From FC&S Legal: The Insurance Coverage Law Information Center: Court Uses Endorsement¹s Exclusion to Interpret Policy Exclusion, Finding Coverage. A federal district court in Illinois, relying on the text of an exclusion in an endorsement to interpret an exclusion in a homeowner’s policy, has found coverage for an underlying plaintiff’s lawsuit against the insureds. The Case: Joseph Panfil and Renee Michelon sued Nautilus Insurance Company, seeking an order that it was obligated to defend them in an underlying lawsuit brought by a person who worked for a subcontractor they had hired. Nautilus contended that an “employee exclusion” in the policy precluded its duty to defend. The Policy: An endorsement in the policy excluded coverage for: bodily injury to employees arising out of the course of their employment.

1. The Insurance Coverage Law Information Center
The following article is from National Underwriter’s latest online resource,
FC&S Legal: The Insurance Coverage Law Information Center.
COURT USES ENDORSEMENT’S EXCLUSION TO INTERPRET
POLICY EXCLUSION, FINDING COVERAGE
January 9, 2014 Steven A. Meyerowitz, Esq., Director, FC&S Legal
A federal district court in Illinois, relying on the text of an exclusion in an endorsement to interpret an exclusion in a
homeowner’s policy, has found coverage for an underlying plaintiff’s lawsuit against the insureds.
The Case
Joseph Panfil and Renee Michelon sued Nautilus Insurance Company, seeking an order that it was obligated to defend
them in an underlying lawsuit brought by a person who worked for a subcontractor they had hired. Nautilus contended
that an “employee exclusion” in the policy precluded its duty to defend.
The Policy
An endorsement in the policy excluded coverage for:
bodily injury
to:
employees
arising out of the course of their employment.
Section D of the Contractors Subcontracted Work Endorsement added an exclusion to the policy that stated:
This insurance does not apply to “bodily injury,” “property damage” or “personal and advertising injury” arising out of
work performed by any contractors or subcontractors unless such work is being performed specifically and solely for you.
The Court’s Decision
The court found coverage.
In its decision, it acknowledged that the plaintiff in the underlying complaint appeared to fall within the policy’s definition
of “employee.” The court then pointed out that Section D of the Contractors Subcontracted Work Endorsement
excluded a class of persons from coverage for “bodily injury” who already were excluded from coverage by the employee
exclusion (contractors and subcontractors), but then recognized an exception to the exclusion (contractors and
subcontractors working specifically for the insured were not excluded). It said that the persons who would have been
saved by the exception apparently were in any event also excluded from coverage under the policy’s employee exclusion.
The court refused to find the endorsement’s exclusion to be “meaningless or superfluous.” According to the court, if
the exception for injured persons who were not excluded from coverage that was provided for in Section D was to mean
anything, the employee exclusion had to be interpreted “so as to make room for it.”
The court agreed with Nautilus that, under Illinois law, an exception to an exclusion did not create coverage or provide
an additional basis for coverage, but said that by “preserving coverage already granted in the insuring provision,” the
exception to the exclusion offered some indication as to what the policy itself was meant to cover.
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2. Therefore, the court found that the coverage already granted that was being “preserved” by the exception was “bodily
injury arising out of work performed by contractors or subcontractors” who were working “specifically and solely for the
insured.” Having preserved this coverage, and given that the underlying plaintiff potentially fell within it, the court held
that the Contractors Subcontracted Work Endorsement suggested that the policy (at least potentially) intended to cover
the underlying complaint. Although the employee exclusion appeared to suggest otherwise, it was only by rendering the
“bodily injury” exclusion and exception in Section D of the Contractors Subcontracted Work Endorsement meaningless,
the court said. Construing these terms in favor of the insured, the court concluded, the underlying complaint presented a
claim that was potentially covered by the policy, and Nautilus thus had a duty to defend the underlying suit.
The case is Panfil v. Nautilus Ins. Co., No. 12 C 6481 (N.D. Ill. Jan. 7, 2014).
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