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First Circuit Rules Exclusion for “Employment-Related” Practices Bars Coverage for Independent Contractor

Blogs, Insurance Coverage

In December 2014, the United States Court of Appeals for the First Circuit ruled that, under Maine law, exclusions in insurance policies for “employment-related” practices barred recovery for an independent contractor plaintiff. Ruksznis v. Argonaut Ins. Co.No. 13-2474 (1st Cir. Dec. 18, 2014).

From approximately 1993 until 2010, plaintiff Frank Ruksznis (“Plaintiff”) served as a plumbing inspector for the town of Sangerville, Maine. Plaintiff set his own hours, provided his own tools, paid for all of his own expenses and, generally, described himself as an independent contractor. The town held a commercial general liability (“CGL”) policy and a public officials liability (“POL”) policy issued by Argonaut Insurance Company (“Argonaut”), each of which contained an exclusion for “employment-related” activity.

According to the allegations in the case, at a public meeting in April 2010, one of the town selectmen stated that Plaintiff had made “less than quality decisions” while serving as plumbing inspector and, ultimately, took actions that caused Plaintiff to be removed from his position as a plumbing inspector. Plaintiff subsequently filed suit, claiming common law slander and violations of his right to due process under 42 U.S.C. § 1983. The town selectman filed an offer of judgment in the amount of $100,000, which Plaintiff accepted. Thereafter, Plaintiff initiated a reach and apply action against Argonaut seeking to recover for the slander claim under the CGL policy and for the due process claims under the POL policy.

The District of Maine granted Argonaut’s motion for summary judgment on the ground that Plaintiff’s claim “plainly arose from an employment-related dispute” and, thus, was not covered under either policy due to the “employment-related” practices exclusion contained in each policy. On appeal, the First Circuit affirmed, finding that the term “employment” in each exclusion covered Plaintiff’s relationship with the town and, therefore, excluded coverage. More specifically, the First Circuit found that the distinction between employees and independent contractors – while critical in certain contexts – was “immaterial” in this case as either status was a “form of employment” within the meaning of the exclusions.