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Third Circuit Affirms Dismissal of Insured’s Claims Based on Policy’s Employee Exclusion Clause

Blogs, Insurance Coverage

Earlier this month, the United States Court of Appeals for the Third Circuit, in Brewer v. U.S. Fire Ins. Co., No. 10-4748, 2011 WL 4537732 (3rd Cir. Oct. 3, 2011) affirmed the dismissal of an insured’s assignee’s breach of contract and bad faith claim, based on the applicability of the insurance policy’s employee exclusion clause.

In 2006, Judy Brewer was injured in an automobile accident caused by Tyrone Hamilton. At the time of the accident, both drivers were acting in the course of employment, and both employers were named insureds under a United States Fire Insurance Company policy. To avoid immediate execution on the $250,000 judgment against him, Hamilton assigned his breach of contract and bad faith claims against any insurers to Brewer. When U.S. Fire denied coverage to Hamilton, Brewer sued as his assignee. 

Following denial of coverage, Brewer filed suit in the Eastern District of Pennsylvania, seeking damages and alleging that U.S. Fire acted in bad faith by failing to provide coverage based on the policy’s Employee Indemnification and Employer Liability Exclusion clause. U.S. Fire moved to dismiss, asserting that the bad faith claim failed because the policy language excluded coverage for “bodily injury to an employee of the insured arising out of and in the course of employment for the insured” (the “Exclusion clause”). The District Court granted U.S. Fire’s motion to dismiss based on the plain language of the policy, stating that there was no coverage for claims made by an employee of the insured based on the Exclusion clause. 

On appeal, Brewer argued that the Exclusion clause did not apply to her, as she was the injured person. However, the Third Circuit agreed with the District Court’s conclusion that both employers were named insureds and both Brewer and Hamilton were employees under the policy, falling under the Exclusion clause:

The District Court’s view of the application of the Exclusion clause is diametrically opposed to Brewer’s. The Court determined that the Exclusion clause appropriately applied to Brewer because under Pennsylvania law and the U.S. Fire policy, both Brewer’s and Hamilton’s employers are insured. Hence, if Brewer stands in Hamilton’s stead and Hamilton in the first instance is precluded from coverage, then so is Brewer.

Id. at *2. Therefore, the court held that because Hamilton was not covered by the policy, Brewer also could not recover. See id. at *3.