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CGL "Leased Worker" Not Ambiguous Not Illusory (PA)

February 18, 2016

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In <a href="" rel=""><em>Westfield Insurance Company v. Astra Foods, Inc</em>.,</a>the Superior Court of Pennsylvania decided, on appeal, that a “leased worker” exclusion in an insurance policy was not void as against public policy.
In 2009, Castillo Ramos (“Ramos”) was employed by BK Packaging Services, Inc. (“BK”) at a facility operated by Astra Foods, Inc. (“Astra”), when he suffered a severe injury to his hand and arm, while cleaning an exhaust fan. Westfield Insurance had issued both commercial general liability and worker’s compensation policies to Astra. After his injury, Ramos filed a workers compensation claim against Astra. Westfield denied it owed coverage to Ramos as he was not an Astra employee.  In 2012, the workers compensation judge agreed and made a specific finding that Ramos was employed by BK and was not a “borrowed employee” of Astra within the meaning of the workers compensation statute. Thus, there was no coverage for Ramos’ injuries under Astra’s Westfield Policy.
Ramos then filed civil litigation against Astra. After a June 2013 jury verdict awarded Ramos $763,413 for his injuries, Westfield filed a declaratory judgment action, arguing that the CGL policy did not cover the incident. Specifically, Westfield argued that the “employer’s liability” policy exclusion provision of the CGL Policy applied to the case, barring Astra from obtaining defense and indemnity in the underlying action because Ramos was an Astra “employee” by virtue of the definition of a “leased worker” under the CGL policy. Westfield and Astra filed cross motions for summary judgment and the trial court granted summary judgment to Westfield, denying Astra’s cross-motion.
Astra appealed arguing that the court had completely disregarded the finding in the workers compensation case that Ramos was not a “borrowed employee.” Astra noted that Westfield had participated in that proceeding and should be barred from re-litigating the issue.
In upholding summary judgment for the insurer, the appellate court disagreed. Specifically, the court scrutinized the definition of “borrowed employee” (at issue in the workers compensation proceeding) and found it to be completely distinct from the definition of a “leased worker” (defined in the Policy). The court stated that “a cursory look at the elements of the doctrine of a borrowed employee and the contractual definition of a leased worker reveals glaring differences between the two,” and concluded that the issue of a leased worker under the CGL Policy was never properly before the workers compensation judge because the CGL Policy was not at issue in that proceeding.
Astra also argued that the employer’s liability exclusion provided only illusory coverage. The court rejected this as well.  The court reasoned that courts must give plain meaning to the language in unambiguous contracts.  Only where a dominant State policy is at issue will a court invalidate such contractual language. Astra did not argue that the employer’s liability exclusion was ambiguous. Rather , it simply argued that in this case, the language foreclosed coverage for claims of employees as defined to include leased employees.  Astra did not argue that it purchased the CGL policy principally to insulate itself from personal injuries by workers who were not direct employees.  Nor did it allege that the employer’s liability exclusion “operates to foreclose the majority of expected claims” under the CGL Policy. In essence, Astra argued only that the CGL exclusion rendered the policy illusory because of its application to the factual circumstance of the Ramos case.
The court held that since Westfield was not required to offer coverage for claims by workers not directly employed by Astra, the company did not specifically purchase the policy for this purpose, and the vast majority of expected claims would be unimpacted by this exclusion, the policy was not illusory.
Thanks to Sathima Jones for her contribution.
For more information, contact Denise Fontana Ricci at <a href=""><u></u></a>.

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