Employers Liability Coverage: Exploring Coverage for Employee Tort Claims Alleging That Injury Was 'Substantially Certain'

When an employee is injured on the job, the claim is usually handled through the Workers' Compensation system. Indeed, it is relatively rare for a worker, even one who has been seriously injured, to sue his or her employer in tort because of the 'exclusive remedy' feature of most Workers' Compensation Acts. That feature, also known as the 'Workers' Compensation bar,' directs all such claims to the compensation system unless an enumerated exception applies. Nonetheless, because there are such exceptions, employers frequently purchase 'Workers' Compensation/Employers Liability' ('WC/EL') policies, which provide insurance not only for claims brought through Workers' Compensation but also for claims brought in the civil court system.

This article addresses a recurring issue under the Employers Liability coverage of WC/EL policies, namely, whether the insurer is obligated to defend and, if necessary, indemnify the policyholder/employer when an injured employee (or the estate of an employee killed on the job) sues the employer alleging that the exclusive remedy provision does not apply because the employer acted knowing that injury to the employee was 'substantially certain.' The issue has been litigated for years, and was addressed anew as recently as early December, when the New Jersey Supreme Court handed down unanimous decisions in two cases, Charles Beseler Co. v. O'Gorman & Young, Inc., No. A-75-05, 2006 N.J. LEXIS 1658 (Dec. 4, 2006), and New Jersey Manufacturers Insurance Co. v. Delta Plastics Corp., No. A-87-05, 2006 N.J. LEXIS 1659 (Dec. 4, 2006). The weight of authority (including the recent New Jersey Supreme Court decisions) and the better reasoning favor a finding of coverage.

The Liability Regime and the Insurance Policy Exclusion

Generally speaking, Workers' Compensation Acts are designed to make recovery by an injured employee more certain and speedy than if the employee had to resort to the tort system, with its common law defenses, unpredictable juries, and backlogged dockets. The trade-off, though, is that the employee typically receives less in compensation than he or she would if successful in a civil suit, in part because injuries are given a preset value rather than valued ad hoc by a lay jury and in part because the employee cannot recover for certain types of damages (such as pain and suffering or punitive damages).

One widely recognized exception to the Workers' Compensation bar, however, allows an injured employee to sue and recover if he or she was the victim of an 'intentional tort' (or 'intentional wrong,' depending on the jurisdiction) by the employer. The theory is, at least in part, that an employer who intentionally injures his or her employee is not entitled to the protections afforded to the employer (by way of caps on liability) when a claim can be pursued only through Workers' Compensation.

The law of most states provides that an employee trying to avoid the Workers' Compensation bar by relying on the intentional tort exception must allege and prove a conscious, deliberate, subjective intent to injure. Arthur Larson & Lex K. Larson, Larson's Workers' Compensation, Desk Edition '103.03 (2005). In a handful of states, however, an employee can satisfy the 'intentional tort' or 'intentional wrong' exception to the exclusive remedy provision by alleging and proving that the employer knew that its actions were 'substantially certain' to result in injury. See Id. '103.04 (listing jurisdictions). In such states, liability can be imposed if the employer acts with an actual, subjective intent to injure, but it can also be imposed if the employer acts with knowledge that injury was substantially certain, 'even though, strictly speaking, the employer does not will that result.' Laidlow v. Hariton Mach. Co., 790 A.2d 884, 894 (N.J. 2002) (describing New Jersey law).

In the standard WC/EL policy, Part One provides coverage for benefits required by Workers' Compensation law. Part Two, which is the pertinent coverage part for this article, provides coverage for 'all sums [the insured] legally must pay as damages because of bodily injury to [its] employees,' provided the bodily injury is covered under the policy. In addition, under Part Two, the insurer agrees to 'defend, at [its] expense, any claim, proceeding or suit against [the insured] for damages payable by this insurance.' However, the insurer has 'no duty to defend a claim, proceeding or suit that is not covered by this insurance.' Most importantly for present purposes, a standard-form exclusion provides that the insurance does not cover 'bodily injury intentionally caused or aggravated by [the insured].'

