Separation of Insureds--Sandusky Civil Case(s)?

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         A HUGE deal in Liability (you just cannot stress this enough) is that you treat every insured separately. Years ago the policy referred to this as Severability of Interests and now it is called Separations of Insureds. It is Condition #7 of a CGL policy and here it is---

 7.    Separation Of Insureds

       Except with respect to the Limits of Insurance, and any rights or duties specifically assigned in this Coverage Part to the first Named Insured, this insurance applies:

    a.     As if each Named Insured were the only Named Insured; and

    b.            Separately to each insured against whom claim is made or

                    "suit" is brought.

          This has many ramifications but one of the biggest involves exclusions. I have often had people ask (and carriers sometimes state) that the moment an exclusion applies to one insured it applies to all insureds. That is NONSENSE! You look at every insured separately and it is indeed possible (in fact frequent) that an exclusion might apply to one insured and not to another. And, as always, all ambiguity must be settled in favor of “the insured”; whichever one you are looking at.

         I bring this up as I got an e-mail last week about the “bi to an employee” exclusion. This exclusion along with the WC exclusion shows up on GL, auto, etc. WC as bi to employees are to be covered under WC/EL. Makes sense. In this case an employee of the Named Insured was suing an additional insured (this happens OFTEN). The agent said that the carrier had stated that this might not be covered as the injured party is an employee of the Named Insured and the aforementioned exclusions would apply. WRONG.

         While the injured party is indeed an employee of the Named Insured he is not an employee of the Additional Insured. So, while the WC and bi to an employee exclusion would apply to the Named Insured it does not apply to the additional insured.

         I hear questions like this frequently and you always have to remember the importance of “Separation on Insureds”. There are many examples of this (property damage losses can be a jigsaw puzzle) but this example helps to see the situation a little more clearly and it is a situation that comes up often, especially in construction. 

      Will this have ramifications in the many Penn State Civil Cases? Yes. While no insurance policy gives coverage for an intentional act you have to treat all insureds separately. Could others at Penn State be held liable vicariously for the actions of Sandusky? Sure. Would they have coverage? Yes. Now, other issues might come up (did they know, etc.) but the importance of separation of insureds can never be overstated.