04 Nov Claims Against Executive Officers: Where is the Coverage?
I recently received this question from an agent friend:
My insured’s employee was injured at work on a piece of machinery and filed a workers’ compensation claim, which was paid. He then hired an attorney and filed a suit against his employer and the company president for unsafe work conditions. The employer’s liability insurer is covering the claim against the company, but the claim against the president has been denied.
The insurer stated that the employer’s liability coverage extends to the employer but not to corporate officers. We filed a claim with the CGL carrier, and they denied coverage because they said they don’t cover fellow employee suits. We also filed a claim with the EPLI carrier, but they denied coverage because of a bodily injury exclusion. Where will the company president get his coverage?
This situation is common. When an employer is sued for employer’s liability, the suit often includes the officers. As the carrier pointed out, employer’s liability protects the employer, but not employees. Any coverage for the corporate officers would be provided by the CGL policy.
Section II – “Who is an Insured” outlines who is insured by the CGL. The CGL does not have a fellow employee exclusion per se; however, it addresses this situation in this section. Here’s the wording:
“However, none of these “employees” or “volunteer workers” are insureds for: (1) “Bodily injury” or “personal and advertising injury”: (a) To you, to your partners, or members (if you are a partnership or joint venture), to your members (if you are a limited liability company), to a co- “employee” while in the course of his or her employment or performing duties related to the conduct of your business, or to your other “volunteer workers” while performing duties related to the conduct of your business.”
This limitation does not mention “executive officers,” which is a defined term. So, there would be coverage for an “executive officer” who injures another employee. Here’s the definition of that term:
“Executive officer” means a person holding any of the officer positions created by your charter, constitution, bylaws, or any other similar governing document.
Therefore, whether the president has coverage under the CGL policy depends on whether his position meets the definition of an “executive officer.” Ask him if this is addressed in the corporation’s “charter, constitution, bylaws, or any other similar governing document.” If so, he has coverage. If not, he will have to provide his own defense.
The good news is that the agent forwarded my comments to the carrier, and they agreed that the president was an “executive officer.” They are defending him under the CGL coverage.
This situation brings home an important point. When reviewing various CGL insureds, we need to address the issue of “executive officers.” We need to ask the question, “Who are the officers created in your charter, constitution, bylaws, or similar governing document?“ If they don’t have this specifically addressed, they need to clarify this. It can be accomplished through a corporate resolution or by recording it in the minutes of the corporate meeting. Request a copy of this document to serve as documentation in the client’s file. Failure to clarify this could lead to an E&O claim if an employee sues an officer and the claim is denied.
One final comment: Sometimes, managers or supervisors are sued by employees who have been injured on the job. Since they are not “executive officers,” they would have no protection under the CGL. A plaintiff attorney might remove them from the suit if the manager/supervisor agrees to testify against the employer. That would be a dilemma for that person – testify against the employer and risk losing their job, or not testify and face self-insured exposure. It might be possible to get a “manuscript“ endorsement from the carrier to cover managers and supervisors.