The Insurers' Argument

In those jurisdictions that require allegations and proof of subjective intent to injure for an employee vs. employer claim to survive outside the Workers' Compensation system, it is routine for WC/EL insurers to refuse to defend lawsuits against their policyholders if the employee sues based only on intentional tort. The insurers reason that there is no potential for covered damages: Either the employee/plaintiff will fail to prove that the employer actually intended to injure him or her, in which case there are no damages, or the employee/plaintiff will meet the burden of proof, establishing that the injury was intentionally caused or aggravated by the employer ' in which case the exclusion applies. There being no claim for 'damages payable by this insurance,' the duty to defend does not arise. (If, by contrast, the employee alleges an intentional count and a negligence count, often the WC/EL insurer will defend at least until such time as the trial court dismisses the negligence count as legally insufficient.)

Fortunately for employers, lawsuits alleging subjective intent to injure are relatively rare. The level of malice that must be proven often dissuades not only plaintiffs but also plaintiff-side personal injury lawyers, who have little desire to invest substantial amounts of time and money on contingency-fee cases that they predict are doomed to fail.

The insurers' logic is sound in true 'intentional injury' cases. However, where a plaintiff/employee may prevail by proving that injury was 'substantially certain' rather than 'intentional,' the argument that there can be no covered damages loses its footing. In essence, insurers relying on this argument conflate the mental states of intent and expectation, arguing that if one expects a result and goes forward with an action that is substantially certain to bring about that result, one necessarily intends the result. This argument is sometimes tied to a passage in the Second Restatement of Torts that states, 'If the actor knows that the consequences are certain, or substantially certain, to result from his act, and still goes ahead he is treated by the law as if he had in fact desired to produce the result.' Restatement (Second) Torts '8A.

Case Law and the Flaws in the Insurers' Argument

The majority of cases to address this question have held that the exclusion for injury 'intentionally caused' by the insured does not bar coverage under an Employers Liability policy when an injured employee sues his or her employer under the 'substantially certain' theory of recovery. See, e.g., Larson, supra, '103.04[2][f] (stating that 'courts that have addressed the issue have determined that the coverage exclusion does not apply to 'substantially certain' torts'); Charles Beseler Co., 2006 N.J. LEXIS 1658, at *13-15 (holding that the exclusion does not apply and noting that this conclusion 'accords with decisions from several other jurisdictions'); Travelers Indem. Co. v. PCR Inc., 889 So. 2d 779, 787 (Fla. 2004); Cavalier Mfg. Co. v. Employers Ins. of Wausau, 535 N.W.2d 583, 589 (Mich. Ct. App. 1995); Ziebart Int'l Corp. v. CNA Ins. Cos., 78 F.3d 245, 249 (6th Cir. 1996); Royal Indem. Co. v. Soneco/Northeastern, Inc., 183 F. Supp. 2d 526, 532 (D. Conn. 2002); Reliance Nat'l Ins. Co. v. Vitale, 183 F. Supp. 2d 506, 512 (D. Conn. 2001). But see Travelers Ins. Co. v. Noble Servs., Inc., No. 94-1598, 42 F.3d 1386, 1994 U.S. App. LEXIS 34397 (4th Cir. Dec. 7, 1994). Nonetheless, insurers have not yet abandoned the argument in those 'substantial certainty' jurisdictions in which they are not foreclosed from advancing the coverage defense.

The insurers' argument that 'the law' treats expectation as the equivalent of intent has fared so badly in the courts because it glosses over at least three critical points. First, as the Restatement of Torts makes clear, the law is indulging in a fiction, or at a minimum an assumption that may or may not be true, when it deems the actor to have desired the consequences of his act based on the fact that the actor knew the consequences were substantially certain to result and went forward anyway. The authors recognized that the actor may not, in fact, desire to produce the result, but observed that at times the law treats him 'as if' he had intended that result.

