Insurance Developments

New York’s First Department Rules Bear Stearns’ $160 Million Disgorgement Payment to SEC Was Not Insurable Loss, Despite Failure to Admit Wrongdoing in Settlement Agreement

2012-02-06T11:24:20-05:00

In March 2006, the Securities and Exchange Commission (“SEC”) issued an administrative order pursuant to which Bear Stearns & Co., Inc. and Bear Stearns Securities Corp. (collectively, “Bear Stearns”), “without admitting or denying the findings [made pursuant to its offer of settlement],” agreed to pay “disgorgement in the total amount of $160,000,000” and “civil money penalties in the amount of $90,000,000” in settlement of charges that the companies willfully facilitated illegal mutual fund trading practices. During the same month, the New York Stock Exchange (“NYSE”) issued a similar order and levied a sanction of “$160,000,000 as disgorgement” and “$90,000,000 as a penalty” against Bear Stearns, which would be deemed satisfied by payment of the sanctions imposed by the SEC.

In J.P. Morgan Sec. Inc., et al. v. Vigilant Ins. Co., et al., 2011 N.Y. Slip Op. 08995 (1st Dep’t Dec. 13, 2011), Bear Stearns’s successors-in-interest sought a declaration that six professional liability insurers – including Vigilant Insurance Company (part of the Chubb Group), Travelers Indemnity Company and Liberty Mutual Insurance Company – had duties to indemnify Bear Stearns for the $160 million disgorgement payment under various insurance policies. Plaintiffs argued that Bear Stearns had not admitted any wrongdoing in settling with the SEC and, despite its label, the disgorgement payment constituted “compensatory damages” – i.e., an insurable loss.

The First Judicial Department of New York’s Supreme Court, Appellate Division rejected plaintiffs’ argument in all respects, finding that when “read as a whole, the offer of settlement, the SEC Order, the NYSE order and related decisions” demonstrated that Bear Stearns not only wrongfully generated
$16.9 million in revenues for itself, but also “knowingly and affirmatively facilitated an illegal scheme which generated hundreds of millions of dollars for collaborating parties.” Applying the theory of joint and several liability, the Court concluded that “all gains flowing from the illegal activities” were properly included in the disgorgement amount. Moreover, the Court found that the SEC’s failure to itemize how it reached the agreed-upon disgorgement figure did not raise an issue as to whether the disgorgement payment was, in fact, compensatory.

Accordingly, the long-standing rule that “disgorgement of ill-gotten gains or restitutionary damages does not constitute an insurable loss” applied to bar plaintiffs’ indemnity claims.

A copy of the decision is available here.

California Supreme Court Declines to Expand Scope of Strict Products Liability, Holds Manufacturers Not Liable for Harm Caused by Another Manufacturer’s Products

2012-01-23T20:20:37-05:00

In a notable decision, the California Supreme Court recently ruled that “a product manufacturer may not be held liable in strict liability or negligence for harm caused by another manufacturer’s product unless the defendant’s own product contributed substantially to the harm, or the defendant participated substantially in creating a harmful combined use of the products.”

In O’Neil, v. Crane Co., et al,S177401, slip op. (Cal. Jan. 12, 2012), defendant component manufacturers, Crane Company (“Crane”) and Warren Pumps LLC (“Warren”) were sued for the wrongful death of Patrick O’Neil (“O’Neil”), a United States Navy officer who served on the USS Oriskanyfrom 1965 to 1967. O’Neil supervised repairs of equipment in the engine and boiler rooms of the naval warship and was exposed to airborne asbestos fibers released during repairs. In 2004, O’Neil developed mesothelioma, a fatal cancer of the lining of the lungs caused by asbestos exposure. Following his death in 2006, his family asserted strict liability and negligence claims against several companies that had allegedly supplied products to the Navy that contained asbestos.

Crane produced valves, and Warren supplied pumps, that were purchased by the Navy for use in the steam propulsion systems of warships. The Navy required that the internal gaskets and packing materials in the valves and pumps contain asbestos. Neither Crane nor Warren manufactured the asbestos packing or gaskets.

The internal gaskets and packing materials needed to be replaced regularly by the Navy. O’Neil was exposed to asbestos from replacement gaskets and packing inside these valves and pumps. The replacement packing and insulation were purchased from other sources.

