Opinion ID: 2639532
Heading Depth: 3
Heading Rank: 2

Heading: The Circuit Court Erred in Granting Summary Judgment in Favor of Plaintiffs and Against Travelers.

Text: Travelers argues that Taft was not an insured under the Tri-S worker's compensation and employer's liability policy issued by Travelers and thus summary judgment should have been granted in its favor rather than in Plaintiffs' [15] favor. Plaintiffs respond that Travelers was obligated to indemnify Tri-S for any moneys that Tri-S was in turn obligated to expend to indemnify Taft with respect to defense and liability in the underlying action, and thus Taft was effectively an insured. The circuit court concluded that the policy provides coverage for its insured, Tri-S Corporation, for defense and indemnity, for its obligation to indemnify Karl M. Taft for expenses of defense and for damages claimed against Karl M. Taft as a result of injury to a Tri-S Corporation employee. As set forth below, we hold that Travelers did not have a duty to defend or indemnify Taft, and because its duty to defend and indemnify Tri-S was never breached, summary judgment should have been granted in Travelers' favor and against Plaintiffs. First, as the circuit court noted, there is no dispute that Taft was not a named or additional insured under the policy issued by Travelers, and that Tri-S was the named insured. Second, it is also not disputed that, as set forth above, the Travelers policy provided in relevant part: We will pay all sums you legally must pay as damages because of bodily injury to your employees. . . . The damages we will pay, where recovery is permitted by law, include damages . . . for which you are liable to a third party by reason of a claim or suit against you by that third party to recover the damages claimed against such third party as a result of injury to your employee[.] . . . . We have the right and duty to defend, at our expense, any claim, proceeding or suit against you for damages payable by this insurance. . . . We have no duty to defend a claim, proceeding or suit that is not covered by this insurance. . . . Provisionally inserting the names of the parties in the instant case, where we is read as Travelers, you is read as Tri-S, the only insured under the policy, third party is read as Taft, and employee is read as Rapoza, the relevant provisions (Part II, sections B & D) yield: [Travelers] will pay all sums [Tri-S] legally must pay as damages because of bodily injury to [Rapoza]. . . . The damages [Travelers] will pay, where recovery is permitted by law, include damages . . . for which [Tri-S is] liable to [Taft] by reason of a claim or suit against [Tri-S] by [Taft] to recover the damages claimed against [Taft] as a result of injury to [Rapoza.] . . . . [Travelers has] the right and duty to defend, at our expense, any claim, proceeding or suit against [Tri-S] for damages payable by this insurance. . . . [Travelers has] no duty to defend a claim, proceeding or suit that is not covered by this insurance. (Emphases added.) The plain language of the policy thus clearly states that Travelers owed a duty to defend to Tri-S, not to Taft, and would thus not have a duty to defend Taft in the underlying suit even if it eventually might be liable for indemnification. Plaintiffs contend (and the circuit court agreed), however, that it would be unreasonable to force Tri-S to pay first and require Taft to formally make a claim against Tri-S ( i.e., sue himself) for indemnification in order to secure benefits under the policy. However, even if one accepts the proposition that it would be unreasonable to require a separate indemnification claim and also that Taft would prevail on such a claim, it is not responsive to the prior question of whether the indemnification claim, formal or informal, would itself be covered under the policy. Based on the following, we hold that the answer to that question is no. Like the CGL policy issued by WWI, the worker's compensation and employer's liability policy issued by Travelers is a form contract whose language has been interpreted previously by various courts outside this jurisdiction. The recent decision in Missouri Employers Mut. Ins. Co. [MEMIC] v. Nichols, 149 S.W.3d 617 (Mo.Ct.App.2004), which involves not only policy language but also facts virtually identical to those presented in the instant case, is particularly instructive. In that case, the plaintiff filed a wrongful death action against Nichols, the owner and employee of a small business, for the work-related death of her father, a co-employee of Nichols. Id. at 620. The business was the named insured on a worker's compensation and employer's liability policy issued by MEMIC and containing language identical to that found in the Tri-S policy issued by Travelers. Id. After refusing to defend or indemnify Nichols in the wrongful death action on the basis that he was not an insured under the policy, MEMIC