Second, the Restatement is, after all, a treatise on the law of torts, not the law of insurance, and thus its statement that 'the law' treats the actor as if he had desired to produce the result may describe a doctrine of tort law, but it does not even purport to describe a doctrine of insurance law. Third, and closely related, when parties or courts construe an insurance policy, the body of law that applies most directly is contract law, not tort law, and there are doctrines of contract law, and specifically of the law of insurance contracts, that make it untenable to import this sort of legal fiction from the world of tort into the world of contract. When the standard-form WC/EL policy is construed in accordance with the normal principles of insurance-policy construction, reliance on the 'intentionally caused' exclusion is revealed as untenable.

The starting point is, as always, the text of the insurance policy. When insurers ask a court to construe the words 'bodily injury intentionally caused or aggravated by [the insured]' to mean 'bodily injury that the insured expected to cause,' they are asking that a term not appearing in their exclusion be inserted by the court. This request runs afoul of the principles of insurance contract interpretation that policy exclusions are to be narrowly construed and that any ambiguities should be resolved in favor of the insured. To substitute the concept of expectation for the concept of intent would be to construe the exclusion broadly and either to ignore the plain language of the exclusion or, at the very least, to construe an ambiguity in favor of the insurer-drafter, in violation of the doctrine of contra proferentem.

There can be no real dispute on the question of whether expectation and intent are different mental states. To expect a result is to predict or believe that it will happen, whereas to intend that result is to desire that it happen. One can come up with countless examples in life in which one expects, even to a substantial degree of certainty, a particular result from one's actions, but in which, nonetheless, that result is not desired. (No one ever buys a lottery ticket intending to lose.)

That expectation and intent are different is even enshrined in one of the best-known snippets of insurance-policy language from the last 40-plus years, namely, that portion of the standard comprehensive general liability 'occurrence' definition that concerns bodily injury or property damage 'neither expected nor intended from the standpoint of the insured.' One need look no further than that definition to establish that bodily injury may, at times, be expected but not intended. The distinction also appears in case law far removed from the context of insurance. See, e.g., Jock v. Zoning Bd. of Adjustment, 878 A.2d 785, 800 (N.J. 2005) ('[T]here is nothing in the contracts to suggest that the parties expected, intended or even imagined that they would eliminate the separate legal titles … ').

If WC/EL insurers wanted to do so, they could use language in their exclusion that clearly excluded coverage for employee claims alleging that the Workers' Compensation bar does not apply because the employer acted with substantial certainty that the employee would be injured. In fact, there are already formulations of policy language that, at a minimum, approach that result. For example, as noted above, they could borrow language from the 'occurrence' definition of the CGL policy and exclude claims for bodily injury 'expected or intended from the standpoint of the insured.' In Cumberland Mutual Fire Insurance Co. v. Murphy, 873 A.2d 534, 536 (N.J. 2005), the court quoted a homeowner's policy exclusion for 'bodily injury or property damage, whether or not expected or intended by the insured, which is a consequence of an insured's willful harm or knowing endangerment.' The concept of 'knowing endangerment' comes far closer to the legal test to be applied in 'substantially certain' cases than does the concept of bodily injury 'intentionally caused.'

Other available exclusionary language, too, would put insureds on reasonable notice that there might be a gap in coverage if they were sued under the 'substantially certain' test. In a recent Ohio case, the court considered a general liability policy that contained a 'coverage enhancement' which extended coverage to certain employee claims, but which expressly excluded coverage for 'any liability acts committed by or at the direction of an insured in which the act is substantially certain to cause 'bodily injury.” See Cincinnati Ins. Co. v. Schwerha, No. 04 MA 257, 2006 Ohio App. LEXIS 3440, at **11 (June 28, 2006) (quoting policy). This language fairly apprises the employer that claims brought under the 'substantially certain' test will not be covered. (As an aside, it is worth noting that the insurer in that case apparently had offered the employer separate insurance 'which specifically covered employer intentional torts,' but the insured had declined to purchase that coverage. Id. at **6. The fact that such coverage was offered undercuts any argument advanced by insurers to the effect that it would offend public policy to insure an employer against 'substantially certain' torts or that insurers would never knowingly take on such a risk.)

