The 11th Circuit deals blow to Employer’s Liability exclusion finding ambiguities under Alabama law


Insurance Coverage Language

By: Mallory Ball

In James River Insurance Company v. Ultratec Special Effects Inc., 2022 U.S. App. LEXIS 1120 (11th Cir. Jan. 13, 2022), the 11th Circuit Court of Appeals, applying Alabama law, determined the “any insured” language in the Employer’s Liability exclusion is ambiguous because it can be read singularly or collectively. Going further, the Court determined that even if the “any insured” language was unambiguous, the commercial general liability policy’s separation of insureds provision read with the exclusion under these facts creates ambiguity. 

The case arises out of a workplace explosion resulting in the injury or death of three employees of Ultratec Special Effects HSV, Inc. (“Ultratec HSV”). After the injured workers, or their estates, filed suit in Alabama state court, James River Insurance Company brought a declaratory judgment action in federal district court seeking a determination as to its obligations to defend and indemnify Ultratec HSV, its parent company Ultratec Special Effects, Inc. (“Ultratec”), Ultratec’s employee Mike Thouin, and an associated business, MST Properties, LLC (“MST”), under a commercial general liability policy.  

Deciding cross-motions for summary judgment, the district court stayed ruling on the insurer’s duty to indemnify, finding the question not ripe for adjudication since liability had not been determined. As to James River’s duty to defend, the parties agreed that the Employer’s Liability exclusion precluded coverage for the claims against Ultratec HSV, but they disagreed as to whether the claims against Ultratec, Thouin, and MST were also excluded. The district court ruled on the side of the insureds, finding that James River had a duty to defend Ultratec, Thouin and MST in the state court case.  

The language of James River’s Employer’s Liability exclusion states: “‘[t]his insurance does not apply to any claim, suit, cost or expense arising out of ‘bodily injury’ to . . . [a]ny employee of any Insured arising out of and in the course of . . . [e]mployment by any insured[] or . . . [p]erforming duties related to the conduct of any insured’s business.’” The policy also contained a separation of insureds provision that provided, “‘[t]his insurance applies . . . [a]s if each Named Insured were the only Named Insured; and . . . [s]eparately to each insured against whom claim is made or ‘suit’ is brought.’” 

At the heart of the Eleventh Circuit’s decision was the term “any insured” contained in the exclusion. Relying on precedent from the Alabama Supreme Court, the Eleventh Circuit panel noted that the state’s high court had twice previously considered the application of the term “any insured” in an employer’s liability exclusion and found the term ambiguous on its face. Specifically, the panel relied on Transportation Indemnity Company v. Wyatt, 417 So. 2d 568 (Ala. 1982), where the Alabama Supreme Court explained that the term “‘any insured’ can be interpreted singularly as ‘any one of the insureds,’ or collectively as ‘the whole group of insureds.’”   

Applying the Wyatt ruling, the Eleventh Circuit found that application of the term “any insured” within the Employer’s Liability exclusion to the facts of this case produced opposite results if read singularly and collectively. Read singularly, coverage would be afforded to Ultratec, Thouin, and MST because “the Policy [would] not cover any claim arising out of bodily injury to any employees of Ultratec arising out of their employment with Ultratec.” Because the plaintiffs were not employed by Ultratec, the exclusion would not bar coverage for their claims and James River would owe a duty to defend Ultratec, Thouin, and MST. Read collectively, on the other hand, coverage would be excluded because “the Policy [would] exclude[] coverage for any claim for bodily injury to any employees of any of the four insureds, Ultratec, Ultratec HSV, MST, or Thouin, arising out of the course of their employment.” Simply because the plaintiffs were employed by one of those insureds, the exclusion would apply to their claims against all the insureds, resulting in no coverage under the James River policy.  Because, under the facts of this case, the conflicting readings lead to equally plausible, but opposite results, the Eleventh Circuit deemed the exclusion “reasonably open to either interpretation.” Accordingly, the appellate court found the exclusion to be ambiguous and construed it in favor of coverage for Ultratec, Thouin, and MST.   

The Court did not stop there, however, finding that even if the exclusion was unambiguous, the separation of insureds provision in the policy created ambiguity with respect to the exclusion.  Noting that Alabama follows the minority rule regarding application of the separation of insureds provision, the Eleventh Circuit panel found that “the whole policy, including exclusions should be read as if each insured has its own, separate insurance.” Under such an application, “one insured’s conduct will not affect another insured’s coverage.” Reading the policy as separately issued to Ultratec HSV, Ultratec, MST and Thouin, the Court concluded that the exclusion only precluded coverage for bodily injury to an employee of a particular insured arising out of and in the course of employment by that particular insured. Because the plaintiffs were not employees of Ultratec, Thouin, or MST, and were not injured in the course of employment by Ultratec, Thouin, or MST, the exclusion did not apply to preclude James River’s duty to defend. 

Regardless of jurisdiction, this case illustrates the complexities and potential for ambiguity associated with the application of coverage exclusions in matters involving multiple insureds.   

For additional information or questions, please contact Mallory Ball at or your FMG attorney.