Once the valves and pumps were received by the Navy, they were connected to other components, such as boilers and piping, with asbestos-containing flange gaskets. Neither Crane nor Warren produced these flange gaskets. All metal components of the steam propulsion system were then covered in a layer of asbestos insulation. This insulation was manufactured and sold by other companies. The valves and pumps did not require external insulation to function. Nevertheless, plaintiff argued that defendants should be liable for O’Neil’s death because it was foreseeable that workers would be exposed to and harmed by the asbestos in replacement parts and other products used in conjunction with defendants’ pumps and valves.

At the close of evidence, Crane moved for nonsuit on the grounds that there was no evidence that O’Neil has been exposed to asbestos from any Crane product, and there was no evidence that a product defect or failure to warn by Crane was a substantial factor in causing O’Neil’s mesothelioma. Warren joined Crane’s motion and also sought nonsuit on the grounds that no evidence showed O’Neil had been exposed to asbestos from the repair or maintenance of a Warren pump.

The trial court granted the motions and dismissed all claims against Crane and Warren. On appeal, the Court of Appeals reversed, finding that “a manufacturer is liable in strict liability for the dangerous components of its products, and for dangerous products with which its product will necessarily be used.” Further, even though O’Neil was injured by replacement gaskets and packing, the Court of Appeals concluded that replacement parts were “no different” from the asbestos-containing components originally included in defendants’ products, and asserted that defendants’ products were “defectively designed because they required asbestos packing and insulation.”

The California Supreme Court reversed the Court of Appeals, finding this conclusion was unsupported by the trial record. The evidence at trial established that the asbestos packing and insulation was required by the Navy’s strict specifications, and not from “any inherent aspect of defendants’ pump and valve designs.” Moreover, it was undisputed that O’Neil was exposed to no asbestos from a product made by the defendants, and that the replacement packing and insulation were purchased from another source.

Ultimately, the Supreme Court of California held that “a product manufacturer may not be held strictly liable for harm caused by another manufacturer’s product” unless “the defendant bears some direct responsibility for the harm, either because the defendant’s own product contributed substantially to the harm . . . or because the defendant participated substantially in creating a harmful combined use of the products.”

A copy of the decision is available here.

New York Appeals Court Overturns its Own Precedent Ruling an Insurer Must Disclaim Coverage on a Known Ground Even if its Investigation of Other Grounds for Rejecting the Claim is Incomplete

2012-01-22T17:57:37-05:00

A unanimous five-judge panel of the New York Supreme Court, Appellate Division, First Department declined to follow and expressly overruled its own precedent, ruling that Insurance law § 3420(d) requires an insurer to immediately disclaim coverage on a known ground; it may not wait until it has completed its investigation into whether other reasonable grounds for denying coverage exist. George Campbell Painting v. National Union Fire Insurance Company of Pittsburgh, PA, 2012 N.Y. Slip Op. 00254 (N.Y.A.D. 1 Dept. Jan. 17, 2012).

Section 3420(d), as in effect when the subject policy was issued, provided: “If under a liability policy delivered or issued for delivery in this state, an insurer shall disclaim liability or deny coverage for death or bodily injury arising out of a motor vehicle accident or any other type of accident occurring within this state, it shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured and the injured person or any other claimant.” (Emphasis Added). In DiGuglielmo v. Travelers Property Casualty, 6 A.D.3d. 344 (2004), the First Department held that, notwithstanding this statutory language, “[a]n insurer is not required to disclaim on timeliness grounds before conducting a prompt, reasonable investigation into other possible grounds for disclaimer.”

In an about face on Tuesday, the First Department declined to follow and expressly overruled DiGuglielmo, holding, in agreement with the Second Department’s decision in City of New York v. Northern Insurance Company of N.Y., 284 A.D.2d 219 (2001), that § 3420(d) precludes an insurer from delaying issuance of a disclaimer on a ground that the insurer knows to be valid while investigating other possible grounds for disclaiming. The First Department reasoned that DiGuglielmo was inconsistent with the text of § 3420(d), with the decisions of the Court of Appeals interpreting that statute, and public policy.

Applying that interpretation to the facts at issue in George Campbell Painting, the First Department concluded, that the insurance company’s disclaimer was untimely: “where the record establishes that the insurer had sufficient information to disclaim coverage on the ground of late notice no later than January 19, 2006, a disclaimer issued on that ground nearly four months later . . . was ineffective as a matter of law. Once the insurer . . . possessed all the information it needed to determine that plaintiffs, which sought coverage as additional insureds, had failed to give … timely notice of the claim as required by the policy, [the insurer] had no right to delay disclaiming on the late-notice ground while it continued to investigate whether plaintiffs were, in fact, additional insureds. . . .”

