INSURER MAY DENY COVERAGE FOR BI TO INSURED’S EMPLOYEES

Commercial General Liability	Employee Exclusion
Bodily Injury

Janice Hogan, who was employed by James G. Nickels as a waitress at Nickels Tavern, was in the course of her employment when she fell through a trap door that had been left open by a co-employee. She fell twelve feet into the cellar storeroom and sustained injuries to her right leg and knee. On the date of the accident, Nickels Tavern did not provide Hogan with workers compensation coverage as required pursuant to the Pennsylvania Workers Compensation Act.

Hogan initiated legal proceedings against Nickels Tavern and its owner, James Nickels. The Insurance Company (Lloyds) did not defend the legal action on the basis of the employee exclusion contained in the insurance policy.

The trial court conducted an assessment of damage hearing and entered default judgment in Hogan’s underlying lawsuit against Nickels for Nickels failure to answer Hogan’s complaint. The trial court awarded Hogan $279,000.00 in damages against Nickels.

Nickels Tavern and James G. Nickels brought an action against Lloyds requesting Declaratory Judgment. Lloyds filed a motion for summary judgment. The trial court granted Lloyds’ motion for summary judgment finding that Lloyds had not duty to defend or indemnify Nickels with regard to the Hogan lawsuit. The trial court dismissed with prejudice any and all claims against Lloyds arising from the Hogan lawsuit.

Hogan appealed in a timely manner on the question as to whether the employee exclusion in Lloyds’ commercial general liability policy should be void as against public policy and thereby require Lloyds to defend the cause of action against their insureds.

The appellate court found that the employee exclusion unambiguously operated to bar recovery of expenses resulting from bodily injury of an employee of the Insured under the policy. Lloyds claimed and Hogan conceded that she was an employee. Because no ambiguity existed regarding the definition of employee, and as employees were clearly excluded from coverage under the policy, the trial court found that neither Hogan nor Nickels Tavern could recover from Lloyds.

It also found that the employee exclusion was not void as against public policy. It wrote: "To find otherwise would encourage employers to ignore their obligation to obtain workers compensation insurance and rely on their general liability policy, which in turn necessarily would require a higher premium schedule reflecting the additional risk. Such a result would create an imbalance in procurement of insurance and compound confusion and enforceability of the comprehensive and basic social policy enunciated by the Act."

Certain Underwriters At Lloyds, London, United Kingdom, Appellees v. Janice Hogan and Nickels Tavern, Inc. and James G Nickels, an Individual, Appellants. Pennsylvania Superior Court. No 2846 EDA 2003. Filed June 8, 2004. Affirmed. CCH Personal and Commercial Liability Cases. Paragraph 8192.