The Seventh Circuit affirmed the district court's finding that the insurer had a duty to defend in light of conflicting endorsements in the policy. Panfil v. Nautilus Ins. Co., 2015 U.S. App. LEXIS 14621 (7th Cir. Aug. 20, 2015).
JRJ Ada, LLC was a contractor. JRJ's two members, Joe Panfil and Renee Michelon, had a CGL policy with Nautilus. The employee of JRJ's subcontractor, Astro Insulation, fell through a hole while performing insulation work, injuring himself. The employee sued JRJ, who sought a defense from Nautilus. Nautilus refused to defend because JRJ was not an insured under the policy. Further, Nautilus relied upon the policy's Contractor-Subcontrated Work Endorsement and Employee Exclusion to deny coverage.
Panfil and Michelon sued Nautilus. Cross-motions for summary judgment were filed and the court granted plaitniffs' motion while denying Nautilus' motion. The district court first found that the policy should be reformed to inlcude JRJ as an insured. Nautilus did not appeal this determination. The court also found that Nautilus breached its duty to defend and was therefore estopped from asserting policy defenses to coverage.
On appeal, the Seventh Circuit considered the two exclusions. The Contractor-Subcontracted Work Endorsement exclusion stated: "This insurance does not apply to 'bodily injury' . . . arising out of work performed by any contractors or subcontractors unless such work is being performed specifically and solely for you."
The Employee Exclusion barred coverage for"'bodily injury' to any 'employee' of any insured arising out of and in the courts of employemnt by any insured." "Employee" was defined as "any person who provides services directly or indirectly to any insured . . . including but not limited to . . . a contractor, a subcontractor . . . and any person . . . hired by . . . employed by . . . any insured . . . ."
Nautilus argued that coverage was excluded by the Employee Exclusion. The employee of a subcontractor was injured during the course of his employment. The plaintiffs argued the Employee Exclusion could not be considered alone, but must be read with all the terms of the policy, including the Contractor-Subcontracted Work Endorsement. The plaintiffs submitted that the Contractor-Subcontracted Work Endorsement excluded coverage unless "work is performed specifically and solely" for the insured. Since the injury arose out of work performed by a subcontractor who was working specifically and solely for JRJ, plaintiffs argued that the Employee Exclusions seemingly precluded coverage completely while the Contractor-Subcontracted Work Endorsement preserved coverage for specific occurrences like the one in the underlying lawsuit.
The court agreed. As the drafter, Nautilus could have written the policy to make clear that the Contractor-Subcontracted Work Endorsement preserved coverage for bodily injury to non-employees only. It did not do so. Therefore, the two provisions conflicted and the ambiguity was resolved in favor of JRJ.