Court Finds Direct Payment to Provider Does Not Automatically Waive ERISA Plan's Anti-Assignment Provision

2012-01-04T12:36:41-05:00

A federal court last week denied a request to certify a class in a putative class action brought by health care providers who, after receiving payments from Blue Cross Blue Shield ("BCBS"), allegedly "were subjected to retroactive requests for repayment of all or a portion of such payments or had subsequent payments withheld as an offset against the amount allegedly owed."

The United States District Court for the Northern District of Illinois, in Pennsvlvania Chiropractic Ass'n v. Blue Cross Blue Shield Ass'n, No. 09C5619, 2011 WL 6819081 (N.D.Ill. Dec. 28, 2011), the plaintiffs' "central argument" that a common question existed concerning whether defendants violated ERISA through "uniform policies in making repayment demands." Id. at *5.

The defendants successfully argued that the matter was fact-specific, because of individual questions regarding, inter alia, whether "the plaintiff had the right to enforce, through a valid assignment, the plan participants' right sunder ERISA to collect benefits. . . ." Id.

The court explained that "ERISA does not prohibit a participant from assigning a claim for health and welfare benefits, but it also does not preclude a health and welfare plan from prohibiting assignments." Id. at *6. Thus, the court noted that a "number of the plans at issue in this case contained anti-assignment provisions."

In response to defendants' assertion of non-assignability, the plaintiffs in this case contended that the defendants' waived the anti-assignment provisions "by dealing directly with plaintiff's as service providers." The court, on this issue, noted that "[t]hough there is no controlling authority on the point --indeed there is little authority at all -- there is law supporting the proposition that direct payment to a provider does not waive reliance on a plan's anti-assignment provision is the plan also authorizes direct payment."

Accordingly, the court held that whether the Plan waived the anti-assignment provisions is not appropriate for determination on a class-wide basis due to the large number of plans involved in the case. Ultimately, although the court also considered alternative class categories, the court denied the plaintiffs' motion for certification as to any proposed class.

A copy of the decision is available here.

Court Illuminates Criteria for an Employee Welfare Benefit Plan

2012-01-02T14:12:17-05:00

The United States District Court for the Western District of Kentucky, in Brown v. Metropolitan Life Ins. Co., No. 3:11-CV-451-H, 2011 WL 68266638 (W.D.Ky. Dec. 28, 2011), recently held that ERISA did not preempt a plaintiff's state law claims against her long-term disability benefits plan provider, the National Conference of Bankruptcy Clerks ("NCBC"), because, the court determined, the NCBC was not an "employee organization" within the meaning of ERISA.

In doing so, the Court looked to the Eleventh and Ninth Circuits for guidance on whether an organization will be considered an "employee organization" under ERISA, citing Slamen v. Paul Revere Life Ins. Co., 166 F.3d 1102, 1104 (11th Circ. 1999) (holding that plan falls within ERISA only where it covers "participants because of their employee status in an employment relationship, and an employer or employee organization is the person that establishes or maintains the plan. . . .") and Saffaf v. Standard Ins. Co., 102 F.3d 991, 992-93 (9th Cir. 1996) (finding that an organization qualifies as an "employee organization" if it limits its membership to employees and excludes employers or independent contractors from joining.").

The court in Brown v. Metropolitan Life Ins. Co. found that the NCBC "opens it membership to virtually anyone. . . [and that] [e]ven though NCBC does limit its membership to a category of employees, it also undeniably offers membership of some type to any and all individuals, irregardless of their employee status." Id. The court further noted that non-employees were able to participate in NCBC's welfare benefit plan. Id.

Based on these facts, the court held that NCBC did not qualify as an "employee organization" within the ambit of ERISA:

To qualify as an 'employee organization', NCBC must directly base membership upon employee status. Thus, to the extent NCBC allows membership beyond a specified category of employees, it would fall beyond the definition of an 'employee organization' as ERISA defines it.

The court also rejected HCBC's reliance on its filing of ERISA Form 5500 and its compliance with ERISA's procedural protections, which, the court found "laudatory" but could not confer ERISA preemption.

