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Insurance Coverage for Employer Liability? Buyer Beware of the Exclusions.

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Insurance Coverage for Employer Liability?  Buyer Beware of the Exclusions.

John R. Liber, II
Partner
Thrasher, Dinsmore & Dolan, a Legal Professional Association

In the recent case of Hoyle v. DTJ Enterprises, Inc., Slip Opinion No. 2015-Ohio-843, the Ohio Supreme Court held that an insurance company could exclude from coverage conduct considered “deliberate” in a commercial insurance policy even though an employer and the insurance carrier sought to provide protection from intentional hazards in the very same policy. In other words, the Supreme Court validated the practice of an insurance company auspiciously providing coverage (and charging a premium) for a specific risk of loss in the initial coverage section of the policy contract, only to then exclude from coverage later in the very same insurance policy the very same risk of loss.

Dangerous conditions exist in many workplaces and, despite precautions, accidents happen.  Workers’ compensation provides injury coverage for workers and bestows immunity upon participating employers from legal action for workplace injuries.

Unfortunately, there is also a long and sordid history of misdeeds by some employers who are not mindful of employee safety and allow hazards to exist un-corrected.  Where the misconduct of the employer in exposing workers to known dangers is characterized as “intentional”, the Ohio employer can lose its workers’ compensation immunity and may be held directly liable to an injured employee.

A classic example is the removal of a safety device on a machine that results in employee injury.  Under Ohio law, there is no immunity for injuries as a result of such misconduct, and the employee may both access workers’ compensation benefits and file a lawsuit against the employer.

The availability of insurance coverage to offset the risks that are common in many workplaces has likewise been the subject of a great deal of legal attention.  While it is against public policy to insure for misconduct that is considered “deliberate” (tantamount to criminal), legal authority has approved insurance coverage for what became known as “substantially certain” intentional acts.  This term was fashioned by the Ohio Supreme Court in the 1980s to impose liability for those acts that created a dangerous risk of harm, but did not quite reach the level of a deliberate act.

As an example, at the bottom of the liability food chain is simple negligence.  If one is distracted when driving a car and crashes into the rear of another vehicle it is considered negligence (the “oops I made a mistake” standard).  Next up is recklessness, where there is a known danger yet the person proceeds to engage in the misconduct (e.g. drag racing or drunk driving).  Following Continuing with the motor vehicle analogies, an intentional act is when a car is used as a weapon to deliberately crash into someone or something.  For workplace injuries, the “substantially certain” standard would fall somewhere between recklessness and deliberate intent.

That all changed in 2005 when the Ohio General Assembly passed a law eliminating liability for such misconduct for anything other than “deliberate intent” wrongs. (See Ohio Revised Code Section 2745.01).  The statute even defines “substantially certain” to mean the same as “deliberate intent.”  It also creates a presumption of deliberate intent for the removal of machine safeguards.

Following the enactment of this law, insurance companies fashioned coverage options for employers who sought to purchase protection for workplace liability.

The Cincinnati Insurance Company created just such a policy for companies like DTJ Enterprises, Inc.  With an “Employer’s Liability Coverage Form – Ohio”, Cincinnati sold DTJ coverage for “substantially certain” acts, but expressly excluded those involving a “deliberate intent to injure.” A DTJ employee was injured when a ladder scaffold collapsed because it was missing security bolts that the foreman refused to allow to be installed, and DTJ turned to its insurance carrier for defense and indemnity. The Ohio Supreme Court ruled that the insurance exclusion applied and no coverage was available.

Similar to watching a dog chase its tail, the Court reasoned that there is no insurance protection when the statute defines “substantially certain” to mean “deliberate intent”, and a resultant insurance policy provides coverage for substantially certain misconduct but not for those involving deliberate intent.

The lesson is twofold; (1) one cannot obtain indemnity for intentional wrongdoing – even if the insurance company tries to sell it, and (2) read your insurance policies very carefully – particularly the exclusions (or ask an experienced lawyer to review same).  While one may believe insurance coverage exists (either because the agent said so or the coverage provision provides for it), as the Hoyle case demonstrates, contradictory provisions in an  insurance policy can properly exclude the very same coverage that the insurance policy purports to protect.

John Liber

March 20, 2015