Pennsylvania Supreme Court Finds Coverage Under Employer’s Liability Exclusion of CGL Policy Due to Ambiguous Meaning of “The Insured”

The Pennsylvania Supreme Court recently addressed the interpretation of an employer’s liability exclusion in a commercial general liability policy to determine its scope in excluding coverage when the policy applies to more than one insured.

In Mutual Benefit Insurance Company v. Politsopoulos, the Court determined that the term “the insured” does not signify “all insureds” in cases where a commercial general liability policy makes varied use of the definite term “the insured” and the indefinite term “any insured.” The Court concluded that the use of the definite and indefinite articles created an ambiguity, such that “the insured” may be reasonably taken as signifying the particular insured against whom a claim is asserted. In so doing, the court declined to extend the “expansive construction” of “the insured” set forth in Pennsylvania Manufacturers’ Association v. Aetna Casualty & Surety Insurance Company, 233 A.2d 548 (1967), which held that “the insured” meant “any insured” in the context of an automobile liability insurance policy.

In Politsopoulos, Leola Restaurant had an umbrella commercial liability policy with Mutual Benefit Insurance Company (“Mutual Benefit”). Leola leased the restaurant premises from some other individuals, known as the “Property Owners,” who were designated as additional insureds on Leola’s policy. The Property Owners were sued by an employee of the restaurant who fell on a set of stairs and tendered defense of the suit to Mutual Benefit.

The policy’s employer’s liability exclusion precluded coverage for injury to an employee of the insured arising out of the course of employment by the insured. Relying on this language, Mutual Benefit denied coverage to the Property Owners on the basis that the definition of “the insured” encompassed all insureds of the policy, including Leola. Since Leola’s employee brought suit, Mutual Benefit determined that the claimant was an employee of “the insured” for purposes of the exclusion, even though she was not an employee of the Property Owners.

Mutual Benefit filed a declaratory judgment action to confirm the applicability of the exclusion. The Property Owners took the position that the language of the exclusion was ambiguous and that coverage should only be excluded if the claimant is an employee of the company being sued. The Property Owners used the language of the separation-of-insured clause to support their argument that coverage extends separately to each insured against whom claims are asserted.

The court examined the policy thoroughly, including the separation-of-insureds clause, which indicates that the insurance applies separately to each insured against whom a claim is made, and the various provisions using the term “the insured” to achieve distinct aims and effects. After reviewing case law from around the country addressing the same issue, the Court determined that a majority of jurisdictions recognize potential differences in meaning that may be taken from the selective use of definite and indefinite articles in association with the word “insured” as employed in policy exclusions. Recognizing these differences in meaning, these jurisdictions held that such differences created ambiguity, which must be resolved in favor of the policyholder.

The Supreme Court agreed with the majority approach and determined that the employer’s liability exclusion was ambiguous, which resulted in a holding that the exclusion only applies to claims asserted by employees of “the insured” against whom the suit is brought. Since the Property Owners were not the claimant’s employer, the exclusion was not applicable and Mutual Benefit owed coverage to the Property Owners.