Federal Court Predicts Procedural Bad Faith Claim Viable Under Connecticut Law

2011-12-16T16:23:09-05:00

In a recent decision Judge Haight of the United States District Court for the District of Connecticut predicted that the Connecticut Supreme Court would recognize a claim against an insurer for procedural bad faith, even if the insurer had no coverage obligations under the applicable insurance policy. Tucker v. American International Group, Inc., No. 3:09-CV-1499 (CSH), 2011 WL 6020851 (D. Conn. Dec. 2, 2011) (“Tucker II”).

The ruling in Tucker II follows an underlying judgment by District Judge Stefan Underhill in Tucker v. Journal Register East, No. 3:06-CV-307 (SRU), 2009 WL 426460 (D. Conn. Feb. 20, 2009) (“Tucker I”). In Tucker I, Judge Underhill granted a $4 million judgment in favor of the plaintiff, Teri Tucker (the “Plaintiff”), against her former employer, Journal Register East (“JRE”), for unlawful discharge. In Tucker II, the Plaintiff seeks to recover damages from her former employer’s insurers, American International Group, Inc. and National Union Fire Insurance Company of Pittsburgh, PA (collectively, the “Defendants”), pursuant to an employment practices liability insurance policy (the “EPL Policy”).

In Tucker II, the Plaintiff seeks compensatory and punitive damages for the Defendants’ failure to satisfy the judgment in her favor, alleging, inter alia, breach of the implied covenant of good faith and fair dealing and violation of the Connecticut Unfair Trade Practices Act (“CUTPA”). Subsequent to the filing of Tucker II, the Plaintiff settled with JRE. As part of the settlement agreement, JRE assigned all its rights under the EPL Policy to the Plaintiff, including any claims against the Defendants. The Defendants moved to bifurcate all claims unrelated to the question of whether coverage existed under the EPL Policy and to stay unrelated discovery, or, in the alternative, for a protective order to delay discovery unrelated to the question of coverage until there was a ruling on Defendants’ dispositive motion. In doing so, the Defendants sought to narrow permissible discovery to the threshold issue of whether there was coverage under the EPL Policy with respect to the Plaintiff’s claims.

In support of their motion to bifurcate, the Defendants asserted that the action would be resolved by their motion for summary judgment, as no coverage existed for the Plaintiff’s claim. The Plaintiff countered, arguing that her tort claims of bad faith would survive even in the absence of proven insurance coverage. In agreeing with the Plaintiff, Judge Haight reasoned:

The Court is persuaded by Judge Arterton's careful analysis in United Technologies Corp. v. Amer. Home Assur. Co., concluding that the Connecticut Supreme Court would not limit the tort of bad faith in the insurance context to claims of unreasonable or wrongful denial of claims. The insurer duty of good faith is not triggered only when coverage is unquestioned. After all, the core of the duty of good faith and fair dealing is that the insurer act reasonably toward its insured. In other words, not only is an insured entitled to security from financial loss, it is additionally entitled to the security of knowing it will be dealt with in good faith. Claims of bad faith on the part of the insurer are thus not limited solely to substantive decisions to deny coverage.

Tucker v. Am. Int'l Group, Inc., 3:09-CV-1499 CSH, 2011 WL 6020851, at *6 (D. Conn. Dec. 2, 2011) (emphasis added; internal quotation marks and citations omitted).

Judge Haight applied this reasoning to the case at bar, stating that although the Plaintiff was not a named insured under the EPL Policy, she had statutory rights against Defendants due to the unpaid judgment in her favor, and also as assignee of JRE’s claims against the Defendants under the EPL Policy. In denying the Defendants’ motion to bifurcate, Judge Haight also noted that discovery regarding the coverage issue would likely overlap with the bad faith issue, saving time and expense on the part of both parties, and that the Defendants failed to establish that they would be unduly prejudiced if discovery were to proceed.

You may view the opinion here.

Lack Of Compliance With Assignment Procedures Means Insurer Is Not Bound Under Oklahoma Law, Says Court

2011-12-09T09:23:08-05:00

If there is an assignment of an insurance policy, and notice of such assignment to the insurer, will the insurer be bound by the assignment?

Not if the assignment fails to meet the requirements under the terms of the policy, at least under Oklahoma law, according to a federal court that recently considered the issue.

The federal court in Bankers Healthcare Group, Inc. v. Reassure America Life Ins. Co., No. CIV-10-1044-D (W.D. Okla. Sept. 30, 2011), restated black letter law under Oklahoma that "Oklahoma has long held that 'mere notice' to an insurer of the assignment of a policy 'does not create a new contract between insurer and assignee' so as to make the insurer liable on the policy, as there was no 'meeting of the minds' sufficient to create a contractual obligation of the insurer to the assignee."

