Eleventh Circuit Finds Employer's Liability Exclusion Ambiguous Under Alabama Law

The Eleventh Circuit Court of Appeals affirmed a decision that an insurer had a duty to defend its insureds under a commercial general liability policy in an action arising out of a catastrophic explosion at a pyrotechnics plant that killed two individuals and injured another, holding an "employer's liability exclusion" was ambiguous under Alabama law and thus must be construed in favor of coverage.

The exclusion provided: "This insurance does not apply to any claim, suit, cost or expense arising out of 'bodily injury' to ... any employee of any Insured arising out of and in the course of ... employment by any insured or ... performing duties related to the conduct of any insured's business."

The insurer argued that because the individuals' claims arose out of bodily injury they suffered while employed by one of the insureds, then none of the employees' injuries were covered. The insureds argued that the policy was ambiguous because the phrase "any insured" could also be interpreted to apply only to the employees' claims against their specific employer and therefore would not exclude the employees' claims against the insured companies that were not their direct employer.

The Eleventh Circuit noted that the Alabama Supreme Court has twice considered an exclusion using the phrase "any insured" and found it to be ambiguous on its face. Applying those rulings, which also involved policies that covered multiple insureds, the court found that the phrase "any insured" could reasonably be read to refer singularly to "any one of the insureds," or collectively to "the whole group of insureds." The "singular" reading would mean that the policy only excluded claims arising out of the employees' relationships with their direct employers, while the "collective" reading would exclude coverage for any claim for bodily injury against any of the insured companies.

The policy also contained a "separation of insureds provision," which provided: "[T]his insurance applies ... as if each Named Insured were the only Named Insured; and ... separately to each insured against whom claim is made or 'suit' is brought."

The appellate court found that the "separation of insureds" provision did not help the insurer but rather added ambiguity. The court noted that Alabama applied a minority rule for such provisions such that they are interpreted to mean that the whole policy, including exclusions, should be read as if each insured has its own separate insurance. Applying this understanding to the exclusion, the court concluded that the policy only excluded coverage for claims brought by employees against their specific employers but did not exclude claims brought against insureds by those that were not their employees. Therefore, the insurer had a duty to defend the insured companies against the claims brought against them by individuals who were not directly employed by them.