8.9 Cross-Employee Exclusion

• Jurisdiction: Arizona

Commercial general liability policies typically exclude coverage for liability claims that arise because the conduct of one employee results in injury to a second employee. This type of exclusion was discussed and enforced by the court in Stearns-Roger Corp. v. Hartford Accident & Indemnity Co. ^[417] The exclusion considered by the court read as follows:

This insurance does not apply:

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(2) . . . to personal injury to any employee of the Named Insured arising out of and in the course of his employment by the insured . . .^[418]

In Stearns-Roger, the name insured was an engineering construction firm that entered into a long-term construction agreement with Phelps-Dodge for work to be performed at Phelps-Dodge Morenci substation. Pursuant to the construction agreement, Stearns agreed to procure comprehensive public liability insurance. In addition, Stearns also obtained workers' compensation coverage in a separate policy from Hartford. During the course of construction, two employees of Stearns were injured and filed suit against Phelps-Dodge. The injuries occurred while doing Stearns work, yet each worker contended that the negligence was that of Phelps-Dodge. Phelps-Dodge, in turn, tendered the defense of the action to Hartford pursuant to the Hartford-Stearns insurance policy. Hartford refused to defend, claiming that there was no coverage. Thereafter, both negligence cases were settled with payment coming from both Phelps-Dodge and, to some extent, from its liability insurance carrier, American Motors Insurance. A declaratory judgment action ensued. Hartford relied upon the above exclusion, arguing that the clause applied because the injured workers were employees of Stearns, the named insured, and that Hartford was relieved of its obligation to defend. Stearns argued that the clause was ambiguous because the terms "named insured" and "insured" were both used; hence, any interpretation should favor coverage. Stearns argued that the word "insured" was ambiguous because it could be construed to mean either the named insured or the additional insured, Phelps-Dodge. The court rejected Stearns' argument, noting that "[i]t is one thing to construe an ambiguity, and it is quite another matter to create one."^[419] Evaluating the exclusionary clause, the court stated:

Giving a reasonable construction to the clause and the words used it becomes apparent that the policy excludes coverage for personal injury to any employee of the "Named Insured," Stearns...