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

Last month, we discussed the fact that 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). For a review of Part One, see http://bit.ly/1LeJGVB.

We conclude the discussion herein with an analysis of the appeal.

The Appeal

Peerless appealed the adverse ruling. The Indiana Court of Appeals referred to the issue of whether Sarah Moshe was employed by Moshe & Stimson as a red herring because “we need not determine in what capacity Sarah was employed by the firm.” Interestingly, the court's statement assumes an employment relationship. Instead, the court turned its focus to whether Justin's alleged defamation of his sister [Sarah] was “employment-related,” a phrase not defined in the policy. The court determined “Sarah's claims against her brother relate to her job ' . [Her brother's alleged] acts are connected to Sarah's employment at Moshe & Stimson, LLP; as a result, they are not covered under the policy by way of the exclusionary clause.”

The court assumes within its explanation an employment relationship, but also seems to extend the Employment Exclusion to any defamatory statements related to someone's work regardless of when and where the claimant is employed. The court concluded its analysis by stating that “[t]he policy at issue was designed to protect the siblings in suits brought by third-parties ' it was not meant to protect one against the other in a suit between the two.” If this is correct, then why not simply include an insured v. insured exclusion or otherwise express this limitation in the policy language?

Other Courts

The Indiana Court of Appeals ruling differs from the analysis of other courts, including the Eighth Circuit Court of Appeals in Emergency Med. Svcs., Inc. v. St. Paul Mercury Ins.
Co., 495 F.3d 999 (8th Cir. 2007). Emergency Medical Services, Inc. (“EMS”) sued St. Paul alleging a breach of the duty to defend EMS in an underlying lawsuit filed by a physician. The St. Paul policy at issue excluded “bodily injury to an employee of the [insured] arising out of and in the course of his or her employment by the [insured]; or performance of duties related to the conduct of the [insured's] business.” St. Paul argued the exclusion applied because the physician suing EMS was an employee of EMS. The court disagreed and ruled as follows:

However, because the complaint alleges that [plaintiff] became a partner in 1991, the employee exclusion does not apply in this case. For purposes of determining whether a duty to defend exists, we resolve all doubts in favor of the insured. The alleged facts regarding partnership provide the possibility that [plaintiff] is a partner; therefore, St. Paul has a duty to defend EMS.

Here, the employment relationship was determinative, and a partner cannot be an employee or have been acting in the course of employment or performing duties related to the conduct of the insured's business. Nonetheless, the Indiana Court of Appeals has broadened the scope of employment-related exclusions.

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.

Last month, we discussed the fact that 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). For a review of Part One, see http://bit.ly/1LeJGVB.

We conclude the discussion herein with an analysis of the appeal.

The Appeal

Peerless appealed the adverse ruling. The Indiana Court of Appeals referred to the issue of whether Sarah Moshe was employed by Moshe & Stimson as a red herring because “we need not determine in what capacity Sarah was employed by the firm.” Interestingly, the court's statement assumes an employment relationship. Instead, the court turned its focus to whether Justin's alleged defamation of his sister [Sarah] was “employment-related,” a phrase not defined in the policy. The court determined “Sarah's claims against her brother relate to her job ' . [Her brother's alleged] acts are connected to Sarah's employment at Moshe & Stimson, LLP; as a result, they are not covered under the policy by way of the exclusionary clause.”

The court assumes within its explanation an employment relationship, but also seems to extend the Employment Exclusion to any defamatory statements related to someone's work regardless of when and where the claimant is employed. The court concluded its analysis by stating that “[t]he policy at issue was designed to protect the siblings in suits brought by third-parties ' it was not meant to protect one against the other in a suit between the two.” If this is correct, then why not simply include an insured v. insured exclusion or otherwise express this limitation in the policy language?

Other Courts

The Indiana Court of Appeals ruling differs from the analysis of other courts, including the Eighth Circuit Court of Appeals in Emergency Med. Svcs., Inc. v. St. Paul Mercury Ins.
Co. , 495 F.3d 999 (8th Cir. 2007). Emergency Medical Services, Inc. (“EMS”) sued St. Paul alleging a breach of the duty to defend EMS in an underlying lawsuit filed by a physician. The St. Paul policy at issue excluded “bodily injury to an employee of the [insured] arising out of and in the course of his or her employment by the [insured]; or performance of duties related to the conduct of the [insured's] business.” St. Paul argued the exclusion applied because the physician suing EMS was an employee of EMS. The court disagreed and ruled as follows:

However, because the complaint alleges that [plaintiff] became a partner in 1991, the employee exclusion does not apply in this case. For purposes of determining whether a duty to defend exists, we resolve all doubts in favor of the insured. The alleged facts regarding partnership provide the possibility that [plaintiff] is a partner; therefore, St. Paul has a duty to defend EMS.

Here, the employment relationship was determinative, and a partner cannot be an employee or have been acting in the course of employment or performing duties related to the conduct of the insured's business. Nonetheless, the Indiana Court of Appeals has broadened the scope of employment-related exclusions.

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.