Insurers could even write an exclusion for bodily injury claims that, in order to circumvent the exclusive remedy provision of the Workers' Compensation law, necessarily relies on an exception for 'intentional torts' or 'intentional wrongs,' see New Jersey Mfrs. Ins. Co. v. Delta Plastics Corp., 883 A.2d 399, 404 (N.J. App. Div. 2005), aff'd, No. A-87-05, 2006 N.J. LEXIS 1659 (Dec. 4, 2006), putting the policyholder on notice that such claims will not be covered.

As a survey of the case law reveals, the issue of coverage under WC/EL policies for claims brought under the 'substantially certain' test has been around for more than a decade, with the majority of cases finding in favor of coverage. Nonetheless, and despite the ease with which exclusionary language could be drafted afresh or imported from other policies, WC/EL insurers have continued to sell policies using the same exclusion that has repeatedly been held not to apply to 'substantially certain' claims. They can hardly complain of surprise or unfairness if they are required to defend and indemnify their insureds for such claims.

Most likely, insurers continue to sell WC/EL policies with the narrow exclusion because that allows them to continue to market the 'EL' part of the policy, Part Two, as a ”gap filler,” that is, a coverage part that 'provid[es] protection to the employer in those situations where the employee has a right to bring a tort action despite the provisions of the workers' compensation statute.' PCR, 889 So. 2d at 784 n.7 (citing cases and treatises describing the EL part as a 'gap filler'). Employers purchase such coverage precisely to address the risk that notwithstanding the exclusive remedy provision of the Workers' Compensation laws, they could be held liable in tort for damages to injured employees. Id.; Delta Plastics, 883 A.2d at 405. Although public policy is often said to preclude true intentional torts ' those committed with the intent to injure ' and thus an exclusion properly warns the insured that there is no coverage for such torts, retaining the narrowness of the standard exclusion allows the policy to provide 'gap' coverage to the likely limits of what the common law would allow. See, e.g., Talbert v. Continental Cas. Co., 811 N.E.2d 1169, 1177 (Ohio Ct. App. 2004) (noting that it does not violate Ohio's public policy to insure against 'intentional torts' that are brought under a 'substantial certainty' test).

Such coverage also comports with the reasonable expectations of the policyholder, which are that it has coverage for an employee suit brought outside the Workers' Compensation system so long as the company did not intentionally injure its worker. See, e.g., Charles Beseler Co., 2006 N.J. LEXIS 1658, at *14. As the Sixth Circuit observed, 'employers know they are liable to their employees for 'true intentional torts,' but employers may reasonably expect their insurance policies to cover them in the absence of such an animating intent.' Ziebart, 78 F.3d at 251. Put differently, an insured would reasonably interpret the standard exclusionary language for injury 'intentionally caused by [the insured]' to refer only to injury that the employer subjectively intended to inflict.

Conclusion

Workers' Compensation/Employers Liability policies are an important component of many corporations' insurance portfolios. The policies are designed and sold to provide coverage for a wide variety of employee claims, including those handled through the Workers' Compensation system and those that, for one reason or another, either do not qualify as Workers' Compensation claims at all or are not subject to the exclusive remedy provision of the pertinent Workers' Compensation act. The majority of courts to address the issue have found coverage under WC/EL policies where an employee/plaintiff has been permitted to sue the employer on the theory that injury was 'substantially certain' rather than subjectively intended by the employer. Nonetheless, some insurers continue to deny coverage for such claims. Policyholders facing such denials have available to them a wide array of tools, including the plain language of the exclusion on which the insurers rely, the standard rules of construction of insurance policies, discussion of the fact that the insurance industry has not changed the exclusion despite a long string of court rulings rejecting its applicability to 'substantially certain' claims, invocation of the 'gap-filling' purpose of the Employers Liability coverage, and reliance on the growing body of case law requiring insurers to protect their insureds from such claims.

Seth A. Tucker and Ann-Kelley Kemper are, respectively, a partner and an associate in the Washington, DC, office of Covington & Burling LLP, where they represent policyholders in complex insurance coverage matters. The views expressed are those of the authors, and are not necessarily those of Covington & Burling LLP or its clients.

