Alternate Employment Endorsement Excluded by P&I Clause

by Philip C. Brickman, Partner Fowler Rodriguez Valdes-Fauli

In a dispute between two insurers, the U.S. Fifth Circuit Court of Appeals recently held that a Protection and Indemnity (P&I) policy exclusion inserted in the Maritime Employer’s Liability MEL policy, excluded the Alternate Employment Endorsement inserted in the same policy.

Horizon, the vessel owner, entered into a contract with Coastal to provide catering services aboard the vessel. Coastal employee David Brown was injured while performing catering services. As a result of the injury, Brown filed a Jones Act suit against Coastal and Horizon alleging that both were his employers. Coastal was his direct employer and Horizon was his alternate employer. Brown further alleged that both employers failed to provide a reasonably safe workplace aboard the vessel.

Brown’s personal injury claim triggered a coverage dispute between Coastal’s Maritime General Liability insurer (MGL) and Coastal’s Maritime Employer’s Liability insurer (MEL). The Horizon-Coastal contract obligated Coastal to defend Horizon in case of any dispute and Coastal did so through the MGL. Coastal also had a MEL policy in effect that provided a defense for Coastal in the litigation.

After settling the underlying dispute, MGL sought reimbursement from MEL for the costs and attorney’s fees it had incurred defending Horizon. MGL argued that MEL policy obligated MEL to provide a defense for Horizon because the policy had an endorsement that covers bodily injury to employees that are temporary employed by an alternate employer. The Alternate Employment Endorsement provided: “This endorsement applies only with respect to death, bodily injury or illness to your employees while in the course of temporary employment by an alternate employer. This endorsement will apply as though the alternate employer is insured.” MGL alleged that Coastal was Brown’s direct employer and that Horizon was Brown’s alternate employer. As such, the alternate employment endorsement in the MEL policy required MEL to defend Horizon.

MEL rejected MGL’s argument alleging that under MEL’s policy, even if Horizon is considered an alternate employer, MEL is absolved of defending Horizon because the MEL policy had a separate exclusion that excludes coverage to an insured that has a P&I policy that already covers claims for bodily injury to its crew. Horizon had such a policy. It was undisputed that Horizon had a P&I policy in effect that covered injury to its crew.

MGL argued that MEL’s P&I exclusion did not apply to Horizon, but only to Coastal because the clause by its plain language only covers the named insured (Coastal) and not Horizon as an additional insured. MGL also argued that the P&I exclusion did not apply because the alternate employment endorsement contained language that limited MEL to share the loss with the other insurer. Such language was in conflict and created an ambiguity between the P&I exclusion and the alternate employment endorsement.

The District Court agreed with MGL’s arguments and granted summary judgment in favor of MGL. The District Court reasoned that the alternate employment endorsement and the P&I exclusion were in conflict and, therefore, the ambiguities in policy must be interpreted in favor of providing coverage for Horizon. MEL appealed the summary judgment.

The Fifth Circuit reversed the District Court finding that MEL was not obligated to defend Horizon because the P&I exclusion in MEL’s policy served to exclude the coverage provided by the alternate employment endorsement.

The Fifth Circuit rejected MGL’s argument that MEL was not an insured under the terms of the P&I exclusion. The P&I exclusion applied equally to Coastal and Horizon. An additional insured that is added in an endorsement, such as an alternate employer endorsement, enjoys the same benefits as the named insured provided there is no contrary language in the policy. Because there was no such language, the Fifth Circuit found Horizon was an insured. However, Horizon was excluded from MEL coverage due to the P&I exclusion.

The Fifth Circuit also rejected MGL’s argument that the P&I exclusion and the alternate employment endorsement were in conflict and created an ambiguity. The alternate employment endorsement is applicable only when the loss is one that is covered by the endorsement. Because Horizon was considered an insured and it had a P&I policy in effect that covered its crew, the P&I exclusion served to exclude the alternate employer endorsement. As a result, the Fifth circuit concluded that Horizon’s P&I insurance policy that covered injuries to crew working onboard its vessel was excluded due to the P&I exclusion in Coastal’s MEL policy. Therefore, Coastal’s MEL insurer did not owe contribution to Coastal’s MGL insurer for costs and attorneys arising out of the defense of Brown’s lawsuit.

When securing insurance coverage for various liabilities that can occur in the maritime environment, vessel owners and employers must be cognizant of all endorsements and exclusions in existing insurance policies. The existence of one type of coverage could serve to exclude other coverages, particularly where there exists an alternate employer situation.
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Contact Philip Brickman at [email protected]