Additional Risk: Does Your Company Have Additional Insured Coverage for Claims by Contractors’ Employees?

by K&L Gates LLP
Contact

One of the biggest risks oil and gas companies face is a blowout or other catastrophic event that causes serious injury or death. In the aftermath of such an event, companies often find themselves facing lawsuits by injured workers who are employed by contractors. Such workers are typically barred from suing their own employers by Pennsylvania’s workers’ compensation statute, which may lead them to file lawsuits against other parties. Many companies assume that they are protected from such liability by insurance provisions in their contract with the injured worker’s employer, but insurance companies may deny coverage under these circumstances by relying on a decades-old Pennsylvania Supreme Court decision. More recent Pennsylvania court decisions, however, favor insureds, and the Pennsylvania Supreme Court recently agreed to revisit the issue, so oil and gas companies operating in Pennsylvania should stay tuned.

Many oil and gas companies use master service agreements that include reciprocal or “knock for knock” indemnity provisions under which each party agrees to indemnify the other for liability arising out of bodily injury to their own employees. These agreements also typically require each party to name the other as an “additional insured” under their respective general liability insurance policies. Together, these provisions allocate risk between the parties and provide insurance for that allocation of risk. If an employee of either party is injured on the job and sues the other party, his or her employer’s insurance policy should provide coverage to the other party as an “additional insured” (provided the insurance policy at issue includes an appropriate additional insured endorsement).

Insurance companies, however, may deny coverage under these circumstances by relying on what is often called an “employer’s liability” exclusion. Most general liability policies contain some form of this exclusion, which precludes coverage for bodily injury to an employee of the insured. This exclusion makes sense if it is interpreted to preclude coverage for claims made by employees against their employers, but insurers sometimes argue that it also applies to claims made by employees of the named insured (usually the party that purchased the policy) against a party that is an “additional insured” under the policy. Insurers make this argument despite the fact that most policies contain a “Separation of Insureds” provision, which provides that the policy applies separately to each insured against whom a claim is made or suit is brought.

In making this argument, insurers typically rely on a decades-old Pennsylvania Supreme Court decision that, if applied as those insurers suggest, would dramatically limit the insurance coverage available to oil and gas companies in the wake of a catastrophic event. In Pennsylvania Manufacturers’ Association Insurance Company v. Aetna Casualty and Surety Insurance Company, 426 Pa. 453, 233 A.2d 548 (Pa. 1967) (“PMA”), the Pennsylvania Supreme Court held that an employer’s liability exclusion barred coverage for a claim brought by an employee of the company that purchased the policy against a company that was insured under an “omnibus” clause in the policy. The Supreme Court reached this decision despite the existence of a “Severability of Interests” provision that was similar (though not identical) to the “Separation of Insureds” provisions used in many policies today. More recent Pennsylvania court decisions have distinguished PMA, but some federal courts have mistakenly concluded that PMA controls.

The Pennsylvania Supreme Court recently agreed to revisit this issue when it agreed to hear an appeal of the Pennsylvania Superior Court’s decision in Mutual Benefit Insurance Company v. Politopoulos, 75 A.3d 528 (Pa. Super. Ct. 2013). In that case, a restaurant employee who was injured on the job sued the owner of the property where the injury occurred. The property owner sought coverage as an additional insured under the restaurant’s insurance policy, but the insurance company denied coverage by relying on the employer’s liability exclusion in the policy. The trial court reluctantly held that PMA controlled. The Superior Court distinguished PMA and reversed the trial court’s decision. The Pennsylvania Supreme Court agreed to hear the appeal to decide whether the Superior Court properly ruled that PMA did not control. The Court heard oral arguments on October 7, 2014, but it has not yet issued a decision.

Oil and gas companies operating in Pennsylvania should watch for a decision by the Pennsylvania Supreme Court on this issue. In the meantime, those companies should be aware of the issue, ensure that their contracts (and their contractors’ insurance policies) clearly provide for additional insured coverage and consult with coverage counsel when questions or claims arise.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© K&L Gates LLP | Attorney Advertising

Written by:

K&L Gates LLP
Contact
more
less

K&L Gates LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.