When an employee is injured on the job, the claim is usually handled through the Workers' Compensation system. Indeed, it is relatively rare for a worker, even one who has been seriously injured, to sue his or her employer in tort because of the 'exclusive remedy' feature of most Workers' Compensation Acts. That feature, also known as the 'Workers' Compensation bar,' directs all such claims to the compensation system unless an enumerated exception applies. Nonetheless, because there are such exceptions, employers frequently purchase 'Workers' Compensation/Employers Liability' ('WC/EL') policies, which provide insurance not only for claims brought through Workers' Compensation but also for claims brought in the civil court system.

This article addresses a recurring issue under the Employers Liability coverage of WC/EL policies, namely, whether the insurer is obligated to defend and, if necessary, indemnify the policyholder/employer when an injured employee (or the estate of an employee killed on the job) sues the employer alleging that the exclusive remedy provision does not apply because the employer acted knowing that injury to the employee was 'substantially certain.' The issue has been litigated for years, and was addressed anew as recently as early December, when the New Jersey Supreme Court handed down unanimous decisions in two cases, Charles Beseler Co. v. O'Gorman & Young, Inc., No. A-75-05, 2006 N.J. LEXIS 1658 (Dec. 4, 2006), and New Jersey Manufacturers Insurance Co. v. Delta Plastics Corp., No. A-87-05, 2006 N.J. LEXIS 1659 (Dec. 4, 2006). The weight of authority (including the recent New Jersey Supreme Court decisions) and the better reasoning favor a finding of coverage.

The Liability Regime and the Insurance Policy Exclusion

Generally speaking, Workers' Compensation Acts are designed to make recovery by an injured employee more certain and speedy than if the employee had to resort to the tort system, with its common law defenses, unpredictable juries, and backlogged dockets. The trade-off, though, is that the employee typically receives less in compensation than he or she would if successful in a civil suit, in part because injuries are given a preset value rather than valued ad hoc by a lay jury and in part because the employee cannot recover for certain types of damages (such as pain and suffering or punitive damages).

One widely recognized exception to the Workers' Compensation bar, however, allows an injured employee to sue and recover if he or she was the victim of an 'intentional tort' (or 'intentional wrong,' depending on the jurisdiction) by the employer. The theory is, at least in part, that an employer who intentionally injures his or her employee is not entitled to the protections afforded to the employer (by way of caps on liability) when a claim can be pursued only through Workers' Compensation.

The law of most states provides that an employee trying to avoid the Workers' Compensation bar by relying on the intentional tort exception must allege and prove a conscious, deliberate, subjective intent to injure. Arthur Larson & Lex K. Larson, Larson's Workers' Compensation, Desk Edition '103.03 (2005). In a handful of states, however, an employee can satisfy the 'intentional tort' or 'intentional wrong' exception to the exclusive remedy provision by alleging and proving that the employer knew that its actions were 'substantially certain' to result in injury. See Id. '103.04 (listing jurisdictions). In such states, liability can be imposed if the employer acts with an actual, subjective intent to injure, but it can also be imposed if the employer acts with knowledge that injury was substantially certain, 'even though, strictly speaking, the employer does not will that result.' Laidlow v. Hariton Mach. Co., 790 A.2d 884, 894 (N.J. 2002) (describing New Jersey law).

In the standard WC/EL policy, Part One provides coverage for benefits required by Workers' Compensation law. Part Two, which is the pertinent coverage part for this article, provides coverage for 'all sums [the insured] legally must pay as damages because of bodily injury to [its] employees,' provided the bodily injury is covered under the policy. In addition, under Part Two, the insurer agrees to 'defend, at [its] expense, any claim, proceeding or suit against [the insured] for damages payable by this insurance.' However, the insurer has 'no duty to defend a claim, proceeding or suit that is not covered by this insurance.' Most importantly for present purposes, a standard-form exclusion provides that the insurance does not cover 'bodily injury intentionally caused or aggravated by [the insured].'

