Opinion
No. CV 04 4004859
January 3, 2006
MEMORANDUM OF DECISION
Not only are the facts underlying this insurance coverage dispute not contested; the parties also agree on the general legal principles which will guide its resolution. The rub is in the application of those principles to the interpretation of three words in the insurance contract, given the undisputed facts.
I
In September 2000 the defendant Vermont Mutual Insurance Company (Vermont Mutual) provided property and general liability coverage to the defendant Employment Services, Inc. (Employment Services). The plaintiff town of Manchester (Manchester) was added as an additional insured under that policy pursuant to a requirement imposed by Manchester on Employment Services when, in September 2000, those two parties entered into a contract for Employment Services to provide temporary employees to Manchester.
On November 2, 2000 the defendant Bruce Guinan sustained an injury to his left foot while employed by Employment Services and assigned to Manchester, pursuant to the contract, for leaf raking and vacuuming. In August 2001 Mr. Guinan and his wife sued Manchester and its employee, the plaintiff Jim Moody, claiming Mr. Moody's negligence was the proximate cause of Mr. Guinan's injuries. Mr. Guinan sued for damages from his injuries; Mrs. Guinan, for loss of consortium. As an additional insured under the general liability policy Manchester requested Vermont Mutual to defend and indemnify it and its employee. Vermont Mutual declined to do either.
Manchester and Mr. Moody have brought this action seeking a declaratory judgment that Vermont Mutual had a duty to defend them under the policy, that Vermont Mutual breached its duty to defend and, having done so, is liable to indemnify them up to the limits of the policy. Cross motions for summary judgment have been filed by Manchester and Vermont Mutual, which will be dispositive of the case.
II
Practice Book § 17-49 requires that summary judgment "shall be rendered forthwith if the pleadings, affidavits and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." The parties agree, and I find, that there are no genuine issues as to any material facts; they disagree as to which of them is entitled to judgment as a matter of law.
The principles governing the construction of insurance contracts are settled and also not in dispute between the plaintiffs and Vermont Mutual:
Under well-settled Connecticut law, it is the function of the court to construe the provisions of the contract of insurance . . . The interpretation of an insurance policy . . . involves a determination of the intent of the parties as expressed by the language of the policy [including] what coverage the . . . [insured] expected to receive and what the [insurer] was to provide, as disclosed by the provisions of the policy . . . [A] contract of insurance must be viewed in its entirety, and the intent of the parties for entering it derived from the four corners of the policy [giving the] words . . . [of the policy] their natural and ordinary meaning . . . Although any ambiguity in the terms [of the policy must be construed] in favor of the insured, [a] necessary predicate to this rule of construction, . . . is a determination that the terms of the insurance policy are indeed ambiguous. A contract is not ambiguous merely because different interpretations are advocated by the parties . . . Rather, it is ambiguous only when it is reasonably susceptible to more than one reading . . . Where the terms of an insurance policy are unambiguous, the policy language must be given its natural and ordinary meaning . . . Terms that are not defined in the policy but are nonetheless clear "must [be] give[n] effect" in accordance with the reasonable and natural interpretation of such language . . . The determination of whether an insurance policy is ambiguous is a matter of law for the court. (Citations and internal quotation marks omitted.)
State Farm Fire Casualty Insurance Co. v. Sayles, 289 F.3d 181, 185 (2d Cir. 2002) (applying Connecticut law).
III
Vermont Mutual by virtue of its insurance contract with Employment Services obligated itself to pay those sums that the latter would become legally obligated to pay as damages because of "bodily injury" to which the insurance applies and assumed a correlative duty to defend any claims against Employment Services for such damages. This undertaking to indemnify and defend was extended to Manchester by way of an endorsement specifically adding Manchester as an additional insured under the policy, "but only with respect to liability arising out of your operations . . ." See exhibit A to the plaintiffs' memorandum of law in support of motion for summary judgment, Endorsement form CG 20 26 11 85. It is agreed between the parties that "your" in the quoted language refers to Employment Services. So, Vermont Mutual was obligated to pay those sums that Manchester would become legally obligated to pay as damages for bodily injury but only with respect to liability " arising out of" the operations of Employment Services.
