Recent Rulings Expand the Scope of the Employment-Related Exclusionary Clause

In December of last year, the Indiana Court of Appeals expanded the scope of employment-related exclusions when it granted summary judgment in favor of Peerless Indemnity Insurance Company (“Peerless”) in a coverage dispute with Justin Stimson, a named partner in the now defunct law firm of Moshe & Stimson, LLP. Peerless Indem. Ins. Co. v. Moshe & Stimson LLP, 22 N.E.3d 882, 2014 Ind. App. LEXIS 642 (Ind. Ct. App. 2014). The other named partner, Sarah Moshe, is Mr. Stimson's sister. In December 2011, Moshe informed Stimson that she planned to leave the firm. Thereafter, the relationship between the siblings soured, and Stimson allegedly refused to dissolve the partnership and/or pay his sister monies owed to her by the firm, including her regular income. Additionally, Moshe claims Stimson began making accusations about her “personal integrity and professional competency.”

In early 2012, Moshe filed a lawsuit against her brother, claiming defamation and seeking a formal dissolution of Moshe & Stimson and an accounting, injunction and damages. Stimson sought coverage from Peerless, the law firm's insurer. Peerless sought a declaratory judgment that it had no responsibility to defend or indemnify Stimson based upon the employment-related exclusionary clause (the “Employment Exclusion”) in the Moshe & Stimson policy which read as follows:

This insurance does not apply to:

1. “Bodily injury” or “personal and advertising injury” to

a. A person arising out of any:

(1) Refusal to employ that person;

(2) Termination of that person's employment; or

(3) Employment-related practices, policies, acts or omissions, such as coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation or discrimination directed at that person . . . .

* * * *

2. This exclusion applies:

a. Whether the insured may be liable as an employer or in any other capacity; and

b. To any obligation to share damages with or repay someone else who must pay damages because of the injury.

It is interesting to compare this language with the common employer's liability exclusion, which excludes coverage for liability for injury to “an 'employee' of the insured arising out of and in the course of ' employment by the insured.” This language expressly requires the claimant be an employee of the insured, whereas the Employment Exclusion in the Stimson & Moshe policy requires only that the act(s) complained of be somehow related to claimant's employment.

In its motion for summary judgment, Peerless argued the allegations in Sarah Moshe's complaint constituted “employment-related practices” and therefore were excluded from coverage by the Employment Exclusion. Justin Stimson filed a response and cross-motion for summary judgment, arguing that the Employment Exclusion did not apply because his sister “had been a partner at Moshe & Stimson, LLP, not an employee. Nowhere in her complaint did [Sarah] allege that she was ever employed by [Justin or the firm] and nowhere in her complaint did [Sarah] suggest that the defamation she alleged was employment-related.”

At oral argument, Peerless argued that the Employment Exclusion does not require Sarah Moshe to be an employee of anybody. Instead, Peerless argued that the key question is whether the alleged acts of the person being sued, i.e. , Justin Stimson, were related to the employment relationship. While this seems to be a distinction without a difference, the trial court granted Peerless's motion for summary judgment.

Stimson filed a motion to correct errors in the court's order arguing the Employment Exclusion did not apply because his sister's lawsuit is not “employment-related.” Moreover, as he and Peerless disagreed on the meaning of the phrase “employment-related,” any ambiguity must be construed in favor of the insured and coverage. The trial court was persuaded by his arguments, granted the motion and ordered Peerless to defend and indemnify Stimson. The court reasoned:

Since the suit between [Sarah] and [Justin] involves partners of the law firm, the exclusion does not apply. [Justin] argues that because [Sarah] was no longer a partner of the firm, she did not qualify as a partner under the policy for purposes of determining coverage. He attempts to distinguish his relationship with [Sarah] so as not to fall within the exclusionary clause that relates to employer-employee conduct because one partner is not the employee of the other. [Justin] is correct.

This rationale appears to incorporate a timing element, i.e., the court notes Sarah Moshe “was no longer a partner at the firm.”

Next month, we will discuss the appeal.

Jessica F. Pardi, a member of this newsletter's Board of Editors, is a partner in Morris, Manning & Martin LLP's Insurance and Reinsurance department.