The Insurers' Argument

In those jurisdictions that require allegations and proof of subjective intent to injure for an employee vs. employer claim to survive outside the Workers' Compensation system, it is routine for WC/EL insurers to refuse to defend lawsuits against their policyholders if the employee sues based only on intentional tort. The insurers reason that there is no potential for covered damages: Either the employee/plaintiff will fail to prove that the employer actually intended to injure him or her, in which case there are no damages, or the employee/plaintiff will meet the burden of proof, establishing that the injury was intentionally caused or aggravated by the employer ' in which case the exclusion applies. There being no claim for 'damages payable by this insurance,' the duty to defend does not arise. (If, by contrast, the employee alleges an intentional count and a negligence count, often the WC/EL insurer will defend at least until such time as the trial court dismisses the negligence count as legally insufficient.)

Fortunately for employers, lawsuits alleging subjective intent to injure are relatively rare. The level of malice that must be proven often dissuades not only plaintiffs but also plaintiff-side personal injury lawyers, who have little desire to invest substantial amounts of time and money on contingency-fee cases that they predict are doomed to fail.

The insurers' logic is sound in true 'intentional injury' cases. However, where a plaintiff/employee may prevail by proving that injury was 'substantially certain' rather than 'intentional,' the argument that there can be no covered damages loses its footing. In essence, insurers relying on this argument conflate the mental states of intent and expectation, arguing that if one expects a result and goes forward with an action that is substantially certain to bring about that result, one necessarily intends the result. This argument is sometimes tied to a passage in the Second Restatement of Torts that states, 'If the actor knows that the consequences are certain, or substantially certain, to result from his act, and still goes ahead he is treated by the law as if he had in fact desired to produce the result.' Restatement (Second) Torts '8A.

Case Law and the Flaws in the Insurers' Argument

The majority of cases to address this question have held that the exclusion for injury 'intentionally caused' by the insured does not bar coverage under an Employers Liability policy when an injured employee sues his or her employer under the 'substantially certain' theory of recovery. See, e.g., Larson, supra, '103.04[2][f] (stating that 'courts that have addressed the issue have determined that the coverage exclusion does not apply to 'substantially certain' torts'); Charles Beseler Co., 2006 N.J. LEXIS 1658, at *13-15 (holding that the exclusion does not apply and noting that this conclusion 'accords with decisions from several other jurisdictions'); Travelers Indem. Co. v. PCR Inc., 889 So. 2d 779, 787 (Fla. 2004); Cavalier Mfg. Co. v. Employers Ins. of Wausau , 535 N.W.2d 583, 589 (Mich. Ct. App. 1995); Ziebart Int'l Corp. v. CNA Ins. Cos. , 78 F.3d 245, 249 (6th Cir. 1996); Royal Indem. Co. v. Soneco/Northeastern, Inc. , 183 F. Supp. 2d 526, 532 (D. Conn. 2002); Reliance Nat'l Ins. Co. v. Vitale , 183 F. Supp. 2d 506, 512 (D. Conn. 2001). But see Travelers Ins. Co. v. Noble Servs., Inc. , No. 94-1598, 42 F.3d 1386, 1994 U.S. App. LEXIS 34397 (4th Cir. Dec. 7, 1994). Nonetheless, insurers have not yet abandoned the argument in those 'substantial certainty' jurisdictions in which they are not foreclosed from advancing the coverage defense.

The insurers' argument that 'the law' treats expectation as the equivalent of intent has fared so badly in the courts because it glosses over at least three critical points. First, as the Restatement of Torts makes clear, the law is indulging in a fiction, or at a minimum an assumption that may or may not be true, when it deems the actor to have desired the consequences of his act based on the fact that the actor knew the consequences were substantially certain to result and went forward anyway. The authors recognized that the actor may not, in fact, desire to produce the result, but observed that at times the law treats him 'as if' he had intended that result.