This case revolves around the interpretation of those three words in the insurance contract. Do Mr. Guinan's alleged injuries "arise out of" the operations of Employment Services because he was its employee on temporary assignment to Manchester, as argued by the plaintiffs? Or, do they "arise out of" the operations of Manchester because they were allegedly caused by the negligence of Manchester's employee, Mr. Moody, as advanced by Vermont Mutual? Neither interpretation is self-evidently right or wrong, but I am persuaded that both the established judicial interpretation of the phrase "arising out of" in Connecticut and the clear majority rule across the country as to how such additional insured provisions are to be interpreted supports the plaintiffs' argument.
The interpretation of this phrase in the context of a claim against an additional insured for damages allegedly caused by its own negligence appears to be an issue of first impression in Connecticut, somewhat surprising since this is, after all, the "Insurance State." Generally speaking, however, the phrase "arising out of" has been held by Connecticut courts to signify a causal relationship between the alleged injury and an incident, occurrence or circumstance.
In a fact situation analogous to the one here, however, Judge Covello of the U.S. District Court for the District of Connecticut recently ruled that an insurer was liable to defend and indemnify the town of Branford as an additional insured when an employee of a contractor doing business with the town sued the town for injuries allegedly caused by the negligence of the town's employee. Westport Insurance Co. v. Town of Branford, # 3:02V1824(AVC) (D.Conn. 5/18/05).
[I]t is generally understood that for liability for an accident or an injury to be said to "arise out of" [an occurrence or offense], it is sufficient to show only that the accident or injury "was connected with," "had its origins in," "grew out of," "flowed from" or "was incident to" [that occurrence or offense], in order to meet the requirement that there be a causal relationship between the accident or injury and [that occurrence or offense]. Hogle v. Hogle, 167 Conn. 572, 577, 356 A.2d 172 (1975), and cases cited therein. To "arise" out of means "to originate from a specified source." Webster's Third New International Dictionary (1961); see also Black's Law Dictionary (7th Ed. 1999) (defining "arise" as "1. [t]o originate; to stem [from] . . . 2. [t]o result [from]"). The phrase arising out of is usually interpreted as indicat[ing] a causal connection. (Internal quotation marks omitted.)
QSP, Inc. v. Aetna Casualty Surety Co., 256 Conn. 343, 374 (2001). See also Holy Trinity Church of God in Christ v. Aetna Cas. Sur. Co., 214 Conn. 216, 223 n. 5 (1990); Board of Education v. St. Paul Fire Marine Ins. Co., 261 Conn. 37, 47-48 (2002).
Thus, the term "arising out of" in Connecticut law is to be given a very broad interpretation. Consistent with such an interpretation, a clear majority of cases around the country, collected in the plaintiffs' memorandum of law in support of its motion for summary judgment, have held that an additional insured is entitled to coverage when there is a minimal causal relationship between the liability of the additional insured and the business of the named insured and without regard to who was allegedly at fault in causing the injury. A good example is McIntosh v. Scottsdale Ins. Co., 992 F.2d 251 (10th Cir. 1993). There the plaintiff fell while attending a festival and sued the city of Wichita, alleging a defect in the city's premises. Wichita was held to have coverage as an additional insured under the liability policy of the festival's organizer because the claim "arose out of" the festival's operations, without regard to the claim of negligence by the city. "The liberal interpretation of the additional insured endorsement by the McIntosh Court is fast becoming the majority rule." Richmond Black, Expanding Liability Coverage: Insured Contracts and Additional Insureds, 44 Drake L. Rev. 781, 801 (1996).
Vermont Mutual does not meet this argument. Rather, it misconceives of Manchester's claim as one of ambiguity in the policy language which the court should resolve by reference to out-of-state decisions. On the contrary, Manchester accurately contends that the term "arising out of," when properly understood under Connecticut law, is not ambiguous. Memorandum of Law in Support of Motion for Summary Judgment, January 7, 2005, p. 14. It cites to the decisions of other states only as evidence of how the majority of them have extended coverage to additional insureds via a similarly broad interpretation of the phrase "arising out of."
