Exclusions In A Commercial Policy

Reading and understanding policy exclusions is important to an insurance lawyer. This is illustrated in a U.S. District Court, S.D. Texas, Houston Division case. The style of this case is, Scottsdale Indemnity Company v. Rural Trash Service, Inc., et al.
This is a summary judgment that was granted in favor of Scottsdale.
Scottsdale filed a declaratory judgment action seeking a judgment that it has no duty to defend its insured, Rural Trash, in a tort lawsuit. The tort lawsuit was brought by an employee, Joseph Rios, in connection with injuries he suffered on the job.
Rios worked as a garbage truck driver for Rural Trash. Rios was emptying dumpsters at a company call Bubble Tight USA. A fire erupted in the dumpster, spilling into the storage area of Rios’ truck. Rios alleged that he left the truck to seek help, but other Rural Trash employees told him to get back into the truck and lower the burning dumpster to the ground to limit the scope of the fire and save the truck. The fire triggered an explosion, which left Rios with severe burns over thirty percent of his body. Rios later sued Rural Trash alleging negligence and gross negligence.
The Scottsdale policy covers bodily injury and property damage to third parties, specifically – all sums an ‘insured’ legally must pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies, caused by an ‘accident’ and resulting from the ownership, maintenance or use of a covered ‘auto’.
But the policy excludes coverage for employee injury or claims which might implicate Worker Compensation.
The Employee Exclusion in Rural Trash’s policy bars coverage for “bodily injury” to an “employee” of the insured “arising out of and in the course of employment.” At the time of the accident, Rios was working as a garbage truck driver for Rural Trash. He was emptying dumpsters at Bubble Tight when the fire erupted. He left the truck to seek help, but was ordered to reenter the truck by Rural Trash employees. He was instructed to lower the burning dumpster to the ground to limit the scope of the fire and save the burning truck. Accordingly, the Court was satisfied that Rios was acting in the course of his employment with Rural Trash at the time of the accident.
The Rios lawsuit does not indicate whether Rios was an employee or an independent contractor of Rural Trash when the accident happened. It merely states that Rios was “working” for Rural Trash. However, whether Rios was an employee or independent contractor makes no difference for the purpose of coverage under the policy because the term “employee” includes both.
Although the policy does not directly define the term “employee,” Form F of the policy incorporates Texas state motor carrier regulations into the policy. And those state regulations incorporate the definition of employee set out by the Federal Motor Carrier Safety Act of 1984 (FMCSR).
Under the FMCSR, “employee” is defined to include both employees and independent contractors. The Fifth Circuit has affirmed this reading. Because Rios was an employee, regardless of whether he would have been considered an employee or an independent contractor at common law, the policy’s employee exclusion applies to preclude coverage in this case.