Opinion ID: 2639532
Heading Depth: 3
Heading Rank: 1

Heading: Interpretation of the CGL Policy.

Text: WWI argues that, as a matter of law, it was not obligated to defend or indemnify Taft with respect to the underlying wrongful death suit based on the language of the CGL policy. WWI's arguments regarding the interpretation of the policy are divisible into two types: first, that Taft was not an insured under the terms of the policy for purposes of the underlying claim; and second, that even if Taft was an insured, he was nevertheless not covered in the instant case due to an applicable policy exclusion. For the reasons set forth below, neither group of arguments has merit.
WWI contends, correctly, that [i]n order for [WWI] to have a duty to defend or to indemnify Mr. Taft in the underlying case, he must first be an insured with respect to the claim made against him. TSC-Taft responds that Taft was an insured by virtue of his status as an executive officer of Tri-S. The circuit court concluded that Taft was sued in his capacity as an executive officer of Tri-S. Taft is thus an insured within the mea[n]ing of the policy as to the underlying action. For the reasons set forth below, we hold that the circuit court's conclusion was correct. As noted above, Section II.1.c of the CGL policy provides that the executive officers of Tri-S are insureds, but only with respect to their duties as [Tri-S's] officers.  (Emphasis added.) It is undisputed that Taft was an executive officer of Tri-S. Section II.2.a adds that Tri-S employees,  other than [Tri-S] executive officers, [are also insureds,] but only for acts within the scope of their employment by [Tri-S]. . . . However, no `employee' is an insured for . . . `Bodily injury'. . . to a co-`employee'[.] (Emphases added.) It is also undisputed that Rapoza, an employee of Tri-S, suffered a bodily injury, that Taft was an employee of Tri-S and thus a co-employee of Rapoza, and that both were acting within the scope of their employment at the relevant times. Accordingly, Taft is an insured for purposes of the underlying suit if: (1) he was sued with respect to performance of his duties as a Tri-S officer, and (2) the bodily injury exception does not apply to executive officers. The first question is dealt with below in Section III.A.2, while the second is addressed herein. WWI argues that the phrase no employee means that no employee  whether executive officer or otherwise  is insured with respect to the bodily injury of a co-employee. TSC-Taft replies that while the phrase no employee, when taken alone, might suggest that the bodily injury exception applies to all co-employees, it must be read in context with the previous sentence carving out executive officers from other employees generally. Although WWI is able to cite a favorable case directly on point, we nevertheless conclude that TSC-Taft has the more persuasive argument. WWI refers us to Zaiontz v. Trinity Universal Ins. Co., 87 S.W.3d 565 (Tex.App. 2002). There, the court considered policy language identical to that in the Tri-S CGL policy and held that the phrase `no employee' must be interpreted to mean `no employee'  whether or not the employee is an executive officer. Id. at 570 (citation omitted). The Zaiontz court reasoned that executive officers are also employees and that if the second sentence in section II.2.a.(1) had been intended to deny insured status only to employees who were not executive officers, it would have used the phrase `these employees,' not `no employee.' Id. (citation omitted). While the reading adopted by the court in Zaiontz is persuasive when the sentence is examined in isolation, this court is bound to interpret an insurance contract in its entirety. Dairy Rd. Partners, 92 Hawai`i at 411-12, 992 P.2d at 106-07. As such, the second sentence must be considered in connection with the first, as well as in the context of the separation of executive officers (insured under Section II.1) from other employees (insured under Section II.2) in the policy. When read in this way, the definition of employee for purposes of the phrase no employee does not include executive officers. This interpretation, as TSC-Taft notes, is supported by the placement of the clauses  Taft claims insured status under Section II.1.c, which governs insured status for officers and directors, while the bodily injury exception is located in Section II.2.a, a completely different subsection pertaining to non-executive corporate employees. That the insured status of executive employees with respect to their executive duties was intended to be governed only by subsection 1 is indicated by the carve-out of executive officers in the first sentence of Section II.2.a. Accordingly, the bodily injury exception to insured status does not apply to Taft as an executive officer.