filed an action seeking a declaratory judgment to that effect. Id. at 620-21. When summary judgment was granted in favor of MEMIC in the trial court, the plaintiff in the wrongful death action appealed. Id. at 621. On appeal, the plaintiff argued, as do Plaintiffs here, that even though Nichols was not a named insured under the policy, he was nevertheless covered under the provisions of Part II, sections B and D, quoted above. Id. at 625-26. The appellate court disagreed and affirmed the judgment below, reasoning: [T]he appellant contends that . . . coverage exists as to [the business owner-employee] in the underlying wrongful death suit, pursuant to the express language of [part II, section B]. The contention is without merit. The Policy clearly limits liability coverage to the named employer . . . in such sums that it legally must pay as damages because of bodily injury to [its] employees. [Section] B sets out the damages to be paid, if, and only if, [the company] is first found to be legally liable in damages. The language of section B does not create liability coverage, but simply delineates and limits the damages to be paid, provided liability is found first. Id. at 627 (emphasis in original). In other words, when read as a whole, it is clear that section B covers claims only where Tri-S is liable for the injuries. Here, not only was Tri-S not sued in the underlying action (and hence never found liable in damages for Rapoza's death), but there is also no dispute that it is immune from liability under Hawai`i worker's compensation law (and hence never could be found liable). Therefore, Travelers had no duty to defend or indemnify. TSC-Taft's final argument against this interpretation of the policy is that, so construed, the employer's liability section would provide no coverage for any non-worker's compensation claims and would thus be an illusory contract. TSC-Taft is correct that employer's liability insurance is intended to be a `gap-filler' to provide protection from employee tort suits. See Reliance Nat'l Ins. Co. v. Vitale, 183 F.Supp.2d 506, 509-510 (D.Conn.2001) (noting that employer's liability insurance is traditionally written in conjunction with workers compensation policies, and is intended to serve as a `gap-filler,' providing protection to the employer in situations where the employee has a right to bring a tort action despite the provisions of the workers compensation statute) (citation omitted). Consequently, if there were no gaps in worker's compensation exclusivity to fill, the employer's liability policy would provide no benefits and the contract would be illusory. However, the condition precedent to the success of TSC-Taft's illusory contract argumentnamely, the contention that there are no gaps in Hawai`i worker's compensation exclusivity  fails to be met. For example, employers in Hawai`i are not immune, under worker's compensation law, from suits for negligent infliction of emotional distress. HRS § 386-5, supra note 3; see also Nelson v. Univ. of Hawai`i, 97 Hawai`i 376, 395, 38 P.3d 95, 114 (2001) (confirming that worker's compensation law exclusivity does not bar suits against an employer for negligent infliction of emotional distress). Similarly, general contractors are not immune under worker's compensation law from suits by employees of their subcontractors. HRS § 386-1; see also Fonseca v. Pac. Constr. Co., Ltd., 54 Haw. 578, 585, 513 P.2d 156, 160 (1973) ([T]hird-party general contractors are not immune [under worker's compensation law] to common law negligence actions on the part of employees of their subcontractors, absent the incidents of a true employer-employee relationship[.]); Crompton v. Tern Corp., 83 Hawai`i 1, 11, 924 P.2d 169, 179 (1996) (same). Here, the Tri-S policy issued by Travelers covers non-intentional torts resulting in bodily injury to employees, and thus would likely cover an employee's claim against Tri-S for negligent infliction of emotional distress resulting in bodily injury, as well as possibly a claim brought by an employee of a Tri-S subcontractor for bodily injury negligently inflicted by Tri-S. While the scope of coverage afforded Tri-S under the employer's liability portion of the policy appears to be limited at best, it is nevertheless more than illusory. See Lakota v. Westfield Ins. Co., 132 Ohio App.3d 138, 724 N.E.2d 815, 818 (1998) (considering the same worker's compensation/employer's liability policy at issue here and rejecting the illusory contract argument because the policy was only virtually, and not completely, worthless). For the foregoing reasons, we hold that the Tri-S worker's compensation and employer's liability policy issued by Travelers did not cover the wrongful death suit brought by the Rapoza Estate against Taft. As such, Travelers had no duty to defend or indemnify Tri-S or Taft. Therefore, the circuit court erred in granting summary judgment in favor of Plaintiffs. [16]