There’s a very true old quote about interpreting insurance policies that I (and other policyholder lawyers) like to cite. It goes: “Ambiguity and incomprehensibility seem to be the favorite tools of the insurance trade in drafting policies. Most are a virtually impenetrable thicket of incomprehensible verbosity…The miracle of it all is that the English language can be subjected to such abuse and will remain an instrument of communication.” Universal Underwriters Ins. Co. v. Travelers Ins. Co., 451 S.W.2d 616, 22-23 (Ky. 1970).
Unfortunately, although most insurance policies are a complicated and incomprehensible mess, Courts aren’t always going to help untangle the thicket, especially if a policy exclusion is noted on the schedule of exclusions in ALL CAPS. An unfortunate plaintiff recently learned that the hard way in Evanston v. A&R Homes, which you can read here.
Sharkey was a worker for a company called YVPV Construction. A&R is a general contractor that got hired to build a four-story, three-unit apartment building in Jersey City. A&R brought in YVPV as a subcontractor. Sharkey was working on the site when he fell 20 feet and hurt himself. This being America, litigation ensued. Sharkey filed a complaint against the property owner, A&R and its owner (Aponte), and the property management company, for negligence.
Evanston had sold liability coverage to A&R. Following the declarations page of the policy was a schedule of attached forms. One of the forms was listed as: “EXCLUSION – EMPLOYER’S LIABILITY AND BODILY INJURY TO CONTRACTORS OR SUBCONTRACTORS.” The purpose of the noted exclusion seems pretty clear, since it removes coverage for “bodily injury” to any “contractor or subcontractor while working on behalf of any insured,” including any employees of “of such contractor or subcontractor.” Uh-oh.
A&R tendered the claim to Evanston, and Evanston agreed to defend under reservation of rights, citing the subcontractor exclusion. Once Evanston figured out that Sharkey had been employed by YVPV (the sub), Evanston filed a complaint seeking a Court ruling that it was no longer obligated to defend the case.
Now, here’s an interesting phenomenon that I sometimes experience with even seasoned businesspeople. Instead of hiring an attorney to defend the declaratory judgment action brought by Evanston to get out of coverage, all of the defendants (including A&R) apparently dumped the complaint into the “circular file,” as a result of which Evanston got a default judgment negating coverage. Sharkey, who also received notice of Evanston application for default judgment, didn’t bother to oppose.
Several months after the default judgment got entered, Sharkey demanded discovery from Evanston about the available coverage. Evanston responded with a summary judgment motion, in part on the ground everyone had defaulted. The Court told Sharkey, sorry, that train has left the station. And the Court went on to say that, even if there hadn’t been a default judgment, there would be no coverage.
Sharkey argued that he had a reasonable expectation of coverage, because the declarations page of the Evanston policy didn’t refer to any exclusion limiting the typical broad general liability coverage. He also argued that the subcontractor employee exclusion was ambiguous, because the title of the exclusion (“Employer’s Liability”) suggested that the provision only excluded A&R’s workers compensation liability.
Here’s where this gets interesting. The Court cited case law involving car insurance for the proposition that if an exclusion isn’t clearly noted in the declarations page it shouldn’t apply, writing: “We deem it unlikely that … the average automobile policyholder would… undertake to attempt to analyze the entire policy in order to penetrate its layers of cross-referenced, qualified and requalified meanings.”
In rejecting Sharkey’s claim, though, the Court wrote: “A&R’s insurance broker obtained the Evanston policy and was familiar with commercial liability insurance, unlike the average, unversed automobile policyholder, who is likely to rely on the declarations page.” The Court also noted that, while the declarations page may not have clearly identified the exclusion, the form attached to the policy identified the exclusion in ALL CAPS.
A couple of takeaways from this.
First, the judge-made fiction that using a broker to obtain coverage somehow transforms businesspeople into sophisticated insurance experts who deserve less coverage is, of course, ridiculous. But it does show that, if you’re in business, you can’t afford to put your head in the sand. You should at least review the list of exclusions and the declarations page to make sure that you’re comfortable with the apparent coverage, and, if you have questions, you should raise them with your broker. Parenthetically, cases like this are the reason the insurance industry has successfully lobbied for a new law in New Jersey (which almost certainly will be signed by the Governor), providing that brokers and agents will no longer be held to a fiduciary standard, but rather, only to a standard of ordinary care. You can read about that here.
And second, if you receive a summons and complaint (or a subpoena), PAY ATTENTION. Putting it in a drawer and hoping it will magically go away is rarely an effective strategy.