It is important for any business to be appropriately insured against loss and liability. A failure to have sufficient insurance can result in the business paying for not only the damages but also the expenses of litigation out-of-pocket.
In the recent case of Northland Insurance Company v. Doval Remodeling, Inc., an insurance company sought a declaratory judgment that it did not have a duty to defend or indemnify its insured in a case involving personal injuries.
The business had a general liability policy with the insurance company. The policy contained an exclusion for bodily injury to any person who is employed by, leased to, or contracted with an organization that is contracted with the insured or others on behalf of the insured’s services, when the injury arises from and is in the course of employment or the performance of duties related to the organization’s business.
The business had been hired as a general contractor to work on a roof. The business hired a subcontractor, and the subcontractor in turn hired a sub-subcontractor to provide more workers for the project.
An employee of the sub-subcontractor was injured while performing the work. He filed suit against the property owner, the subcontractor, and the president of the business. The insurer then filed the declaratory action.
The insurer argued that the exclusion applied here. By its language, the exclusion applied to employees of organizations that contracted directly with the insured as well as organizations that worked on behalf of the insured.
The defendants argued that “on your behalf” required a direct contractual relationship. The court, however, did not agree, looking to the dictionary definition of the phrase and finding the language suggests “a relationship based on benefit or contribution….” The court found that the work performed by the employees of the sub-subcontractors “furthered the renovation project” on behalf of the insured. The court also pointed out that the language in the second clause of the exclusion would have no effect if it required a contractual relationship, since contractual relationships were already covered under the first clause of the exclusion. Massachusetts law supports interpretations that result in every word of the insurance contract having meaning.
The insured argued that courts have found the phrase “on your behalf” to be ambiguous. The court noted the language in one of the cases cited was in a different context, involving an exclusion that was based on occupying property. The court also found that the analysis in the other cited cases did not address the sub-subcontractor issue before the court. Furthermore, they were not Massachusetts cases and not binding on the court in this case.
The court granted summary judgment in favor of the insurer, finding no duty to defend or indemnify in the underlying case.
This exclusion is particularly problematic for a business in the construction industry, in which subcontractors and sub-subcontractors are common. Workers’ compensation insurance can protect a business against injuries to its own employees, but a business may not have other coverage for injuries to employees of contractors down the chain. A business should be sure it fully understands all of the exclusions in its insurance policies to ensure it has coverage for the potential claims that are likely to arise.