Court Upholds Denial of Coverage for Insured Due to Status of Injured Party

The Court of Appeals just published Codispoti v. First Financial Insurance Company, which dealt with an exclusion to coverage for injury to an employee of the "insured." The circuit court entered summary judgment holding that an employee exclusion in the policy precluded coverage to Joseph M. Codispoti. This Appeal followed.

Eric Jameson was driving a vehicle in which Codispoti, the owner and president of Preston Highway Motors, was a passenger. Jameson was an independent contractor and, therefore, not an employee of Preston Highway Motors. On behalf of Preston Highway Motors, the two men were taking the vehicle, a 2000 Saturn, to sell at auction in Indianapolis, Indiana. Approximately five miles outside of Indianapolis, Jameson fell asleep, hit a guardrail to the left of the roadway and then bounced to the right where the vehicle hit a wall. Both Codispoti and Jameson sustained personal injuries.

On the date of the accident, a policy of insurance issued by First Financial Insurance naming Preston Highway Motors as the named insured was in effect and covered the vehicle involved in the accident. First Financial did not deny that pursuant to the terms of the policy, Jameson was a permissive user of the vehicle and, therefore, an insured. However, it contends that Codispoti's status as an employee of Preston Highway Motors, precludes coverage under the policy terms. The exclusion at issue states as follows:

This insurance does not apply to any of the following:

EMPLOYEE INDEMNIFICATION AND EMPLOYER'S
LIABILITY

“Bodily injury” to:

a. An “employee” of the “insured” arising out of and in the
course of:

(1) Employment by the “insured”; or

(2) Performing the duties related to the conduct of the
“insured's” business.

Condispoti argued that the exclusion did not apply because he was not an employee of the insured Jamison. The Court of Appeals found that it did not matter, because Condispoti was an employee of Preston Motors, who was also an insured. Therefore, the exclusion applied.

Condispoti also argued that the exclusion was void against public policy, because it eliminated insurance coverage for Jameson. The Court of Appeal found this argument lacking as well. It noted that the same exclusion was previously found not to violate public policy in the case of Brown v. Indiana Insurance Co., 184 S.W.3d 528 (Ky. 2005). The Court did candidly recognize the factual distinction between Brown and the present case. Unlike Brown where the accident victim and the tort-feasor were employees of the named insured, Jameson was not an employee. The Court found this to be a distinction without difference. It affirmed the summary judgment.

This Opinion essentially denies Jameson, an insured, coverage for Condispoti's claims because of Condispoti's status as an employee. It leaves Jameson without coverage and personally responsible for Condispoti's damages not because of something he did in violation of the policy but solely due to the status of the person he injured. This of course is an absurd result.

The entire purpose of liability coverage is to provide indemnity to a person charged with legal responsibility for another's damages. It's purpose is not to provide coverage to the injured party. Here, Jameson, an insured, is denied coverage and thus indemnity, for his legal responsibility to Condispoti, not as a result of anything he did, but as a result of Condispoti's status. It would be no different than denying Jameson coverage for injuring a pedestrian, a family member, or any other status of person. The Supreme Court has consistently denied such "status" exclusions, finding them to be in conflict with the purpose of the MVRA. This exclusion is no different.

I also disagree that the exclusion even applies in this case. To begin with the policy begins by noting that, "[t]his insurance does not apply to any of the following." The title then states: "Employee Indemnification or Employer Liability." The language which follows and which was relied upon by the Court was clearly meant to apply, as the title suggests, when an employee is seeking indemnification for bodily injury to another employee of the insured, arising out of his employment. Or, where there was an attempt to hold the employer vicariously liable for the employee's negligence.

Here there was no dispute that Jameson was not an employee of the insured. Therefore, this is not a situation where an employee is seeking indemnification for bodily injury to another employee of the insured. In Brown, the tortfeasor was an employee of the insured who injured another employee in the course of his employment. The exclusion was clearly applicable in that case, as were workers compensation issues discussed. There is no such issue here. This is certainly more than just a distinction "without difference." Furthermore, in Brown neither the employee tortfeasor or the employer would be personally responsible without the coverage, because workers compensation laws would not allow such an result. Here the result is Jameson is left uninsured and legally responsible.

While it easy to think of liability insurance in terms of covering the injured party, the purpose is to cover the negligent party. A fact lost in this case given the opinion that the "policy did not provide coverage to Condispoti."