What a Difference a Word Makes

Cozen O'Connor
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Cozen O'Connor

            A recent decision by a Massachusetts Appellate Court reinforces that every word in an insurance policy has meaning, and that one word can make all the difference.

            In Phoenix Baystate Constr. Co., Inc. v. First Ins. Co., 145 N.E.3d 911, 2020 WL 2516670 (Mass. App. May 18, 2020), review denied  150 N.E.3d 1140 (Mass. 2020), the Appeals Court found that because a cross liability exclusion used the phrase “any insured” as opposed to “the insured,” there was no coverage for an additional insured where the personal injury action was brought by the named insured’s employee. The word “any,” as opposed to “the,” was determinative as to coverage.

            Phoenix was the general contractor on a construction site and hired Lanco as a subcontractor. Lanco’s subcontract agreement obligated it to name Phoenix as an additional insured “for claims caused in whole or in part by [Lanco’s] negligent acts or omissions.” Id. at *1. A Lanco employee allegedly suffered personal injuries when he fell from a scaffold. The employee then filed a personal injury lawsuit against Phoenix.

            Although Phoenix may have been an additional insured, Lanco’s insurer declined to defend Phoenix in the underlying action based on the cross liability exclusion, which barred coverage for liability for bodily injury to, among others, “an employee of any insured” (emphasis added). Id. As the plaintiff was a Lanco employee, and Lanco was the named insured, the position was that the policy did not afford coverage for any insured for bodily injury lawsuits filed by Lanco employees.

            Phoenix brought a coverage action against the insurer and asserted that the cross liability exclusion was inconsistent with the separation of insureds clause, which provided:

Except with respect to the Limits of Insurance, and any rights or duties specifically assigned in this Coverage Part to the first Named Insured, this insurance applies:

a.         as if each Named Insured were the only Named Insured;

b.         separately as to each insured against whom claim is made or “suit” is brought.

            Phoenix argued that the cross liability exclusion was at least ambiguous in connection with the separation of insureds provision, and that the reference to “any insured” should be construed in its favor to mean Phoenix only, as the insured seeking coverage. Thus, Phoenix argued, because the injured person was a Lanco employee, not a Phoenix employee, the cross liability exclusion did not apply.

            The Appeals Court held that the cross liability exclusion was not ambiguous and that it barred coverage for bodily injury to an employee of any insured, that is to an employee of either Lanco or Phoenix, regardless of which entity was seeking coverage. The court first cited to what it referred to as the “majority view” across the country that there is a crucial distinction between the phrases “any insured” and “the insured” in connection with separation of insureds clauses. “For exclusions pertaining to ‘any insured,’ severability of interest clauses have no effect, and the plain meaning of ‘any’ applies. . . . For exclusions that pertain to ‘the insured,’ severability of interests clauses make  clear that ‘the insured’ refers only to the insured who is actually seeking coverage.” Id. at *3. The Appeals Court also noted that the policy intentionally distinguished between the use of “the insured” and “any insured.” Id. at *3 (“The distinction between the two phrases “any insured” and “the insured” is especially important in the context of this case, where the policy sometimes uses one phrase and sometimes uses the other.”). Accordingly, Phoenix was not entitled to coverage under the policy.

            Phoenix thus illustrates that every word in a policy has meaning and that coverage disputes can often come down to individual word choices. Phoenix also provides support generally for how Massachusetts courts will consider exclusions using the term “any insured” in connection with separation of interests provisions.

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.

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