The business of Employment Services, its "operations," to use the language of the policy, is to provide temporary employees to other enterprises, in this case the town of Manchester. As a part of that business, it hired Mr. Guinan and assigned him to its contract with Manchester to provide temporary help with its leaf raking and vacuuming work. As a result Mr. Guinan was injured while on the job to which he had been assigned by Employment Services. Given the broad judicial interpretation of the phrase "arising out of" in this state, this is a sufficient causal nexus for Manchester to be covered for Mr. Guinan's alleged injuries and for Vermont Mutual to be obligated to defend it in Mr. Guinan's lawsuit. Such a result is in keeping with the majority rule nationally in providing coverage for additional insureds under the original insured's policy without regard to the alleged negligence of the additional insured. See Millikan, The Law of Unintended Consequences: Legal Issues Involving Additional Insured Endorsements, 15 U.S.F. Mar. L.J. 299, 304 (2003). ("The vast majority of courts have broadly interpreted the phrase `arising out of.' Most courts interpreting similar endorsements have found coverage where there is some causal nexus between the named insured's work and the accident, regardless of who was actually at fault for causing the mishap.")
The complaint in the underlying action; see exhibit B to Manchester's memorandum of law in support of motion for summary judgment; alleges that Mr. Guinan was injured on November 2, 2000 "while under the control of and in the course and scope of his employment with [Employment Services]." It is the allegations of the underlying complaint that determines Vermont Mutual's duty to defend Manchester and Mr. Moody. See part V, infra.
If an insurer like Vermont Mutual wished to exclude from its coverage liability based on the additional insured's negligence, it would be free to do so. It could also specifically limit coverage to situations in which the additional insured is claimed to be vicariously liable for negligent conduct by the named insured. Vermont Mutual has not so limited its coverage. In the absence of such an express limitation I cannot read it into the policy. Hammer v. Lumberman's Mutual Casualty Co., 214 Conn. 573, 591 (1990) ("A court cannot rewrite the policy of insurance or read into the insurance contract that which is not there").
If Manchester is not covered in this fact situation, it is difficult to see how it or any other enterprise for which Employment Services provides temporary help would ever be covered under the policy. They can only be liable for damages proximately caused by their own negligence, and, if such claims are excluded from the policy on the theory that they don't "arise out of the operations" of Employment Services, then there is no coverage, and the additional insured endorsement has no effect.
IV CT Page 31
Vermont Mutual makes two other arguments against coverage for Manchester. First, because the policy does not cover Employment Services for bodily injury to its own employees, like Mr. Guinan, it does not cover Manchester for such injuries. The short answer is that Connecticut law is to the contrary. Sacharko v. Center Equities Ltd. Partnership, 2 Conn.App. 439 (1984). In Sacharko the insurance policy at issue contained language virtually identical to language in the policy here: "Except with respect to the limits of insurance . . . this insurance applies . . . (a)s if each Named Insured were the only Named Insured; and . . . (s)eparately as to each insured against whom a claim is made or `suit' is brought." Such clauses are known as "severability of interests" clauses, and the Appellate Court concluded in Sacharko that "because the policy contained a severability of interests provision [the insurer] cannot use the employee exclusion clause as a basis for abandoning its duty to defend [the additional insured]" in a suit brought by the named insured's employee. Id., 443. "Where a policy contains a severability of interests clause, it is a recognition by the insurer that it has a separate and distinct obligation to each insured under the policy, and that the exclusion under the policy as to employees of the insured is confined to the employee of the insured who seeks protection under the policy." Id., 444.
See subsection 2(d) and subsection 3 of Section I, Exclusions, attached as exhibit D to Vermont Mutual's memorandum of law in support of objection to and cross motion for summary judgment.
See paragraph 7 of Part IV — Commercial General Liability Conditions, page 10 of 13, attached as exhibit D to Vermont Mutual's memorandum of law in support of objection to and cross motion for summary judgment.
So, Vermont Mutual would not be required to indemnify and defend Manchester in a suit brought by an employee of Manchester.
