7 October 2019
Joe Fulton
The North Carolina Court of Appeals recently released its opinion in State Farm v. Don’s Trash Company, Inc. (opinion available to Lexis subscribers here and from nccourts.gov here). Although unreported, the case is worthy of note for a couple of different reasons. The first and most significant is the Court’s application of the borrowed servant doctrine to an employee exclusion in a liability policy. The second is that the insurance company achieved a rare reversal of the trial court’s original decision.
THE BASICS
Here we had two separate garbage collection businesses, Don’s Trash and DJ’s Trash. Don’s Trash was owned by Lewis Horton and DJ’s Trash was owned by his son. They operated from the same address and, although employees were only paid by one company or the other, they were frequently shared between the two. State Farm insured Don’s Trash.
One of the trucks owned by Don’s Trash and scheduled on the State Farm policy was involved in a single vehicle accident. An employee of DJ’s Trash, Walter Bull, was tragically killed. An employee of Don’s Trash was driving. They were on one of DJ’s Trash’s collection routes.
THE COVERAGE ISSUES
There were essentially two coverage questions presented by this appeal. The first was whether the exclusion for injury to an employee applied. The specific exclusion in the State Farm policy provided:
The second was whether an exclusion from the definition of the term “insured” applied. The exclusion provided:
A. THE EXCLUSION FOR INJURY TO AN EMPLOYEE APPLIED BECAUSE BOTH COMPANIES WERE REQUIRED TO HAVE WORKERS COMPENSATION INSURANCE.
The court cited to the North Carolina Workers’ Compensation Act and found that, because both of the companies had three or more employees, they were both required to carry workers’ compensation insurance. The Court construed this exclusion to apply to, “exclude coverage for bodily injury to any employee injured during the course of his employment where the insured company either has or is required to have workers compensation insurance.” Because both companies were required to have workers compensation insurance, Mr. Bull’s death was not covered
B. THE BORROWED SERVANT DOCTRINE APPLIES TO DETERMINE WHO PARTICULAR PERSON’S EMPLOYER IS FOR PURPOSE OF THE APPLICATION OF THE FELLOW EMPLOYEE EXCLUSION.
The borrowed servant doctrine is applied in the context of vicarious liability claims and in the context of workers compensation exclusivity. In the context of vicarious liability claims, the plaintiff tries to prove that a person not directly employed by defendant was nevertheless an employee for purposes of vicarious liability. In the workers’ compensation exclusivity context, the defendant tries to prove that the plaintiff, though not the defendant’s direct employee, was an employee for purposes of workers compensation coverage.
Under this doctrine, where an employee of one person is loaned to work for a second person, and the second person controls the manner of the work done by the employee, the employee becomes an employee of the second person. The Court in Don’s Trash found that Mr. Bull, an employee of DJ’s Trash on paper, had become an employee of Don’s Trash when he was loaned to the company for the day’s work. Therefore, the fellow employee exclusion applied to preclude coverage.
TAKEAWAYS
The State Farm policy at issue was not a standard form policy. However, the Court’s application of the borrowed servant doctrine has the potential to be relevant under several different kinds of policies. The standard North Carolina personal auto policy contains a very similar exclusion for “injury to an employee of that insured during the course of employment.” In cases where a claim is made against an insured under a personal auto policy by someone who was working for the insured as a borrowed servant, the exclusion might very well apply.
A typical CGL policy also excludes coverage for injury to an employee arising out of and in the course of his employment. However, the policy also limits the definition of employee that definition does not include a “temporary worker.” “Temporary worker” may include persons who would otherwise qualify as employees under the borrowed servant doctrine.
In any case, it would take a fact intensive investigation to determine whether the insured had exercised sufficient control over the borrowed employee to trigger application of the borrowed servant doctrine. At the end of the day, Don’s Trash is an unpublished decision and the weight of its authority is therefore limited. However, it offers an important explanation of how the borrowed servant doctrine can be applied to situations that might not appear at first blush to implicate exclusions for injuries to employees.
About the Author: Joe Fulton is a partner with Martineau King PLLC and focuses the majority of his practice on representing insurance companies in coverage disputes. Comments and feedback are welcome. Joe can be contacted by email at [email protected].
Important Disclaimer: The above is not legal advice and is made available for educational purposes only. You should not act upon this information without seeking advice from a lawyer licensed in your own state or jurisdiction. This article should not be used as a substitute for competent legal advice from a licensed professional attorney in your state or jurisdiction. The presentation of this information does not form a lawyer/client relationship.
