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Where employment conditions provide the time and place for an assault and contribute to an employee's bodily injuries, the employer's liability exclusion in a commercial general liability insurance policy precludes coverage, according to the Court of Appeals of Minnesota.

Seagate Technologies Inc. was insured by St. Paul Fire & Marine Insurance Co. under a standard CGL policy. The policy excluded bodily injury to an employee arising out of and in the course of his or her employment by a protected person. Vicki Mae Christian and Skylar L. Lipscomb were both employed by Seagate, although in distinct departments located in separate areas at Seagate's facility. Ms. Christian and Mr. Lipscomb began a personal relationship. However, the relationship eroded with Mr. Lipscomb assaulting Ms. Christian. She obtained an order for protection against Mr. Lipscomb and informed her employer and its security department of that. Nevertheless, Mr. Lipscomb continued to harass and intimidate Ms. Christian at work, resulting in a physical assault on her on May 30, 1993, wherein Ms. Christian suffered a skull contusion, lacerations to her nose and lip, abrasions to her hands and two black eyes. Ms. Christian sued her employer and Mr. Lipscomb for negligent supervision, assault and battery and negligent infliction of emotional distress. Seagate tendered its defense to the insurer but was refused. The insurer then brought this suit, seeking a declaration from the court that it had no duty to defend Seagate under the CGL policy. The trial court ruled against the insurer.

On appeal, Seagate argued that Ms. Christian's claims did not stem from her employment but were caused by personal animosity. But, the court said the conditions of Ms. Christian's employment provided the time and place for the assault. Moreover, the court said that Mr. Lipscomb's access to her at her workstation and Seagate's failure to investigate or take steps to stop the harassment of Ms. Christian increased her risk of being assaulted. "Under these circumstances," the court said, "(Ms.) Christian's claims fit within the employer's liability exclusion." The court concluded that the insurer had no duty to defend because no part of Ms. Christian's cause of action was within the scope of coverage. The trial court decision was reversed.

St. Paul Fire & Marine Insurance Co. vs. Seagate Technologies Inc., Minnesota Court of Appeals, Nov. 18, 1997 (BI/01/Jy.-$10).

Suspension not ERISA violation

The administrator of an Employee Retirement Income and Security Act plan did not reduce a participant's accrued benefits so as to violate ERISA's anti-cutback provision when it suspended his early retirement benefits pursuant to a plan amendment adopted after he retired, according to the 5th U.S. Circuit Court of Appeals.

The Maritime Assn.-I.L.A. Pension Plan was subject to ERISA. In 1985, Daniel A. Spacek, who worked for 30 years in the Houston longshoring industry for an entity covered by the plan, retired at age 51. At the time Mr. Spacek retired, the plan provided that an employee re-employed in the industry prior to his normal retirement age would cease receiving benefits. A person "employed in the industry" had to meet two requirements, one of which was to be credited with at least one credit hour for the payroll period ending in such month. In April 1991, the plan was amended to eliminate this requirement. Three years later, Mr. Spacek began working as a superintendent for an employer signed on to the plan. The plan suspended his benefit payments for six months based on the amendment. Mr. Spacek sued and won in the trial court.

On appeal, Mr. Spacek argued that the application of the amendment to him violated ERISA because the amendment decreased his early retirement benefits. But, the court said ERISA distinguishes between reduction of benefits and suspension of benefit payments. The court said to interpret reduction of benefits as including suspension of benefit payments would make the word "suspension" redundant in all these statutory provisions. Thus, under the plain language of the law, the court said, a suspension of benefit payments was not a reduction of benefits. The trial court decision was reversed.

Spacek vs. Maritime Assn., 5th U.S. Circuit Court of Appeals, Jan. 22, 1998, (BI/01/S.-$10)

No benefits in mental illness

A claimant diagnosed with a mental illness that was not preceded or accompanied by a physical injury could not recover workers compensation benefits, according to the Supreme Court of Georgia, notwithstanding the undeniably horrible situation with which he was faced.

Joe Abernathy had been a park maintenance supervisor for the City of Albany, Ga., since the 1980's. In July 1994, torrential rain caused the Flint River to flood, and flood waters lifted several hundred caskets from the city cemetery ground, tore some of the caskets asunder and carried caskets and corpses away from the cemetery. Mr. Abernathy and three other employees toiled for hours over three days recovering some 400 caskets and 18 corpses, 12 of which Mr. Abernathy personally retrieved. The bodies had to be manually lifted into the boats and some corpses came apart during the recovery efforts so that Abernathy had to retrieve them in pieces. Although he continued to work after the flood subsided, Mr. Abernathy began to experience vivid recurring nightmares of a dead and decaying body emerging from the water to attack him. He was diagnosed and treated for a post-traumatic stress disorder. He filed for and was denied workers compensation benefits because he had not sustained any physical injury. He appealed.