Second, the Restatement is, after all, a treatise on the law of torts, not the law of insurance, and thus its statement that 'the law' treats the actor as if he had desired to produce the result may describe a doctrine of tort law, but it does not even purport to describe a doctrine of insurance law. Third, and closely related, when parties or courts construe an insurance policy, the body of law that applies most directly is contract law, not tort law, and there are doctrines of contract law, and specifically of the law of insurance contracts, that make it untenable to import this sort of legal fiction from the world of tort into the world of contract. When the standard-form WC/EL policy is construed in accordance with the normal principles of insurance-policy construction, reliance on the 'intentionally caused' exclusion is revealed as untenable.

The starting point is, as always, the text of the insurance policy. When insurers ask a court to construe the words 'bodily injury intentionally caused or aggravated by [the insured]' to mean 'bodily injury that the insured expected to cause,' they are asking that a term not appearing in their exclusion be inserted by the court. This request runs afoul of the principles of insurance contract interpretation that policy exclusions are to be narrowly construed and that any ambiguities should be resolved in favor of the insured. To substitute the concept of expectation for the concept of intent would be to construe the exclusion broadly and either to ignore the plain language of the exclusion or, at the very least, to construe an ambiguity in favor of the insurer-drafter, in violation of the doctrine of contra proferentem.

There can be no real dispute on the question of whether expectation and intent are different mental states. To expect a result is to predict or believe that it will happen, whereas to intend that result is to desire that it happen. One can come up with countless examples in life in which one expects, even to a substantial degree of certainty, a particular result from one's actions, but in which, nonetheless, that result is not desired. (No one ever buys a lottery ticket intending to lose.)

That expectation and intent are different is even enshrined in one of the best-known snippets of insurance-policy language from the last 40-plus years, namely, that portion of the standard comprehensive general liability 'occurrence' definition that concerns bodily injury or property damage 'neither expected nor intended from the standpoint of the insured.' One need look no further than that definition to establish that bodily injury may, at times, be expected but not intended. The distinction also appears in case law far removed from the context of insurance. See, e.g. , Jock v . Zoning Bd. of Adjustment , 878 A.2d 785, 800 (N.J. 2005) ('[T]here is nothing in the contracts to suggest that the parties expected, intended or even imagined that they would eliminate the separate legal titles … ').

If WC/EL insurers wanted to do so, they could use language in their exclusion that clearly excluded coverage for employee claims alleging that the Workers' Compensation bar does not apply because the employer acted with substantial certainty that the employee would be injured. In fact, there are already formulations of policy language that, at a minimum, approach that result. For example, as noted above, they could borrow language from the 'occurrence' definition of the CGL policy and exclude claims for bodily injury 'expected or intended from the standpoint of the insured.' In Cumberland Mutual Fire Insurance Co. v. Murphy , 873 A.2d 534, 536 (N.J. 2005), the court quoted a homeowner's policy exclusion for 'bodily injury or property damage, whether or not expected or intended by the insured, which is a consequence of an insured's willful harm or knowing endangerment.' The concept of 'knowing endangerment' comes far closer to the legal test to be applied in 'substantially certain' cases than does the concept of bodily injury 'intentionally caused.'

Other available exclusionary language, too, would put insureds on reasonable notice that there might be a gap in coverage if they were sued under the 'substantially certain' test. In a recent Ohio case, the court considered a general liability policy that contained a 'coverage enhancement' which extended coverage to certain employee claims, but which expressly excluded coverage for 'any liability acts committed by or at the direction of an insured in which the act is substantially certain to cause 'bodily injury.” See Cincinnati Ins. Co. v. Schwerha, No. 04 MA 257, 2006 Ohio App. LEXIS 3440, at **11 (June 28, 2006) (quoting policy). This language fairly apprises the employer that claims brought under the 'substantially certain' test will not be covered. (As an aside, it is worth noting that the insurer in that case apparently had offered the employer separate insurance 'which specifically covered employer intentional torts,' but the insured had declined to purchase that coverage. Id. at **6. The fact that such coverage was offered undercuts any argument advanced by insurers to the effect that it would offend public policy to insure an employer against 'substantially certain' torts or that insurers would never knowingly take on such a risk.)