Thus, said the court, with added emphasis, "[w]here, as in this case, the insurer's consent to an assignment is required, 'the assignee acquires no right as against the insurer' in the absence of that consent." The court also quoted an insurance treatise for the proposition that "Life insurance policies may, and often do, expressly provide that they are not assignable without the consent of the insurer issuing them, and in this case, the provision must be complied with ... to give the assignee any right thereunder as against the insurer."

The court said that, although the policy provides that it may be assigned by the insured, the relevant policy clause provides that the insurer "is bound by an Assignment only" under certain circumstances, and it "is not liable for any payment made . . . before We record the Assignment." The court also noted that the insurer "maintained express procedures for the acceptance and recording of an assignment, and these were communicated" to the insured and the assignee - and it "is not disputed that these procedures were not followed . . . ."

The court concluded that the "evidence, construed most favorably to [plaintiff] BHG, cannot support a contention that REALIC[, the insurer] accepted the assignment, thereby rendering it contractually liable to the assignee."

Thus, the court granted summary judgment to the insurer.

The full opinion is available here.

Obligation to Reimburse Medicare Defined by the Scope of Plaintiff's Claim Against Third Party, Sixth Circuit Says

2011-11-30T08:23:14-05:00

The United States Court of Appeals for the Sixth Circuit recently decided Hadden v. U.S., No. 09–60722011, WL 5828931 (6^th Cir., Nov. 21, 2011), a case in which the plaintiff made several compelling arguments to avoid reimbursing Medicare 100% where the plaintiff contended he only recovered 10% of his damages.

In this case, Medicare paid plaintiff’s medical bills which totaled $82,036.17, and plaintiff Hadden thereafter recovered $125,000 in a personal injury claim. Medicare subtracted a portion of the attorneys’ fees Hadden paid to his lawyer relating to the settlement and demanded approximately $62,000. Hadden escrowed $62,000, paid it to Medicare under protest, and took an appeal.

Hadden’s essential argument was that the tortfeasor from whom he recovered was only 10% responsible for his damages, and thus, the $125,000 settlement represented only 10% of Hadden’s damages. Further, Hadden argued that the settlement compensated him for only 10% of his medical expenses, or $8,000. Therefore, Hadden claimed that the remaining $117,000 “compensated him for damages other than medical expenses . . . and was therefore off-limits to Medicare.” Id. at *1.

Applying de novo review, the Sixth Circuit affirmed the district court's judgment, and held that the government was entitled to recover 100% of the recovery, and that the beneficiary's own obligation to reimburse Medicare was defined by scope of beneficiary's own claim against third-party:

Consequently, the scope of the plan's “responsibility” for the beneficiary's medical expenses—and thus of his own obligation to reimburse Medicare-is ultimately defined by the scope of his own claim against the third party. That is true even if the beneficiary later “compromise[s]” as to the amount owed on the claim, and even if the third party never admits liability. And thus a beneficiary cannot tell a third party that it is responsible for all of his medical expenses, on the one hand, and later tell Medicare that the same party was responsible for only 10% of them, on the other.

That is precisely what Hadden attempts to do here. In his claim against Pennyrile, he did not demand that it pay for only 10% of the medical expenses that he incurred as a result of his accident; he demanded that it pay for all of them. That choice has consequences-one of which is that Hadden must reimburse Medicare for those same expenses. (To respond briefly to the dissent: Section 1395y(b)(2)(B)(v) affords the Secretary broad discretion to waive Medicare's right of recovery to the extent she sees fit in a particular case.)

Hadden v. U.S., 2011 WL 5828931, *3 (emphasis in original). The court also rejected Hadden's reliance on “equity and good conscience”, which the court determined did not favor returning money that beneficiary had paid under protest.

Kentucky Court of Appeals Upholds Decision Finding Preinjury Liability Waiver Enforceable

2011-11-07T14:09:26-05:00

The Court of Appeals of Kentucky recently affirmed a trial court decision finding a preinjury liability waiver valid in Bowling v. Asylum Extreme, LLC, No. 2010-CA-001687-MR, 2011 WL 5119151 (Ky. Ct. App. Oct. 28, 2011).

The action arose when Christina Bowling (“Bowling”) was struck in the eye with a paintball, suffering permanent injury. Prior to participating in the paintball game, Bowling read and signed a waiver agreement, but nonetheless later asserted that Asylum Extreme, LLC (“Asylum”) was negligent in failing to instruct her on proper use of her safety mask. The trial court granted Asylum’s motion for summary judgment, finding the waiver valid and enforceable.

