Insurance Coverage and Bad Faith
Insuring for Deliberate Intent
AN EMPLOYER’S POTENTIALLY UNINSURED RISK: INSURANCE
COVERAGE FOR DELIBERATE INTENTION CLAIMS
As businesses throughout Pennsylvania are well aware, there exists a unique statutory provision that provides that employers may be subject to civil liability for claims asserted by their employees if the given employee is able to establish that the employer acted with the “deliberate intent” to cause the subject injury. See generally, W. Va. Code § 23-4-2. This potential liability is an exception to the immunity ordinarily granted employers through the workers’ compensation system. Significantly, as this novel cause of action has developed in Pennsylvania, the issue of whether such a risk is insurable under commercial general liability policies has been disputed. However, as set forth below, the development of the “deliberate intent” cause of action definitively reveals that typical commercial general liability policies do not cover “deliberate intent” claims. Rather, a wholly separate and distinct form of insurance, typically known as “stop-gap” or “employer’s liability” insurance, became available in Pennsylvania in response to the development of the “deliberate intent” cause of action. Accordingly, all employers throughout Pennsylvania would be well-served to purchase “stop-gap” or “employer’s liability” insurance, and prudent insurers and insurance agents should likewise offer such coverage.
In 1913, Pennsylvania enacted a system of “workers’ compensation” through which accidents in modern industrial conditions could be addressed. See Mandolidis v. Elkins Industries, Inc., 246 S.E.2d 907, 910 (W. Va. 1978). The act was designed to remove negligently caused industrial accidents from the common law tort system by creating a “no-fault” system, thereby shifting the responsibility for the costs of workplace accidents from employers to the public at large. Id. at 910-11. In so doing, the legislature mandated that those employers that subscribed to and paid into the workers’ compensation fund would be immune from civil liability for damages for the death or injury of its employees. As such, the workers’ compensation act effectively removed common law negligence claims by employees against their employers from the court system.
Even so, the legislature recognized that the employer does not retain its immunity under all circumstances, as an employer could still be held liable as though the act had not been enacted where the employee’s injury was the result of the employer’s “deliberate intention.” This “deliberate intention” provision was codified by Pennsylvania Code § 23-4-2. However, between the time of the enactment of the Act and the Court’s decision in Mandolidis in 1978, the Court struggled to define an employee-plaintiff’s burden in attempting to prove that his or her injury was the result of the employer’s “deliberate intention.”
In 1933, in Collins v. Dravo Contracting Co., 171 S.E. 757, 757-58 (W. Va. 1933), the plaintiff asserted a “deliberate intention” cause of action as a result of an accident wherein her decedent was killed while constructing locks on the Kanawha River. While constructing the locks, a bank above the decedent slipped, fell on him, and caused his death. The plaintiff argued that the bank had slipped before and, thus, that the employer was aware of the unsafe condition. The plaintiff alleged that because her decedent’s employer was aware of the unsafe working conditions and because the employer knew that the unsafe condition would injure or kill the decedent, a cause of action existed for “deliberate intention” under Section 23-4-2, as the employer exposed the decedent to the alleged hazard and failed to repair the bank to avoid the problem. Id. at 757-58.
In response, the employer asserted, inter alia, that a deliberate intention claim could not be premised on mere omissions by an employer. Id. at 759. However, the Court flatly rejected this contention and concluded that the facts alleged were sufficient for a jury’s determination as to whether the employer’s “deliberate intention” caused the decedent’s death. Id. In so doing, the Court recognized the myriad definitions and applications of “intent” but failed to definitively demarcate any particular standard of “intent” under Section 23-4-2. Id.
The following year, the Court once again addressed deliberate intention allegations. See Maynard v. Island Creek Coal Co., 175 S.E. 70 (W. Va. 1934). In Maynard, the plaintiff alleged that a bolt extended above the surface of a coal conveyor (as a result of the employer’s attempt to repair the conveyor previously) and that the decedent stumbled over the protruding bolt, fell into the conveyor, and was killed. The plaintiff asserted a cause of action under Section 23-4-2. The employer challenged the sufficiency of the “deliberate intention” allegations as a matter of law, and the circuit court dismissed the action on a demurrer.
