga County. The group socialized throughout the evening and consumed alcoholic beverages. After midnight, they went for a walk in the neighborhood and eventually decided to enter one of the houses still under construction. When Daniel O’Grady entered the house, followed by Desroches and Ryan O’Grady, he saw an opening in the floor that was located between 10 to 15 feet from the entrance and stepped to the side. But Desroches proceeded forward and fell through the opening approximately 8 or 10 feet into an unfinished basement, sustaining head injuries that required hospitalization.

Desroches sued the owner/developer of the subdivision and the general contractor — claiming they were negligent in failing to maintain the premises in a safe condition in that they did not secure the house, post “no trespassing” signs to prevent entry or cover the floor opening. Defendants moved for summary judgment dismissing the complaint on the basis that Desroches presence on the property was not foreseeable due to his extreme intoxication and trespass. Desroches cross-moved for summary judgment on the issue of liability, arguing that the accident was foreseeable because they had prior knowledge of trespassers on other homes in the subdivision. Supreme Court granted defendants’ motion and denied Desroches’ cross motion, finding that Desroches’ actions in entering the under construction unfinished structure at 3:00 a.m. while he was intoxicated was not reasonably foreseeable as a matter of law, and thus defendants owed no duty of care to him. Desroches appealed. Supreme Court granted defendants motion and dismissed Desroches’ complaint. Deroches appealed.

A landowner must act as a reasonable person in maintaining his or her property in a reasonably safe condition in view of all the circumstances, including the likelihood of injury to others, the seriousness of the injury, and the burden of avoiding the risk. That a person enters without permission may well demonstrate that the his presence was not foreseeable at the time and place of the injury. However, the likelihood of one entering without permission depends on the facts of the case, including the location of the property in relation to populated areas, its accessibility and whether there have been any prior incidents of trespassing in the area where the injury occurred. Notably, what accidents are reasonably foreseeable, and what preventive measure should reasonably have been be taken, are ordinarily questions of fact. Questions of foreseeability may be determined as a matter of law only when a single inference can be drawn from the undisputed facts.

Deroches, Daniel O’Grady and Ryan O’Grady confirmed that they had been drinking and, according to Daniel O’Grady, were all intoxicated. Notably, Desroches did not have any recollection of the actual incident, and it was unclear whether his memory lapse was due to his head injury or the fact he was intoxicated that evening. Ryan O’Grady testified that it was probably his or Daniel O’Grady’s idea to go into the house. Ryan O’Grady explained that he would often walk through the new construction sites, as it was a “common thing to do,” and he would “[a]lways see people walking around, going through the houses.” He stated that they entered the property sometime at or around 3:00 a.m. According to Ryan O’Grady, the property was framed, but without a back wall and with the door “wide open.” He recalled that Daniel O’Grady was the first to enter the house, followed by Desroches. Once inside, Daniel O’Grady immediately walked around the floor opening, which was located where the basement stairs would be placed. As he entered the house, Ryan O’Grady observed the opening and then saw Desroches fall through. Ryan O’Grady further testified that the builder’s agents were sometimes present when people were going through houses during the evenings. He had no knowledge of the builders escorting people off the property. When shown photos of the house depicting “sold” and “private property, no trespassing” signs, Ryan O’Grady stated that the photos did indeed depict the property, but that the signs were not there at the time of the incident and were installed days later.

Although Daniel O’Grady acknowledged that he, Ryan O’Grady and Desroches were intoxicated, he did not observe Desroches having any difficulty walking. Daniel O’Grady confirmed that he was the first to walk through the front door, explaining it was unlocked with no doorknob or other locking mechanism. As he walked in, assisted with the light from his phone, Daniel O’Grady noticed the floor opening and walked to the left. He claimed the opening was not covered by anything and was located approximately 10 to 15 feet from the entrance. The next thing he knew, Ryan O’Grady called him to assist with helping Desroches, who had fallen through the hole.

Geoffrey Brooks — the owner of Brooks Heritage, LLC, which co-owns Heritage Custom Builders, LLC — testified that the property where the accident occurred was part of a development that was under construction, known as Timber Creek. Brooks claimed that he learned about the incident from state troopers. He explained that the property was “forcibly entered” and that someone broke the doorjamb. He could not, however, recall the last time he was present at the property prior to the incident. Brooks also explained that his company had a policy prohibiting purchasers from entering a home under construction without a company representative and that site managers posted no trespassing signs on homes under construction. He testified that he was aware of individuals entering into homes under construction because he had contacted the Sheriff’s Department and State Police “many times a month” to report such activity. He stated that there were problems “keeping the security of the site” and therefore he posted no trespassing signs and filed police reports. He did not personally know when a no trespassing sign was placed on the window of the property.

In support of their motion for summary judgment, defendants presented the affirmation of a physician who opined that Desroches was “extremely intoxicated” at the time he fell. The physician stated that the medical records indicated that Desroches had a blood alcohol level of .31%, which was nearly four times the legal blood alcohol content limit for driving. According to the physician, such a level of intoxication results in “difficulty maintaining balance, impaired vision and time [and] space orientation, poor judgment, and severe difficulty with motor functions.”

Viewing this evidence in the light most favorable to Desroches, the appeals court found, contrary to Supreme Court’s determination, that a triable issue of fact existed as to whether Desroches’ presence on the property was foreseeable. The testimony of both Ryan O’Grady and Brooks confirmed that it was common knowledge that people would routinely walk through houses still under construction. On that record, reasonable persons could disagree as to whether it was foreseeable for Desroches to be on the property and whether defendants reasonably secured the property, thereby precluding summary judgment to defendants.

The appeals court disagreed with defendants contention that Deroches’ intoxication and late night trespass served as a superseding cause of the incident. An intervening act will be deemed a superseding cause and will serve to relieve a defendant of liability when the act is of such an extraordinary nature or so attenuates the defendant’s negligence from the ultimate injury that responsibility for the injury may not be reasonably attributed to the defendant. Here, Desroches had never been to the property before, and defendants did not establish that he either knew or should have known that such conduct was dangerous. And there were triable issues of fact as to whether there was a no trespassing sign on the property, whether the property was properly secured to prevent entry and even whether the floor opening was covered. Although defendants’ expert opined that Desroches was extremely intoxicated when he entered the property, Daniel O’Grady did not observe him having any difficulty walking. Desroches’ alcohol impairment may well have played a significant role in the accident for comparative fault purposes, but that fact did not exonerate defendants from liability as a matter of law. The appeals court concluded that the circumstances presented were not so extraordinary or unforeseeable as to constitute, as a matter of law, a superseding event that would sever the causal connection between defendants’ alleged negligence and Desroches’ injuries.

The appeals court reversed and reinstated Desroches’ ccomplaint.