My late Uncle Carmen was an accountant who worked for the IRS. One tax season, I was grousing about how complicated the 1040 form could be. Uncle Carmen didn’t suffer fools gladly, and, with the veins bulging from his neck, insisted that NOTHING ON EARTH COULD BE SIMPLER. My response was to engage in a strategic retreat. And to hire an accountant.
I sometimes wonder whether insurance underwriters have Uncle Carmen’s attitude about the coverage they construct. I have to laugh at the admonition in some policies or insurance company letters, instructing the policyholder to “Read the policy!” The language in the policy is often an impenetrable forest of jargon, and whether or not you’re covered for particular factual scenario can often be a crapshoot.
Take the coverage for an “additional insured.” Conceptually, it’s quite simple. Businesses often work together with other businesses for a mutual customer. But how does Company A’s business insurance operate to protect against the risk of Company B (say, a subcontractor) causing damage to that customer’s property? Ostensibly, that’s where the “additional insured” language comes in. One party will add the other party as an “additional insured” on its commercial liability business insurance policy.
Unfortunately, in the insurance world, the simple is often complicated. Let’s have a look at the recent Third Circuit decision in Arcelormittal Plate, LLC v. Joule Technical Services. Joule (whose offices are right down the street from mine) is a specialty staffing firm that supplies experienced technical workers to its customers. AMP, which operates a steel production facility in Pennsylvania, contracted with Joule for workers to handle maintenance and repair work at its plant. The contract required Joule to maintain certain insurance, including a commercial general liability policy, and required that AMP be named as an additional insured for all claims including, but not limited to, claims made by Joule’s employees. The contract also required that the CGL policy provide coverage in an amount not less than $5 million per occurrence. (Apparently, the coverage obtained by Joule had only a $1 million limit, but that’s another issue.)
The CGL policy, which Joule purchased from Liberty Surplus Insurance Corporation, contained an “employer’s liability exclusion.” The exclusion stated as follows: “This insurance does not apply to… ‘bodily injury’ to an employee of the insured arising out of and in the course of (a) employment by the insured; or (b) performing duties related to the conduct of the insured’s business.”
I think you can see where this is headed. While climbing down a ladder at the AMP plant, one of the Joule employees (Greene) fell and seriously injured himself. Greene and his wife sued AMP for damages. One of the questions in the case was whether the “employer’s liability exclusion” contained in the Liberty policy precluded coverage for the Greene incident. AMP argued that the provision wasn’t meant to bar a claim for coverage for a lawsuit brought by employees of a different insured on the same policy.
The Court held that under New Jersey law (which applied since that was where the policy was sold), coverage was not barred for AMP (an additional insured) with respect to a lawsuit brought by an employee of Joule. The Court wrote, in part: “The reference in the employee exclusion… is to ‘the insured’ – not to ‘an insured’ or ‘any insured’ – and as such is a specific, exclusive reference to a particular insured, rather than a general, inclusive reference to all insureds… The question remains, however, whether the specific insured to whom the clause refers is the principal insured, or the insured making the claim. That question is answered by the policy’s severability clause, which states that ‘this insurance applies…as if each Named Insured were the only Named Insured; and…separately to each insured against whom claim is made or ‘suit’ is brought.”
The Court specifically noted that, unlike New Jersey law, Pennsylvania law suggested that “employer’s liability exclusions” in CGL policies generally bar coverage for claims against one insured by a different insured’s employee. This distinction points out the importance of choice-of-law analysis when it comes to insurance coverage; but more importantly, it raises a question that I often ask. If two presumably competent judges in two different jurisdictions can look at the same language and interpret it in diametrically opposed ways, doesn’t that necessarily mean that the language is ambiguous (in other words, subject to more than one reasonable interpretation); and if the language is ambiguous, shouldn’t it always be interpreted in the policyholder’s favor? Also, and perhaps most importantly, why can’t I ever get anywhere with that argument?
Although the AMP decision came out in the policyholder’s favor on the “additional insured” issue, the decision does contain some unfortunate language (from the policyholder’s perspective) with respect to bad faith. AMP argued that Liberty had premised its claim denial on spurious grounds. The Court held that there was no bad faith, in part because Pennsylvania law would have barred coverage. The Court wrote: “Thus, because Liberty denied coverage based on factual and legal grounds that were at least plausible at the time of Liberty’s decision, we conclude that Liberty is entitled to summary judgment on AMP’s claim for bad-faith denial of coverage.” (Emphasis added.)
It seems that every time I read a bad faith case decided under New Jersey law, the standard for proving bad faith becomes higher and higher. Now, all the insurance company apparently has to do is assert a coverage defense that’s “plausible.” The dictionary defines “plausible” as “having an appearance of truth or reason.” How hard is it for an insurance company to hire a coverage lawyer to prepare an opinion showing that an argument has “the appearance of truth or reason”? This problem becomes even more acute for policyholders in first party cases, because under New Jersey law, policyholders can’t recover their attorneys’ fees if they have to bring suit to enforce property coverage.