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5th Circuit Expands Employee Injury Exclusion to Upstream Employers

Written by: Sean Cox, Esq.

On October 24, 2018, the 5th Circuit Court of Appeals issued an opinion in Northfield Insurance Company v. Herrera, No. 17-51080 (5th Cir., October 24, 2018) wherein it upheld the enforceability of an employee injury exclusion to upstream employers of the insured and their employees.

Herrera owned an elevator repair company that bought a commercial general liability insurance policy from Northfield Insurance Company. The policy contained a standard exclusion for bodily injury to employees.

Bodily Injury To Employees, Workers Or Contracted Persons Of Insureds Or Contracted Organizations

 This insurance does not apply to “bodily injury” to:

(#) Any person who is employed by, is leased to or contracted with any organization that:

(a) Contracted with you or with any insured for services…

Herrera subsequently entered into a contract to service the elevators of a third-party company.  An employee of that third-party was injured and brought suit against Herrera alleging negligence. Northfield Insurance Company defended under a reservation of rights and filed a declaratory judgment action arguing that the employee injury exclusion applied to employees of upstream and downstream contractors of the insured. The trial court granted summary judgment to the insured finding that the policy exclusion did not apply to upstream employers.

In reversing the trial court, the 5th Circuit Court of Appeals found that section 3 (a) of the exclusion was unambiguous. It held:

The only reasonable interpretation of the policy is that it applies upstream and downstream. We find no reason to limit its application to downstream contractors. The plain language is unambiguous.

The policy excluded coverage for bodily injuries to employees of companies that contracted with the insured to provide them a service (upstream) and to companies with which the insured contracted to provide service to others (downstream). The Court reversed the trial court and granted summary judgment to Northfield Insurance Company finding it had no duty to defend or indemnify under the policy.