Insurers could even write an exclusion for bodily injury claims that, in order to circumvent the exclusive remedy provision of the Workers' Compensation law, necessarily relies on an exception for 'intentional torts' or 'intentional wrongs,' see New Jersey Mfrs. Ins. Co. v. Delta Plastics Corp. , 883 A.2d 399, 404 (N.J. App. Div. 2005), aff'd , No. A-87-05, 2006 N.J. LEXIS 1659 (Dec. 4, 2006), putting the policyholder on notice that such claims will not be covered.

As a survey of the case law reveals, the issue of coverage under WC/EL policies for claims brought under the 'substantially certain' test has been around for more than a decade, with the majority of cases finding in favor of coverage. Nonetheless, and despite the ease with which exclusionary language could be drafted afresh or imported from other policies, WC/EL insurers have continued to sell policies using the same exclusion that has repeatedly been held not to apply to 'substantially certain' claims. They can hardly complain of surprise or unfairness if they are required to defend and indemnify their insureds for such claims.

Most likely, insurers continue to sell WC/EL policies with the narrow exclusion because that allows them to continue to market the 'EL' part of the policy, Part Two, as a ”gap filler,” that is, a coverage part that 'provid[es] protection to the employer in those situations where the employee has a right to bring a tort action despite the provisions of the workers' compensation statute.' PCR, 889 So. 2d at 784 n.7 (citing cases and treatises describing the EL part as a 'gap filler'). Employers purchase such coverage precisely to address the risk that notwithstanding the exclusive remedy provision of the Workers' Compensation laws, they could be held liable in tort for damages to injured employees. Id.; Delta Plastics, 883 A.2d at 405. Although public policy is often said to preclude true intentional torts ' those committed with the intent to injure ' and thus an exclusion properly warns the insured that there is no coverage for such torts, retaining the narrowness of the standard exclusion allows the policy to provide 'gap' coverage to the likely limits of what the common law would allow. See, e.g. , Talbert v. Continental Cas. Co. , 811 N.E.2d 1169, 1177 (Ohio Ct. App. 2004) (noting that it does not violate Ohio's public policy to insure against 'intentional torts' that are brought under a 'substantial certainty' test).

Such coverage also comports with the reasonable expectations of the policyholder, which are that it has coverage for an employee suit brought outside the Workers' Compensation system so long as the company did not intentionally injure its worker. See, e.g., Charles Beseler Co., 2006 N.J. LEXIS 1658, at *14. As the Sixth Circuit observed, 'employers know they are liable to their employees for 'true intentional torts,' but employers may reasonably expect their insurance policies to cover them in the absence of such an animating intent.' Ziebart, 78 F.3d at 251. Put differently, an insured would reasonably interpret the standard exclusionary language for injury 'intentionally caused by [the insured]' to refer only to injury that the employer subjectively intended to inflict.

Conclusion

Workers' Compensation/Employers Liability policies are an important component of many corporations' insurance portfolios. The policies are designed and sold to provide coverage for a wide variety of employee claims, including those handled through the Workers' Compensation system and those that, for one reason or another, either do not qualify as Workers' Compensation claims at all or are not subject to the exclusive remedy provision of the pertinent Workers' Compensation act. The majority of courts to address the issue have found coverage under WC/EL policies where an employee/plaintiff has been permitted to sue the employer on the theory that injury was 'substantially certain' rather than subjectively intended by the employer. Nonetheless, some insurers continue to deny coverage for such claims. Policyholders facing such denials have available to them a wide array of tools, including the plain language of the exclusion on which the insurers rely, the standard rules of construction of insurance policies, discussion of the fact that the insurance industry has not changed the exclusion despite a long string of court rulings rejecting its applicability to 'substantially certain' claims, invocation of the 'gap-filling' purpose of the Employers Liability coverage, and reliance on the growing body of case law requiring insurers to protect their insureds from such claims.

Seth A. Tucker and Ann-Kelley Kemper are, respectively, a partner and an associate in the Washington, DC, office of Covington & Burling LLP, where they represent policyholders in complex insurance coverage matters. The views expressed are those of the authors, and are not necessarily those of Covington & Burling LLP or its clients.