By: Blakely Lloyd

A recent Eleventh Circuit decision demonstrates the importance of careful policy drafting, including every seemingly benign three-letter word. In James River Insurance Company v. Ultratec Special Effects Inc., the Eleventh Circuit Court of Appeals found ambiguous the common policy phrase “any insured,” and imposed upon an insurer the duty to defend. 22 F.4th 1246 (11th Cir. 2022).

James River stems from a pyrotechnic explosion at a factory outside of Huntsville, Alabama, which killed two employees and severely injured another. The employees were employed by Ultratec Special Effects HSV, Inc. (Ultratec HSV), a subsidiary of Ultratec Special Effects, Inc. (Ultratec). The surviving employee, and representatives of the deceased employees, filed suit in state court against Ultratec HSV, Ultratec, Mike Thouin, an Ultratec employee, and an associated business called MST Properties, LLC (collectively referred to as “Ultratec entities”), alleging claims of negligence and wantonness. The Ultratec entities tendered the claim to their insurer, James River Insurance Company.

After assuming the defense of the Ultratec entities under a reservation of rights, James River filed a declaratory judgment action in the U.S. District Court for the Northern District of Alabama, asking the District Court to determine whether coverage was precluded by the employer’s liability exclusion, which provided as follows:

This insurance does not apply to any claim, suit, cost or expense arising out of the ‘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.

Id. at 250.

Importantly, the James River policy also included a separation of insureds provision, which provided: “this 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.” The District Court found the exclusion was ambiguous and held James River had a duty to defend Ultratec, Thouin and MST. The district court did not address the duty to indemnify the claim, finding it was not ripe for adjudication until liability was decided in the underlying suit. James River appealed the district court’s ruling to the Eleventh Circuit Court of Appeals.

The parties agreed the employer’s liability exclusion barred coverage for Ultratec HSV as the employees’ employer, but disagreed as to the coverage afforded to Ultratec, Thouin and MST. Id. James River argued the exclusion unambiguously applied equally to all the insureds. Id. at 1253. Thus, if the employees’ claims arose out of injuries suffered while employed by any one of the insureds, coverage was barred for each of the insureds. According to James River, Ultratec HSV’s status as an insured and the employees’ employer barred coverage for all Ultratec entities. Id.

The Ultratec entities disagreed, arguing the phrase “any insured” was ambiguous and susceptible to two meanings. Id. The Ultratec entities argued “any insured” could be interpreted as James River would like, or “any insured” could be read to preclude only the claims brought by the employees against their employer, Ultratec HSV, leaving coverage for the other Ultratec entities intact. Under this interpretation, James River would have a duty to defend the non-employer Ultratec entities: Ultratec, Thouin and MST. Id.

In interpreting the phrase “any insured,” the Eleventh Circuit turned to Alabama case law, which appears to adopt a minority view on the interpretation of the phrase “any insured.” The Alabama Supreme Court previously considered the phrase “any insured” and deemed it ambiguous in two different cases. See Transp. Indem. Co. v. Wyatt, 417 So. 2d 568, 571 (Ala. 1982); Wilson v. State Farm Mut. Auto. Ins. Co., 540 So. 2d 749, 752 (Ala. 1989). Wyatt involved a similar exclusion, which read: “This insurance does not apply . . . [t]o any OCCURRENCE which caused BODILY INJURY to any employee of any INSURED arising out of or in the course of his employment by any INSURED.” 417 So. 2d at 569. The court found the exclusion’s use of “any insured” was ambiguous because the phrase “could be interpreted either to mean only singularly ‘any one of the insureds’ or could apply collectively to the whole group of insureds.” Id. at 571.

Similarly, in Wilson, the Alabama Supreme Court determined an exclusion that barred coverage for bodily injury to “any employee of an insured” was ambiguous where the policy covered “multiple insureds and the injured party is an employee of one or some, but not all.” 540 So. 2d at 750-52.

The Eleventh Circuit found these decisions instructive, holding “any insured” was ambiguous under the terms of the James River employer’s liability exclusion. Thus, the Eleventh Circuit upheld the district court’s holding and determined James River had a duty to defend Ultratec, Thouin and MST.

James River demonstrates the importance of revising policy language to ensure it is up to date with case law interpreting similar provisions. It further demonstrates the importance of understanding the state law applicable to the claim at issue because some phrases may seem clear but may be deemed ambiguous in the local jurisdiction.

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 The Eleventh Circuit Court of Appeals found ambiguous the common policy phrase “any insured,” and imposed upon an insurer the duty to defend.
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