Insurance Law

Appeals Court Pushes Back On Insurer’s Effort To Limit Construction Site Bodily Injury Claims

Insurers have long been writing endorsements to reduce their exposure for property damage caused by construction defects. These efforts have been taking place with First Manifestation, Loss in Progress and similarly named endorsements.

Of course, insurers also face enormous exposure for bodily injury on construction sites. Recently, they have been attempting to reduce this exposure as well. The effort, growing in frequency by my anecdotal estimate, has come about in the form of endorsements that preclude coverage for bodily injury sustained by an employee of a contractor or subcontractor. However, under some of these endorsements, the injured party need not have been working for a subcontractor that was retained by the insured. Rather, the exclusion applies if the injured party was employed by any contractor or subcontractor on the project. Since the people most likely to be injured on a construction site, especially one closed to the public, are employees of a contractor – some contractor, any contractor, even one with nothing to do with the insured -- it is easy to see the breadth of such an exclusion.

For the most part, insurers have been winning the cases where such exclusions have been at issue. In some cases, the breadth of the exclusion has not gone unnoticed by the insureds and courts. Nonetheless, courts have rejected the insureds’ argument that, what the exclusion must have meant, is that it applied only to independent contractors and subcontractors of the insured and not just any independent contractor or subcontractor on the project. However, courts have been willing to uphold such exclusions because the claims before them fall within the policy language.

But not all courts have been so generous to insurers. Put the First Circuit in that category after its decision in United States Liability Insurance Company v. Benchmark Insurance Services, No. 14-1832 (1st Cir. Aug. 12, 2015), [subscribers can access an enhanced version of this opinion: | Lexis Advance].

Homeowners hired general contractor Benchmark to renovate their Newton, Massachusetts home. The homeowners hired architect Thomas Huth. Huth hired Sara Egan to apply decorative painting to one of the interior walls. Meghan Bailey, an employee of Egan, did the job. While Bailey was applying the decorative paint, she fell from a ladder that was positioned on top of scaffolding.

Bailey sued Benchmark. Benchmark sought coverage from its insurer, USLIC, under a commercial general liability policy. USLIC determined that the following endorsement – “stripped of language not relevant” -- precluded coverage:

“Bodily injury” to any ... “employee” ... of any contractor ... arising out of ... rendering services of any kind ... for which any insured may become liable in any capacity[.]

The district court, [subscribers can access an enhanced version of this opinion: | Lexis Advance], found for USLIC because the exclusion excludes injuries to contractors’ employees who are injured while performing services. “Although the insurance policy does not provide a definition of ‘contractor,’ the court held that ‘contractor’ unambiguously means ‘anyone with a contract.’ Since Bailey’s boss, Egan, had contracted to do the decorative painting, Bailey was a contractor’s employee and her claims are subject to the exclusion.”

But here’s the rub. Benchmark had no contractual relationship with Huth, Egan or Bailey and Bailey's work was not performed under a contract with any of Benchmark’s contractors or subcontractors.

The First Circuit reversed the District Court. The appeals court had a couple of reasons for doing so. But the one that is most likely to have applicability to other cases is this: ambiguity in the word “contractor” – a word not defined in the policy.

The District Court held that “contractor” unambiguously means “anyone with a contract.” Since Egan had a contract to apply decorative paint to the interior wall, Egan was a contractor. And Bailey, as Egan’s employee, was therefore a contractor’s employee, bringing her claims within the scope of the exclusion.

Benchmark’s argument was that “contractor” means someone with a contract with the insured, i.e., someone Benchmark hires but who is not Benchmark’s “employee.” The First Circuit held: “We are persuaded that reasonably intelligent people may differ about the meaning of the word ‘contractor,’ and hence the word is ambiguous. ‘Anyone with a contract’ is surely a reasonable definition of the word ‘contractor,’ as the district court found, but so is a more narrow definition focused on the contractual relationship of the injured party and the insured.”

Faced with this ambiguity, the court turned to the reasonable expectations of the insured and concluded that it supported the definition Benchmark advanced. “As Benchmark argues, defining ‘contractor’ as ‘anyone with a contract’ ‘makes a dice roll of every bodily injury claim, based on whether the injured party happened to be working under any contract no matter how attenuated to the insured’s work.’”

The court also found support for its decision in the purpose of commercial general liability insurance: “[T]his type of policy provides coverage for liability arising out of torts to third parties, as distinguishable from injuries that befall the insured’s own employees. Since the word ‘contractor’ is being used in a provision we have described as an employer’s liability exclusion, it makes sense to define ‘contractor’ as someone with a contract with the insured. A reasonable insured would expect the contractual relationship between the insured and the injured party to govern the applicability of an employer’s liability exclusion to a given injury.”

The appeals court reversed the District Court because “Bailey’s boss, Egan, was not retained by Benchmark, and so Bailey is not a contractor’s employee within the meaning of the exclusion.”

Benchmark does not mean that insurers are never going to win cases based on exclusions that apply if an injured party was employed by any contractor or subcontractor on the project – even ones with no relationship to the insured. But the thoroughness of the opinion, and coming from a respected court, is likely to give more courts pause before applying such exclusions – no matter how clearly they may apply on their face.

Coverage Opinions is a bi-weekly (or more frequently) electronic newsletter reporting or providing commentary on just-issued decisions from courts nationally addressing insurance coverage disputes. Coverage Opinions focuses on decisions that concern numerous issues under commercial general liability and professional liability insurance policies. For more information visit

The views expressed herein are solely those of the author and not necessarily those of his firm or its clients. The information contained herein shall not be considered legal advice. You are advised to consult with an attorney concerning how any of the issues addressed herein may apply to your own situation. Coverage Opinions is gluten free but may contain peanut products.

    Randy Maniloff is Counsel at White and Williams, LLP in Philadelphia. He previously served as a firm Partner for seven years and transitioned to a Counsel position to pursue certain writing projects including Coverage Opinions . Nonetheless he still maintains a full-time practice at the firm. Randy concentrates his practice in the representation of insurers in coverage disputes over primary and excess obligations under a host of policies, including commercial general liability and various professional liability policies, such as public official’s, law enforcement, educator’s, media, computer technology, architects and engineers, lawyers, real estate agents, community associations, environmental contractors, Indian tribes and several others. Randy has significant experience in coverage for environmental damage and toxic torts, liquor liability and construction defect, including additional insured and contractual indemnity issues. Randy is co-author of “General Liability Insurance Coverage - Key Issues In Every State” (Oxford University Press, 2nd Edition, 2012). For the past twelve years Randy has published a year-end article that addresses the ten most significant insurance coverage decisions of the year completed.

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