Second, because the policy excludes "leased workers" from coverage, Vermont Mutual contends that Mr. Guinan was a "leased worker," as that term is defined in the policy, and it is not liable to indemnify or defend Manchester against his claim. But, the argument ignores the distinction made in the policy between a "leased worker" and a "temporary worker," who is not excluded from coverage. Whether I look at the contract between Manchester and Employment Services, which was for the provision of temporary employees, or the actual duties of Mr. Guinan as alleged in the complaint; viz., the raking and vacuuming of leaves in the fall of 2000, the undisputed facts make it clear that he was a "temporary worker," as defined in the contract of insurance, and not excluded from coverage.
"`Leased worker' means a person leased to you by a labor leasing firm under an agreement between you and the labor leasing firm, to perform duties related to the conduct of your business." See Section V — Definitions in the policy form attached as exhibit D to Vermont Mutual's memorandum of law in support of objection to and cross motion for summary judgment.
"`Leased worker' does not include a `temporary worker' . . . `Temporary worker' means a person who is furnished to you . . . to meet seasonal or short-term workload conditions." See Section V — Definitions in the policy form attached as exhibit D to Vermont Mutual's memorandum of law in support of objection to and cross motion for summary judgment.
Accordingly, I find that Manchester was insured under the policy for any liability that might arise in the lawsuit brought by the Guinans. Vermont Mutual breached its duty to defend Manchester when it refused to provide a defense in that case.
V CT Page 32
Manchester maintains that Mr. Moody, its employee, is entitled to the same protection under the policy as is Manchester. It also argues that, having breached its duty to defend both Manchester and Mr. Moody in the Guinans' lawsuit, Vermont Mutual is obligated to indemnify them up to the limits of its coverage and to reimburse them for the costs of their defense to date.
Vermont Mutual has raised no objections to these propositions; therefore, I take them as being admitted. Nevertheless, I have examined the arguments and the law cited by Manchester and satisfied myself that these claims are reasonably supported by the law.
Pursuant to General Statutes § 7-101a, Manchester is obligated to pay any judgment against its employee, Mr. Moody, and that statute is the basis upon which the underlying complaint seeks a judgment against Manchester. See ¶ 12 of the First Count. This obligation, a benefit of Mr. Moody's employment contract with Manchester, satisfies the "Supplementary Payments" coverage obligation of Vermont Mutual under the policy. See Section 1, Coverages, of the Commercial General Liability Form, under Supplementary Payments — Coverages A B, attached as exhibit A to Manchester's memorandum of law in support of motion for summary judgment.
Vermont Mutual's duty to defend the plaintiffs was determined by the allegations in the underlying complaint. See, e.g., Wentland v. American Equity Ins. Co., 267 Conn. 592, 600 (2004). I have found that the allegations in the underlying complaint here, read in the light of the policy's coverage of Manchester as an additional insured, established a duty to defend both Manchester and Mr. Moody. Vermont Mutual's breach of its duty to defend leads to one conclusion: it is now obligated to indemnify them up to the limits of its policy. Black v. Goodwin, Loomis Britton, Inc., 239 Conn. 144, 152-53 (1996); Schurgast v. Schumann, 156 Conn. 471, 491 (1968).
VI
From my examination of the file and review of the arguments of the parties I find that all of the conditions of Practice Book § 17-55 for the maintenance of an action for declaratory judgment have been met. In particular I find that there is no other form of proceeding that can provide the plaintiff's immediate redress. I further find, that, as required by § 17-56(b), all persons who have an interest in the subject matter of the requested declaratory judgment that is direct, immediate and adverse to the interest of one or more of the plaintiffs or defendants in the action have been made parties to the action.
I further find and declare that:
1. Vermont Mutual has and had, by virtue of the policy of insurance it issued to Employment Services and to which Manchester had been added as an additional insured, a duty to defend the plaintiffs with respect to the lawsuit brought by the Guinans;
2. By virtue of the same policy Vermont Mutual has and had a duty to indemnify the plaintiffs in that same lawsuit;
3. Vermont Mutual breached its duty to defend the plaintiffs in that lawsuit and is obligated to indemnify them to the limits of its policy.
Therefore, the plaintiffs' motion for summary judgment is granted, and the defendant Vermont Mutual's cross-motion for summary judgment is denied.
The plaintiffs are ORDERED forthwith to file a certificate of closed pleadings and claim for the hearing in damages calendar so that the damages payable by the defendant Vermont Mutual may be determined and judgment may enter.