The Second Circuit just made insurers rethink standard employer liability exclusions, ruling Mt. Hawley must cover injuries to a subcontractor's workers.
The Second Circuit ruled Thursday that Mt. Hawley Insurance Company must cover Reidy Contracting Group for injuries to a subcontractor's workers, finding that the policy's employer liability exclusion was too ambiguous to deny coverage. The decision could force insurers to rethink how they draft some of the most common exclusions in commercial general liability policies.
The dispute started simply enough. In 2013, a ceiling collapsed at a New York demolition project, injuring three workers employed by Vanquish Contracting Corporation, a subcontractor. Only Vanquish employees were working that day when a decorative plaster ceiling came down, taking a scaffold and the three workers with it.
Each injured worker sued Reidy, the general contractor on the job. Reidy turned to Mt. Hawley, which had issued an excess liability policy to Vanquish that was supposed to cover Reidy as an additional insured. Mt. Hawley said no, pointing to language in the policy excluding coverage for injuries to "an employee of any insured arising out of and in the course of employment by the insured."
The insurer's logic seemed straightforward. The injured workers were employees of Vanquish, which was an insured under the policy. They got hurt while working for Vanquish. End of story, no coverage.
But Reidy saw it differently. The policy included what's called a separation of insureds clause, standard language that says the policy applies separately to each insured. Reidy argued this meant the exclusion should be read from its perspective as the party seeking coverage. Since the workers weren't Reidy's employees, the exclusion shouldn't apply.
The appeals court agreed with Reidy, though one judge dissented sharply. The majority found that when you factor in the separation of insureds clause and look at how insurance policies typically work, the exclusion could reasonably be read either way. That ambiguity meant the court had to interpret it against Mt. Hawley, the party that wrote the policy.
The court noted that Mt. Hawley could have been clearer. Other parts of the same policy used more specific language like "that insured" when referring back to earlier text. The employer liability exclusion could have said injuries to employees of any insured wouldn't be covered when "that insured" was seeking coverage. It didn't.
Before even getting to the exclusion question, the court had to decide whether Reidy qualified as an additional insured in the first place. Mt. Hawley had argued that coverage only applied to liability connected with Reidy's general supervision of Vanquish's work. Since the underlying lawsuits alleged Reidy was negligent beyond just supervision failures, Mt. Hawley claimed Reidy wasn't covered at all.
The court rejected that reading, finding that the policy covered three separate categories of liability: injuries from Vanquish's premises, from Vanquish's work, or from Reidy's acts or omissions during supervision. The phrase "in connection with general supervision" only limited that third category, not the whole grant of coverage. Since the accident happened during Vanquish's work, Reidy was in.
The dissenting judge wasn't buying it. He argued that any ordinary reader would understand "the insured" in the exclusion as referring back to "any insured" mentioned earlier in the same sentence. Reading it to mean specifically the insured seeking coverage would make the words "any insured" meaningless, he wrote. If the policy meant to exclude only injuries to the particular insured's own employees, it would have just said "the insured" throughout.
The dissent also pushed back on using industry practice to find ambiguity, noting that some commercial policies do cover general contractors for subcontractor employee injuries while others don't. The market includes both types, so custom doesn't point one way or the other.
For carriers writing commercial construction coverage, the decision is a reminder that courts will pick apart policy language when multiple readings seem possible. The Second Circuit covers New York, Connecticut and Vermont, making this binding precedent across a major commercial insurance market.
The practical takeaway for insurers is straightforward: if you want to exclude coverage for injuries to any insured's employees regardless of which insured is seeking coverage, say so explicitly. Using "that insured" or repeating "any insured" throughout the exclusion would have likely avoided this fight.
The case also highlights an ongoing tension in insurance coverage law. Courts are supposed to read policies as written and give terms their plain meaning. But when policies include multiple clauses that interact in complex ways, judges often find ambiguity even in language that insurers consider standard boilerplate.
This matters beyond just this one case. Similar additional insured endorsements and employer liability exclusions appear in thousands of commercial policies. Claims professionals and underwriters will need to consider how courts might apply this reasoning to their own policy forms.
The decision came down February 12, nearly a year after oral arguments last February. By the time the court ruled, Reidy had already settled with the three injured workers. But the coverage dispute remained live because it determined whether Mt. Hawley had to indemnify Merchants Mutual Insurance Company, Reidy's own commercial general liability insurer, for part of the settlement costs.
What started as a routine construction accident turned into a significant appellate decision about policy interpretation. For an industry that relies on standard form language across countless policies, that's worth paying attention to.