In December of last year, the Indiana Court of Appeals expanded the scope of employment-related exclusions when it granted summary judgment in favor of Peerless Indemnity Insurance Company (“Peerless”) in a coverage dispute with Justin Stimson, a named partner in the now defunct law firm of Moshe & Stimson, LLP. Peerless Indem. Ins. Co. v. Moshe & Stimson LLP , 22 N.E.3d 882, 2014 Ind. App. LEXIS 642 (Ind. Ct. App. 2014). The other named partner, Sarah Moshe, is Mr. Stimson's sister. In December 2011, Moshe informed Stimson that she planned to leave the firm. Thereafter, the relationship between the siblings soured, and Stimson allegedly refused to dissolve the partnership and/or pay his sister monies owed to her by the firm, including her regular income. Additionally, Moshe claims Stimson began making accusations about her “personal integrity and professional competency.”

In early 2012, Moshe filed a lawsuit against her brother, claiming defamation and seeking a formal dissolution of Moshe & Stimson and an accounting, injunction and damages. Stimson sought coverage from Peerless, the law firm's insurer. Peerless sought a declaratory judgment that it had no responsibility to defend or indemnify Stimson based upon the employment-related exclusionary clause (the “Employment Exclusion”) in the Moshe & Stimson policy which read as follows:

This insurance does not apply to:

1. “Bodily injury” or “personal and advertising injury” to

a. A person arising out of any:

(1) Refusal to employ that person;

(2) Termination of that person's employment; or

(3) Employment-related practices, policies, acts or omissions, such as coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation or discrimination directed at that person . . . .

* * * *

2. This exclusion applies:

a. Whether the insured may be liable as an employer or in any other capacity; and

b. To any obligation to share damages with or repay someone else who must pay damages because of the injury.

It is interesting to compare this language with the common employer's liability exclusion, which excludes coverage for liability for injury to “an 'employee' of the insured arising out of and in the course of ' employment by the insured.” This language expressly requires the claimant be an employee of the insured, whereas the Employment Exclusion in the Stimson & Moshe policy requires only that the act(s) complained of be somehow related to claimant's employment.

In its motion for summary judgment, Peerless argued the allegations in Sarah Moshe's complaint constituted “employment-related practices” and therefore were excluded from coverage by the Employment Exclusion. Justin Stimson filed a response and cross-motion for summary judgment, arguing that the Employment Exclusion did not apply because his sister “had been a partner at Moshe & Stimson, LLP, not an employee. Nowhere in her complaint did [Sarah] allege that she was ever employed by [Justin or the firm] and nowhere in her complaint did [Sarah] suggest that the defamation she alleged was employment-related.”

At oral argument, Peerless argued that the Employment Exclusion does not require Sarah Moshe to be an employee of anybody. Instead, Peerless argued that the key question is whether the alleged acts of the person being sued, i.e. , Justin Stimson, were related to the employment relationship. While this seems to be a distinction without a difference, the trial court granted Peerless's motion for summary judgment.

Stimson filed a motion to correct errors in the court's order arguing the Employment Exclusion did not apply because his sister's lawsuit is not “employment-related.” Moreover, as he and Peerless disagreed on the meaning of the phrase “employment-related,” any ambiguity must be construed in favor of the insured and coverage. The trial court was persuaded by his arguments, granted the motion and ordered Peerless to defend and indemnify Stimson. The court reasoned:

Since the suit between [Sarah] and [Justin] involves partners of the law firm, the exclusion does not apply. [Justin] argues that because [Sarah] was no longer a partner of the firm, she did not qualify as a partner under the policy for purposes of determining coverage. He attempts to distinguish his relationship with [Sarah] so as not to fall within the exclusionary clause that relates to employer-employee conduct because one partner is not the employee of the other. [Justin] is correct.

This rationale appears to incorporate a timing element, i.e., the court notes Sarah Moshe “was no longer a partner at the firm.”

Next month, we will discuss the appeal.

Jessica F. Pardi, a member of this newsletter's Board of Editors, is a partner in Morris, Manning & Martin LLP's Insurance and Reinsurance department.