California Court of Appeal Finds Coverage for Injured Worker Despite Contractor’s Exclusion

    The California Court of Appeal affirmed the trial court's finding that the policy covered a worker's injuries despite the Contractor's Exclusion. Cal. Spec. Insulation . Allied Work Surplus Lines, Ins. Co., 2024 Cal. App. LEXIS 317 (Cal. Ct. App. May 17, 2024). 

    Air Control Systems, Inc. was retained by a property owner to perform improvement work on a building. Air Control retained California Specialty Insulation, Inc. (CSI) to install duct insulation. Jason Standiford, an Air Control employee, sure CSI, asserting negligence for injuries he suffered when he fell 16 to 20 feet after. CSK employee drove a scissor lift into a ladder he was standing on.

    CSI was insured through a commercial general liability policy from Allied World. The policy included an endorsement titled "Bodily Injury to Any Employee or Temporary Worker of Contractors Exclusion." The Contractor Exclusion state the policy did not apply to "'Bodily injury' . . . to any 'employee' or 'ten,poary work' of any contractor or subcontractor arising out of in or the course of the rendering or performing services of any kind or nature by such contractor or subcontractor." Neither the endorsement nor the policy defined the term "contractor.' 

    CSI tendered its defense to Allied World. Allied World initially provided a defense, but later withdrew the defense, asserting the Contractor Exclusion precluded any defense or coverage obligation. CSI filed a complaint for declaratory relief. The parties filed cross-motions for summary judgment. The trial court granted CSI's motion and denied Allied Wor\ld's. The court determined that the Contractor Exclusion did not apply because the terms "contractor" and "subcontractor" were ambiguous and meant, in line with CSI's reasonable expectations, "CSI's contractor or subcontractor, i.e., a contractor or subcontractor retained by CSI." Because CSI did not retain Air Control, Stanford was not an employee of a contractor or subcontractor within the meaning of the exclusion and CSI was entitled to declaratory relief and judgment. 

    On appeal, the parties disputed the language of the Contractor Exclusion and specifically its terms "contractor." CSI asserted the terms was ambiguous and that its objectively reasonable expectations, as the insured, established that the exclusion did not apply. Allied Work argued the term was unambiguous and that, even if it was ambiguous, CSI's reasonable expectations supported application of the exclusion.

    Allied World contended the term "contractor" unambiguously meant anyone who "contracted for work on a construction project." The phrase "any contractor" showed the exclusion applied to employees of "every contractor" or "all contractors." CSI conceded that this was a reasonable interpretation, but the term "contractor" could also. e reasonably read as "anyone hired by the insured pursuant to contract." CSI contended this more narrow reading of the terms was consistent with the policy as a whole, particularly a separate but similar exclusion from coverage for bodily injuries of employees (but not contractors) of the insured. 

    The appellate court agreed with CSI. The term "contractor," was susceptible of more than one reasonable interpretation. These interpretations included the parties' respective readings of "anyone performing construction work pursuant to contract" and "anyone hired by CSI pursuant to contract." Because reasonable people could differ as to the meaning of the term "contractor," the term was ambiguous. 

    Therefore, Standiford was not a contractor's employee because CSI did not hire his employer, Air Control. The Contractor Exclusion did not apply to preclude Allied World's defense and coverage obligations for purposes of Standiford's negligence claim.