WWI next contends that, even if Taft was an insured under the policy, he was nevertheless not covered by virtue of various exclusions. First, WWI argues that Taft was not covered due to Section I.2.d, the worker's compensation exclusion. As set forth above, that exclusion provides that coverage does not exist for [a]ny obligation of the insured under a workers compensation, disability benefits or unemployment compensation law or any similar law. Second, WWI argues that Section I.2.e, the bodily injury exclusion, which excludes coverage for bodily injury to an employee of the insured arising out of and in the course of . . . [e]mployment by the insured, applies. TSC-Taft counters that Tri-S, not Taft, was the employer of Rapoza, and thus neither exclusion applies to Taft. TSC-Taft's position has merit. The interpretation of Sections I.2.d and e turns on the meaning of the phrase the insured. Section IV.7 of the policy states that the policy applies [s]eparately to each insured against whom claim is made or `suit' is brought. This is a standard insurance contract provision known as a severability-of-interests clause, the import of which has been extensively discussed in the literature and case law outside of Hawai`i, see generally Barnette v. Hartford Ins. Grp., 653 P.2d 1375, 1376-83 (Wyo.1982), although it presents an issue of first impression here. The majority view is that, by operation of the severability clause, the insured must be read to mean the party seeking coverage rather than the named insured ( i.e., corporation-employer) or any insured in analyzing whether the bodily injury and worker's compensation exclusions apply. See, e.g., Barnette, 653 P.2d at 1379-80 (collecting cases and holding that an executive officer is not the employer for purposes of determining coverage but rather an additional insured to whom the employee exclusion does not apply); Zenti v. The Home Ins. Co., 262 N.W.2d 588, 592 (Iowa 1978) (collecting cases and holding that the severability-of-interests clause was inserted into insurance contracts to make clear that the employee exclusion is applicable only when the person claiming coverage as insured is the employer). The rationale for this interpretation of the severability-of-interests clause was first expressed nearly fifty years ago as follows: The logical theory for the employee exclusion is to prevent [an] employee[ ] of the tort feasor [sic] from suing his employer for injuries received thru [sic] his employer's negligence. A reason for this is that employees are usually covered by workmen's compensation and can recover from the employer, with or without negligence. When negligence is committed by other than his employer, the logic for the exclusion disappears. If the insurer wishes to further exclude its liability, it could clearly so state in its contract and its failure to do so should be strictly construed. Especially is this true when the policy contains a severability clause, for there it can be implied that the insurer is actually recognizing a separate obligation to others, distinct and apart from the obligation it owes to the named insured. Gen'l Aviation Sup. Co. v. Ins. Co. of N. Am., 181 F.Supp. 380, 384 (E.D.Mo.1960), aff'd 283 F.2d 590 (8th Cir.1960), quoted in Barnette, 653 P.2d at 1380 (emphasis and bracketed material added). The Zenti court emphasized this last point regarding separate obligations to each insured, noting: Indeed, as we have pointed out, most courts now interpret Severability of Interests clauses as expressing an acknowledgment on the part of insurance companies that the term insured does not always mean any insured who could claim coverage under the policy but only the insured claiming coverage. Zenti, 262 N.W.2d at 590-91 (citations omitted; first emphasis in original, second emphasis added). Based on the foregoing, we adopt the majority rule and hold that where an insurance policy contains a severability-of-interests clause, the phrase the insured in a policy exclusion must be read to refer to the insured seeking coverage as opposed to the named insured or any insured. Here, the insured claiming coverage is Taft; thus the phrase employee of the insured under Section I.2.e.1 must be read employee of Taft. However, Rapoza was not an employee of Taft, but of Tri-S, so the exclusion does not apply. Similarly, the phrase in Section I.2.d, obligation of the insured, under worker's compensation law, must be read obligation of Taft. Again, however, Taft had no obligations to Rapoza under Hawai`i worker's compensation law because he was not Rapoza's employer; instead it was Tri-S which shouldered those burdens. Accordingly, neither exclusion applies and the circuit court did not err in concluding that Taft was covered under the WWI policy.