Case update: Pryor v. Colony Insurance – An employer’s commerical general liability policy: are you covered?

By Jarad N. Key

If an independent contractor is injured on the job, does the insurer for the person hiring him have to pay for his injuries? A recent decision by the Kentucky Court of Appeals makes clear that independent contractors are not “employees” under a company’s commercial general liability (CGL) policy.

In Pryor v. Colony Insurance (rendered Feb. 1, 2013, and designated “To Be Published”), the Court of Appeals held that language in a CGL policy, which includes which purports to preclude coverage for liability arising out of injuries to employees or anyone performing duties related to the conduct of the insured’s business, covers all workers. In the Pryor case, an individual, who was not an employee of Newcastle Hauling, LLC, was hauling timber for the company when a skidder he was operating rolled over and crushed him, tragically resulting in his death. The contractor’s estate instituted a lawsuit against Colony Insurance Company, among others, to recover damages for his death.

The policy that Colony provided to Newcastle Hauling had two provisions that excluded liability. The first, an “employer’s liability” exclusion, precluded coverage for liability arising out of injuries to “employees.”  In addition, a “contractors coverage limitations” endorsement expressly barred coverage for liability arising out of injury to anyone “performing duties related to the conduct of the insured’s business.” In its primary holding in the case, the Court found that the contractor was clearly performing duties related to the conduct of Newcastle Hauling’s business at the time of his death, and therefore, the “contractors coverage limitations” endorsement precluded insurance coverage in this case.

The Court of Appeals also turned aside several other arguments advanced by the contractor’s estate, holding that (1) the estate could not bring a direct action against the insurance company without first establishing its claim against the wrongdoer who had injured the decedent, and (2) although an insurance company’s violation of the Unfair Claims Settlement Practices Act (UCSPA) creates a private cause of action both for the named insured and for those who have claims against the named insured, a third-party claimant may only sue the insurance company under the USCPA when coverage either is not contested or is already established, but not when there is no coverage available under the policy.