Appellate Court Clears Up Confusion About Exclusions In Commercial Auto Policies

Like most liability policies, commercial auto policies have exclusions meant to preclude claims by employees against the employer-policyholder.  In a recent case in the Fourth Circuit, under West Virginia law, the court vacated a district court’s judgment of no coverage in favor of the insurer based on exclusions.

In United Financial Casualty Co. v. Ball, No. 18-1657 (4th Cir. Oct. 30, 2019), a construction company policyholder was performing work on a third-party’s home.  The owner of the policyholder gave permission for the homeowner to move one of the policyholder’s trucks from the driveway.  Unfortunately, the homeowner hit one of the policyholder’s employees with the truck causing injuries.  When the injured employee sought indemnification from the employer’s commercial auto carrier, the carrier denied coverage and commenced a declaratory judgment action based on exclusions for Workers’ Compensation and Employee Indemnification and Employer’s Liability.  The district court agreed with the carrier and granted judgment based on the Workers’ Compensation exclusion, but the 4th Circuit reversed and remanded.

In reversing, the circuit court held that the claim being made by the injured employee was a claim of negligence against the homeowner, who was an insured under the commercial auto policy because of his permissive use of the truck.  As the court found, even though the employee was injured on the job and even though his employer was the policyholder, the Workers’ Compensation exclusion was inapplicable to a claim of negligence brought by the employee against a third-party.  The court concluded “while a claim that an injured employee asserts against his employer for injuries arising in the course of and resulting from his employment is generally a workers’ compensation claim, a claim brought by that employee against a third party for the same injuries is a common-law claim that does not arise under the Workers’ Compensation Act.”  The circuit court found that the district court erred in holding that the Workers’ Compensation exclusion applied.

The circuit court also rejected the argument that the Employee Indemnification and Employers’ Liability exclusion barred coverage for the claim.  The court held that while the exclusion was facially applicable to the employee’s claim, it was unenforceable because of its inconsistency with West Virginia law, which limits restrictions on coverage for permissive users on auto liability policies like the exclusion.  See West Virginia Code § 33-6-31(a).  Accordingly, the court found that coverage could not be denied based on these exclusions and remanded the matter back to the district court.

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