Severability clauses and additional insureds
Do severability clauses protect additional insureds from policy exclusions? In Archer Daniels Midland Co. v. Burlington Ins. Co. Group, Inc., 2011 WL 1196894 (N.D. Ill.), the court said yes and no.
ADM was an AI on a contractor's policy with Burlington. An employee of the contractor injured at an ADM facility sued ADM. Burlington eventually rejected ADM's tender under the employer's liability and cross-liability exclusions. The employer's liability exclusion applied to "bodily injury to: (1) an 'employee' of the insured arising out of and in the course of employment of the insured;..." The cross-liability exclusion, on the other hand, applied to "'bodily injury' ...to...3. a present...employee of any insured." The policy also had a standard severability clause under which the insurance would apply "a. As if each named insured were the only named Insured; and b. Separately to each insured against whom...suit is brought."
The court, based upon the wording ("the" v. "any") and the underlying purpose of each exclusion, held that the employer's liability exclusion did not preclude coverage but that the cross-liability exclusion did.
Regarding the employer's liability exclusion, the court found that it could apply to the named insured only because it barred coverage for injury to an employee of "the insured." The cross-liability exclusion, however, did apply because it barred coverage for injury to an employee of "any insured." In other words, if the underlying lawsuit involves an employee of any insured, no insured is covered. Further emphasizing this point, the court suggested that if the employer's liability exclusion had also referred to "any insured," there would be no coverage for any insured so long as one insured was the employer. The court stated that "[the] majority rule is that the distinction between the terms 'the insured' and 'any insured' in an exclusion is crucial in determining the import of a severability clause."
Is that so? Should it be? In reaching its holding the Midland court distinguished several cases where the courts refused, based upon the severability clause, to apply exclusions for "any insured' where the exclusion would not apply to the AI seeking coverage. For example, in United States Fidelity and Guaranty Co. v. Shorenstein Realty Serv., 700 F.Supp. 2d 1003 (N.D. Ill. 2010), the court refused to apply to AIs a professional services exclusion that barred coverage for injury caused by rendering or failing to render any professional services by or on behalf of "any insured" because the AIs did not perform professional services at the project. (Full disclosure: I represent one of the insureds in Shorenstein).
As the Midland court noted, the purpose of a cross-liability exclusion is to bar coverage for suits between insureds. The clause would be meaningless if it did not apply to all insureds. The purpose of the employer's liability and professional services exclusions, however, is narrower: It is to bar GL coverage where other insurance, workers compensation and professional liability, respectively, is available. These exclusions, then, should apply only to the named insured (where the exclusion applies to "the insured") or to the insured who is the employer or is performing professional services (where the exclusion applies to "any insured"). Contrary to the Midland court's suggestion, the exclusions should not apply to all insureds where only one is implicated by the exclusion.
