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Fisher

By Chase Fisher

The United States Court of Appeals for the Eleventh Circuit has addressed this issue under Florida law and found that a subcontractor’s deceased employee was subject to the general contractor’s commercial general liability (“CGL”) policy’s exclusion relating to injuries of any of the general contractor’s employees.  In other words, the general contractor’s CGL that was intended to protect injuries to parties other than the general contractor, did not protect the subcontractor’s employees under Florida law because its state law considers subcontractor employees to be employed by the general contractor.

The incident
The facts are rather simple, yet tragic.  Here, the subcontractor’s employee was working to install a modular home. Near the end of the day, the employee was climbing down a ladder attached to the side of a two-story home when the ladder detached from the home, causing the employee to fall with the ladder. He was critically injured and passed away on the way to the hospital.  Thereafter, his estate filed a wrongful death suit in Florida against the subcontractor, the general contractor, and the family who owned the property.

The Sunshine State

Through some legal maneuvering, the employee’s estate settled with the general contractor for $4,350,000 with a significant caveat.  The estate agreed not to collect that judgment from the general contractor in exchange for the general contractor assigning its right to file suit against the insurance company.  This was done so that the estate could capitalize on the CGL policy’s indemnification provision, which, if applicable, would have covered the general contractor’s judgment amount.  The estate then sued the insurance company, claiming it wrongfully refused to defend and indemnify the general contractor in the lawsuit.

However, the district court and the Eleventh Circuit Court of Appeals disagreed with the estate and held in favor of the insurance company.  At issue was the CGL policy language, which included a standard employee exclusion clause.  The clause stated that the insurance company will not cover bodily injury to an “employee” of the insured arising out of and in the course of employment by the insured.  While such language would seem to apply only to general contractors, a Florida statute set forth that a contractor who sublets part of its work to a subcontractor develops a statutory employment relationship with the subcontractor’s employees.  Thus, the subcontractor’s employees are considered ‘statutory employees’ of the general contractor under Florida law.

In light of the Florida law, the estate argued that the subcontractor was not actually the subcontractor of the general contractor.  The court disagreed with that argument, however, after considering factors such as the fact that the subcontractor owner testified that his company was the subcontractor for the general contractor on the project, that the general contractor hired and supervised the subcontractor, and that the subcontractor was hired by the general contractor, who only hired the subcontractor after entering an agreement with the property owners.  Such evidence showed that there was truly a vertical relationship between the subcontractor and the general contractor covered by the Florida statute.  Thus, the Court of Appeals affirmed the district court’s summary judgment in favor of the insurance company.

Practice points

Notably, it does not appear that the insurance contract at issue in this case defined, or otherwise clarified, that employees excluded by the CGL policy would include employees of subcontractors.  It is always advisable to get legal advice before entering into agreements that can carry such significant liability provisions.  While most contractors know the importance of the CGL language, this presented a situation more akin to the movie Inception, where there are multiple layers involved.  As this case makes clear, it was the layer inside of another layer that affected the ultimate, and unfortunate, result for the estate.

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