On appeal, the Court explained that under the Worker’s Compensation Act, a subscribing employer “is absolutely exempted from liability to employees for injuries received by them in the course of and resulting from their employment, except if such injuries be willfully inflicted by the employer.” Id. at 71. The Court, characterizing the plaintiff’s allegations of rising to the level of gross negligence, further explained that “gross negligence” was not sufficient to meet the “deliberate intention” standard; however, an employer’s actions may be so wanton as to warrant a determination that the ulterior intent was to inflict injury. Id. at 72. Accordingly, the Court held that allegations of gross negligence could not rise to the level of “deliberate intention”; rather, there must, at a minimum, be alleged facts from which the probable consequence would be reasonably anticipated to be death or serious injury to the employee. Given these standards, the Court concluded that the plaintiffs’ allegations were insufficient as the “result of stumbling was characterized by fortuitousness rather than by anticipated sequence.”  Id.
However, in 1936, the Court was once again called upon to interpret Section 23-4-2, and its construction of “deliberate intention” was significantly more restrictive than had previously been articulated. See Allen v. Raleigh-Wyoming Mining Co., 186 S.E. 612 (W. Va. 1936). In Allen, the plaintiff alleged that he was injured during his employment while riding the front end of a line of empty mine cars in the defendant’s coal mine when he came into contact with a wooden trap door that had been hung across the track. The trap door had been installed that day, and the foreman was aware of its installation. The case proceeded to trial, and the plaintiff prevailed.
On appeal, the defendant maintained that the allegations did not rise to the level of “deliberate intention.” In examining the issue, the Court analyzed the jurisprudence of Washington and Oregon under similar statutory enactments, and, based on these decisions, concluded that “a specific intent on the part of the employer to produce the injury must be shown to support a recovery” on a “deliberate intention” cause of action. See syllabus, id. Because the plaintiff offered no evidence of such specific intent to injure on behalf of the employer, the Court set aside the jury verdict in the plaintiff’s favor. See also, Brewer v. Appalachian Constructors, Inc., 65 S.E.2d 87 (W. Va. 1951) (holding that an employee’s allegations of facts amounting to “wanton negligence” are insufficient to show an employer’s deliberate intention under Section 23-4-2)
In 1976, the Court again reiterated that gross negligence and wanton misconduct are insufficient to establish “deliberate intention.” Syl. pt. 2, Eisnaugle v. Booth, 226 S.E.2d 259 (W. Va. 1976). In Eisnaugle, the plaintiff had parked his car in the employer’s private parking lot and was walking toward the business to begin his workday. While on his way, the plaintiff was struck by the personal automobile of a co-employee. The record revealed that the co-employee had been drinking and was sent home by the employer due to his intoxication. Id. at 260. The Court concluded that these circumstances did not grant a finding of “deliberate intention.” Id. at 261.
However, in his concurring opinion, Justice Wilson observed that the standard elucidated by the Court’s decisions under Section 23-4-2 amounted “to a higher standard of pleading and proof than would be required in pleading and proving a charge of murder.” Id. at 262. According to Justice Wilson, the effect of this interpretation had been “to choke off any rational exercise of the valuable right of action” preserved by the “deliberate intention” provision. Id. Accordingly, Justice Wilson, after analyzing Collins, Maynard, Allen, and Brewer, concluded that the Court should expound a standard by which “deliberate intention” allegations may be weighed. Along those lines, he suggested that willful, wanton, or reckless conduct that unreasonably disregards known or obvious risks of harm should suffice to justify a finding of deliberate intention. Id. at 262-63.
Finally, in 1978, the Court issued its seminal opinion in Mandolidis v. Elkins Industries, Inc., 246 S.E.2d 907 (W. Va. 1978), and clarified the standard of “deliberate intention” under Section 23-4-2. As Justice Wilson presaged in Eisnaugle, the Court concluded that when an employee’s death or injury “results from willful, wanton, and reckless misconduct,” an employer loses immunity from common law actions. Id. at 914. The Court further explained that the “conduct removing the immunity bar must be undertaken with a knowledge and an appreciation of the high degree of risk of physical harm to another created thereby.” Id. Moreover, the employer’s “subjective realization of the risk” of harm may be proven by circumstantial evidence such as the employer’s knowledge of the existence of federal and state safety laws and regulations or prior deaths and injuries as a result of the risk. Id. at 914 n.10.