The state Supreme Court said a compensable "injury" in Georgia requires that a psychological injury is compensable only if it arises naturally and unavoidably from some discernible physical occurrence. According to the court, it was up to the legislature, not the courts, to amend the law. The court acknowledged that the result mandated by the application of the law to the facts of this case appeared to be a harsh one. However, the court said an appellate court "must be just before it is generous." The lower court decision denying benefits was affirmed. Justice Hunstein dissented because he would interpret "injury" as providing protection to employees like Mr. Abernathy who sustained an injury -- a mental injury -- as a result of his employment.

Abernathy vs. City of Albany, Supreme Court of Georgia, Jan. 26, 1998, Reconsideration Denied, Feb. 23, 1998 (BI/02/S.-$10).

Sex discrimination not covered

The word "injury" in an exclusion of a commercial excess umbrella insurance policy for liability arising out of injury of an employee of the policyholder included personal injury and, thus, the policy did not cover sex discrimination claimed by a policyholder's employee, according to the 4th U.S. Circuit Court of Appeals.

Gates, Hudson & Associates Inc., a Virginia corporation, was covered by a commercial excess umbrella policy issued by Federal Insurance Co. The policy covered damages when liability was imposed on Gates because of personal injury. Personal injury was defined to include "humiliation or discrimination." However, the policy excluded liability for an injury of an employee in the course of employment. During the period of coverage, a former employee of Gates filed a charge with the Equal Employment Opportunity Commission alleging she had been subject to sexual harassment by her supervisor at Gates. Gates sought Federal to defend or indemnify the claim. Federal refused. Gates then brought this suit, seeking a declaration that Federal had breached its contractual obligations under the policy. The trial court ruled for Federal.

The appellate court interpreted the word "injury" according to the plain meaning, i.e., any wrong or damage done to another, either on his person, rights, reputation or property. According to the court, if "personal injury" were not a subset of injury, an individual could suffer personal injury, but no injury. The trial court decision was affirmed.

Gates, Hudson & Associates Inc. vs. Federal Insurance Co., 4th U.S. Circuit Court of Appeals, Oct. 9, 1997, Order Published Feb. 24, 1998 (BI/03/S.-$10).

Rape ruled employment-related injury

An employee's rape by her supervisor was an accidental injury arising out of and in the course of her employment for the purposes of workers compensation, according to the Supreme Court of Oklahoma.

Terri L. Reinholtz, a Wal-Mart Stores Inc. employee, was forcefully and brutally raped by her supervisor while at work in the early working hours. The rape occurred in the automotive store at Wal-Mart on a morning when Ms. Reinholtz was scheduled to open the store and would have been there alone for several hours. She suffered a back injury during the course of the rape. She sought continuous treatment for a psychological overlay and a skin rash for which there was no apparent physical cause. She filed a claim for workers compensation and was awarded benefits for both the physical and psychological injuries. The appellate court denied her psychological benefits. The employer appealed.

The appellate court said that when a willful injury is inflicted by a third party, who is the aggressor, upon a worker discharging the tasks the worker is engaged to perform, and the assault is not motivated solely by personal animosity, wholly disconnected from the employment, the resulting injury is regarded as accidental and as having arisen out of and in the course of employment. Furthermore, the court said a psychological injury accompanied by a physical injury is compensable. The court restored benefits to Ms. Reinholtz for the psychological injury.

Wal-Mart Stores Inc. vs. Reinholtz, Supreme Court of Oklahoma, Feb. 3, 1998, Dissenting Opinion Corrected Feb. 5, 1998 (BI/04/S.-$10).

No vacation benefits in voluntary plan

Employees under an Employee Retirement Income and Security Act voluntary severance plan were not entitled to vacation benefits that vested on the final day of their employment, according to the 8th U.S. Circuit Court of Appeals.

The plaintiffs here were employees of the Petrolite Corp. who accepted either a voluntary retirement program or a voluntary separation program the employer offered in order to reduce its workforce. Under the company's ordinary vacation policy, an employee earned vacation benefits during one fiscal year that vested at the close of that fiscal year, i.e., Oct. 31, and were available for use during the next fiscal year. The employees here pointed out that vacation benefits vested on their final day of employment -- Oct. 31, 1994 -- and they maintained that, either under the program they accepted or under the company's ordinary vacation policy, the employer had an obligation to pay them the value of their vested vacation benefits. The employees sued and lost in the trial court.

The appellate court agreed with the trial court, stating that the employees' claim that they were entitled to the vacation benefits in question under the relevant programs failed because those programs did not include those vacation benefits. The court emphasized the vacation for which the employees sought benefits now could not have been taken prior to Oct. 31, 1994, and is not included among the benefits provided by the employer to its departing employees in its programs. The trial court decision was affirmed.

Mange vs. Petrolite Corp., 8th U.S. Circuit Court of Appeals, Feb. 2, 1998 (BI/05/S.-$10)

These abstracts were prepared by Mayo H. Stiegler. Copies of these decisions are available by sending a $10 check payable to Mayo H. Stiegler, to Business Insurance, 740 N. Rush St., Chicago, Ill. 60611-2590. List the number for each opinion.