On appeal, Bowling argued that the waiver was not sufficiently clear to preclude her claim. In support of this argument, Bowling relied on Hargis v. Baize, 168 S.W.3d 36 (Ky. 2005), where the Kentucky Supreme Court stated that “the wording of the release must be so clear and understandable that an ordinarily prudent and knowledgeable party to it will know what he or she is contracting away; it must be unmistakable.” The court in Hargis set forth four necessary factors for such a release; the release will only be upheld if (1) it uses the word “negligence” to clearly express intent to exonerate, (2) it indicates intent to release a party from liability caused by a person’s own conduct, (3) the only reasonable construction is protection against negligence, and (4) the hazard was clearly contemplated by the agreement.

Having reviewed the waiver, the Court of Appeals of Kentucky disagreed with Bowling’s claim that the waiver was too general:

Our review of the waiver indicates that it clearly states that Bowling was releasing appellees from any liability resulting from negligence. It specifically lists eye injury as a potential injury and clearly and specifically indicates intent to release appellees from liability. Furthermore, the only reasonable construction of the waiver's language is to release appellees from liability, and the hazard, an eye injury, was clearly, and specifically, contemplated. Thus, not only does the waiver meet one of the Hargis requirements, it meets all four. No ordinarily prudent and knowledgeable party would be unaware as to what he or she was contracting away by signing the waiver. Therefore, the trial court acted properly in enforcing it.

Bowling, 2011 WL 5119151 at *3 (internal citations omitted). Bowling further argued that summary judgment was improper because a question existed as to whether Asylum’s failure to instruct her on proper adjustment of her safety gear constituted willful or wanton negligence. Again, the Court disagreed, finding that Bowling had been instructed not to remove her mask, and that she never complained of it falling off or asked for assistance in adjusting her mask. As such, the Court found no evidence of willful or wanton negligence, and upheld the trial court’s order granting summary judgment for Asylum.

You may view the court's opinion here.

Third Circuit Affirms Dismissal of Insured's Claims Based on Policy's Employee Exclusion Clause

2011-10-28T11:28:05-04:00

Earlier this month, the United States Court of Appeals for the Third Circuit, in Brewer v. U.S. Fire Ins. Co., No. 10-4748, 2011 WL 4537732 (3rd Cir. Oct. 3, 2011) affirmed the dismissal of an insured's assignee's breach of contract and bad faith claim, based on the applicability of the insurance policy's employee exclusion clause.

In 2006, Judy Brewer was injured in an automobile accident caused by Tyrone Hamilton. At the time of the accident, both drivers were acting in the course of employment, and both employers were named insureds under a United States Fire Insurance Company policy. To avoid immediate execution on the $250,000 judgment against him, Hamilton assigned his breach of contract and bad faith claims against any insurers to Brewer. When U.S. Fire denied coverage to Hamilton, Brewer sued as his assignee.

Following denial of coverage, Brewer filed suit in the Eastern District of Pennsylvania, seeking damages and alleging that U.S. Fire acted in bad faith by failing to provide coverage based on the policy’s Employee Indemnification and Employer Liability Exclusion clause. U.S. Fire moved to dismiss, asserting that the bad faith claim failed because the policy language excluded coverage for “bodily injury to an employee of the insured arising out of and in the course of employment for the insured” (the "Exclusion clause"). The District Court granted U.S. Fire’s motion to dismiss based on the plain language of the policy, stating that there was no coverage for claims made by an employee of the insured based on the Exclusion clause.

On appeal, Brewer argued that the Exclusion clause did not apply to her, as she was the injured person. However, the Third Circuit agreed with the District Court’s conclusion that both employers were named insureds and both Brewer and Hamilton were employees under the policy, falling under the Exclusion clause:

The District Court's view of the application of the Exclusion clause is diametrically opposed to Brewer's. The Court determined that the Exclusion clause appropriately applied to Brewer because under Pennsylvania law and the U.S. Fire policy, both Brewer's and Hamilton's employers are insured. Hence, if Brewer stands in Hamilton's stead and Hamilton in the first instance is precluded from coverage, then so is Brewer.

Id. at *2. Therefore, the court held that because Hamilton was not covered by the policy, Brewer also could not recover. See id. at *3.

You may view the court's opinion here.