Yesterday, the Third Circuit published a precedential opinion holding that Westfield Insurance Company must provide a defense to its additional insured in a personal injury lawsuit brought by the employee of the named insured. Ramara, Inc. v. Westfield Ins. Co., et al., No. 15-1003 (3d. Cir. Feb. 17, 2016). In doing so, the Third Circuit made important pronouncements for insurers and insureds alike: (1) insurers must consider the Workers’ Compensation Act when determining a potential duty to defend an additional insured; and (2) the Court set a fairly low bar to interpreting underlying allegations under a proximate causation test to find coverage, where the Workers’ Compensation Act barred a direct claim against the named insured employer, (although ultimately applying the less stringent “but-for” causation analysis to harmonize particularized policy language at issue). The opinion is also noteworthy for the issue it did not address: the decision’s application to an insurer’s ultimate duty to indemnify.
The case arises out of a workplace accident in a Philadelphia parking garage. Ramara, the garage owner, engaged Sentry Builders Corporation as a general contractor to perform work at the garage. Sentry then engaged Fortress Steel Services, Inc. as a subcontractor to install concrete and steel components. Fortress obtained a general liability policy from Westfield naming Ramara as an additional insured. A Fortress employee was injured at the worksite and filed a tort action against Ramara and Sentry. Although Fortress was not named in the action due to its workers’ compensation immunity, Ramara tendered its defense to Westfield as an additional insured under Fortress’s policy.
The Additional Insured endorsement defined an insured to include those for whom Fortress is performing operations, when both parties agree in writing to add such entity as an additional insured, but only for liability “caused, in whole or in part, by: 1. [Fortress’] acts or omissions; or 2. The acts or omissions of those acting on [Fortress’] behalf; in the performance of [its] ongoing operations for the additional insured.”
Westfield declined, arguing in the lower court that Ramara did not qualify as an additional insured, and alternatively, that the employer liability exclusion would preclude coverage. The district court entered summary judgment in favor of Ramara, and the Third Circuit affirmed, holding that (1) the allegations in the underlying complaint potentially implicated named insured Fortress’s conduct and, therefore, triggered coverage for Ramara under the Additional Insured endorsement; and (2) the named insured employer does not need to be explicitly identified in the underlying complaint.
The Third Circuit held that the allegations in the underlying complaint satisfied the causational requirement under both the proximate cause and but-for analyses. The injured plaintiff alleged that Fortress employed him at the time of the accident, and that Sentry engaged Fortress as an independent contractor. He was injured when he fell while performing his normal duties at the job site. The Third Circuit found the injured plaintiff’s allegations that Ramara acted “by and through its agents, servants and/or employees” and “fail[ed] to adequately inspect and monitor the work” sufficient to meet the more demanding proximate cause test. Likewise, the Court found that the injured plaintiff’s employment by Fortress was “the sole reason that he was at the job site and injured.” Thus, the Court held that although Fortress’s negligence was not directly alleged in the underlying complaint, these allegations “support a conclusion that [Fortress’s potential negligence] was a proximate cause of [the insured plaintiff’s] injuries.” Notwithstanding its finding of coverage under both causation tests, the Third Circuit then went on to endorse the less demanding “but-for” causation test for Additional Insured coverage to harmonize that provision with a manuscript Other Insurance endorsement.
Lastly, the Court rejected the argument that the underlying complaint must identify acts or omissions of the named-insured employer to trigger coverage where the Workers Compensation Act is potentially implicated. Although Pennsylvania applies a strict four corners analysis to determining a duty to defend, the Third Circuit stated that the rule “does not permit an insurer to [put] blinders on” when making coverage determinations. Specifically, the Court found that an insurer “cannot bury its head in the sand and disclaim any knowledge of coverage-triggering facts,” such as the implications of the Workers’ Compensation Act. In that regard, the Court found that Westfield surely knew that plaintiff would not be likely to explicitly name Fortress or prominently feature it in the allegations due to employer immunity. Because Westfield could not have determined that the allegations were “patently outside” coverage, the Court ruled that the district court correctly held that Ramara qualifies as an additional insured.
This is an important opinion for Pennsylvania claims, as the issue of whether a duty to defend putative additional insureds under policies issued to the injured claimant’s employer arises regularly. The lower court focused on the separation of insured provision and the applicability of the employer liability exclusion, as well as causation issues in determining an immune employer’s negligence. The focus away from analyzing the separation of insured provision and employers liability exclusion is likely the result of a recent Pennsylvania Supreme Court decision that overruled longstanding precedent in that regard. See Mutual Benefit Ins. Co. v. Politsopoulos, 115 A.3d 844 (Pa. 2015). More significantly, the Court did not provide any guidance on how to determine the actual existence of any employer negligence once a duty to defend is accepted, i.e., for indemnity purposes. Without Pennsylvania Supreme Court guidance on the intersection of all of these issues, the Ramara opinion is likely to be persuasive guiding precedent on future claims.