On September 30, 2003 an employee of Daniel Hardy d/b/a Flawless Finishes, a subcontractor at a construction site, was injured in the course of h is employment.
The subcontractor did not carry worker's compensation insurance, and the employee filed a negligence action against both the subcontractor and the general contractor.
The general contractor then brought cross-claims against the subcontractor seeking indemnity for its liability in the event that it was held liable to the employee.
The subcontractor sought coverage for the general contractor's indemnity claims under a CGL policy issued to it by Merchants Mutual. Merchants Mutual denied coverage for the claims, citing the following exclusion:
This insurance does not apply to:
(d)...Any obligation of the insured under a worker's compensation, disability benefits or unemployment compensation law.
(e)..."Bodily injury" to:
(1) An "employee" of the insured arising out of and in the course of:
(a) Employment by the insured; or
(b) Performing duties related to the conduct of the insured's business...
This exclusion applies:
(1) Whether the insured may be liable as an employer or in any other capacity; and
(2) To any obligation to share damages with or repay someone else who must pay damages because of the injury.
Merchants Mutual brought a declaratory judgment action against both the subcontractor and general contractor. The subcontractor was defaulted, and the general contractor and Merchants Mutual filed cross motions for summary judgment on the issue of coverage.
The trial court ruled that the indemnity claims were covered under the subcontractor's policy and granted the general contractor's summary judgment motion.
Merchants Mutual appealed on the grounds that:
(1) the trial court misinterpreted precedent in ruling that exclusion "e" did not apply to the general contractor's indemnity claims against the subcontractor; and
(2) the court erred in ruling that exclusion "e" did not clearly and unambiguously apply to the general contractor's claims.
The Supreme Court rejected the general contractor's claim that its decision in Royal Globe Ins. Co. v. Poirier, 120 N.H. 422 (1980) required a finding of coverage, because in that case there was no indication that the policy contained a separate workers' compensation exclusion similar to that contained in exclusion "d" in the instant case.
Instead, the Court found that the CGL policy issued by Merchants contained two unambiguous exclusions. Exclusion "e" clearly and unambiguously applies to claims for bodily injury damages which arise out of an employee's employment with the insured. Furthermore, the language in part (2) of exclusion "e" clearly and unambiguously applies to third party indemnity claims.
The general contractor's indemnity claims were the type of claims that were ordinarily compensable under a standard worker's compensation and employer's liability (WCEL) policy, and the subcontractor's failure to procure such a policy would not result in a finding of coverage under a CGL policy. The Court noted that its decision was not only consistent with learned treatises, but was also consistent with virtually every other jurisdiction that has considered the issue.