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Ambiguous exclusion language leaves insurer liable

Ambiguous exclusion language leaves insurer liable

Evanston Insurance Co. is obligated to indemnify a policyholder in a personal injury suit because of ambiguity in its employer’s liability exclusion, says a federal appeals court in affirming a lower court ruling.

Aaron Cohen, an employee of Central Islip, New York-based Universal Photonics Inc., which provides surfacing products and technology, was injured was injured while operating a machine owned by UPI subsidiary Hastings Development L.L.C., according to Monday’s ruling by the 2nd U.S. Circuit Court of Appeals in New York in Hastings Development L.L.C. v. Evanston Insurance Co.

Deerfield, Illinois-based Evanston had issued a commercial general liability policy to UPI, and Hastings, among others.

Mr. Cohen field suit against Hastings and UPI among others, but Deerfield, Illinois-based Evanston denied coverage on the basis of the employer’s liability exclusion in its commercial general liability policy, which states the insurance does not apply to “an employee of the named insured,” according to the ruling.

Hastings filed suit in U.S. District Court in Central Islip, New York, stating Evanston was obligated to defend and indemnify it in the underlying lawsuit, and charging the insurer with bad faith. The court granted Hastings partial summary judgment, stating the exclusion did not bar coverage and Hastings was entitled to indemnification.

A three-judge appeals court panel upheld the lower court’s ruling. “We conclude that there is an ambiguity in the policy language as to whether the Employer’s Liability Exclusion bars coverage for Hastings under the circumstances presented,” said the ruling.

“A fair reading of the Employer’s Liability Exclusion may only exclude coverage for injuries to ‘an employee of the Named Insured’ and … ‘the Named Insured’ is Hastings.

“On the other hand, another reasonable reading of the employer’s Liability Exclusion proposed by Evanston, is that ‘an employee of the Named Insured’ may refer to employees of any of the policy’s list (of) Named Insureds given the exclusion’s broad definition of an ‘employee.’ Because we conclude that the policy language is ambiguous, the District Court properly demined Evanston’s motion to dismiss on this point,” said the ruling.

The ruling did overturn the District Court’s ruling denying Hastings was entitled to a defense in light of its determination Hastings was covered by the policy, but reaffirmed the lower court’s dismissal of the bad faith claim.


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