Of course, Mandolidis prompted the Legislature to amend Section 23-4-2 in 1983, and the 1983 amendments largely serve to codify the standard for “deliberate intention” as set forth by Mandolidis. Since 1983, Section 23-4-2 has included a familiar five-part test necessary for showing “deliberate intention,” which mandates that a successful plaintiff must prove the following: 1) a specific unsafe working condition existed that presented a high degree of risk and strong probability of serious injury or death; 2) that the employer had actual knowledge of the unsafe working condition and the risk inherent in the condition; 3) that the unsafe working condition violated some state or federal statute, rule, or regulation; 4) that the employer nevertheless intentionally exposed the employer to the unsafe working condition; and 5) that the employee suffered a serious injury as a result of the unsafe working condition. See W. Va. Code § 23-4-2 (2005).
As Justice Wilson recognized in his concurrence in Eisnaugle, an employee’s ability to recover against his or her employer pursuant to Section 23-4-2 was severely circumscribed under the Court’s then-existing interpretation of “deliberate intention.” As such, Mandolidis marked a dramatic shift in the jurisprudence arising under Section 23-4-2. Of course, the impact of Mandolidis was felt strongly throughout the business community in Pennsylvania, as a new avenue of recovery against employers had been suddenly created. Most significantly, this new potential for liability was not covered by employers’ existing insurance policies.
As recognized by a commentator in the Pennsylvania Law Review shortly after Mandolidis was decided:
The most troubling aspect of Mandolidis liability is that it is not an insurable risk. The self insuring companies . . . are able to factor the cost into their underwriting. However, other companies, not self insured, generally cannot obtain insurance coverage for a Mandolidis type claim. Neither the State Workmen’s Compensation Fund nor private insurers will pay an employer’s liability costs when an employer has intentionally, willfully or recklessly injured his employee. As a result, the employer must absorb the entire cost of the litigation and his damages himself. This cost must be eventually charged to the consumer of the employer’s product increasing the product’s cost and making it much less competitive. Some non-admitted insurers are providing expensive though limited coverage to employers for Mandolidis claims. The net effect of such limited insurance is that employers must still bear the heavy burden of the possibility of a Mandolidis type claim.
David A. Mohler, In Wake of Mandolidis : A Case Study of Recent Trials Brought under the Mandolidis Theory – Courts are Grappling with Procedural Uncertainties and Juries are Awarding Exorbitant Damages for Plaintiffs, 83 W. Va. L. Rev. 893, 926-27 (1983).
The Court has similarly recognized the impact of Mandolidis on an employer’s potential liability for injuries to its employees and the availability of insurance coverage for such claims. In Erie Ins. Property and Cas. Co v. Stage Show Pizza, 553 S.E.2d 257 (W. Va. 2001), the Court recognized that typical commercial general liability policies do not cover injuries to employees occurring during the course and scope of their employment. Indeed, Justice Starcher pellucidly recognized that insurance companies typically offer businesses three distinct types of insurance coverage: commercial liability coverage, workers’ compensation coverage, and “stop-gap” employer’s liability coverage. As Justice Starcher explained, “a commercial general liability policy protects a business against numerous kinds of liability claims, but it is generally accepted that [a] standard policy does not provide coverage for any claim brought by an employee against his employer arising out of the employment.” Id. at 261 (emphasis added). On the other hand, workers’ compensation coverage is “coverage for employee claims against an employer that are compensable under a state’s worker’s compensation laws.” Id.
Lying between the coverages afforded by commercial general liability policies and workers’ compensation policies is a “gap” in coverage comprised of “claims made against a business by injured employees whose claims are not generally compensable under the worker’s compensation system. An ’employers’ liability policy therefore exists to ‘fill the gaps’ between workers’ compensation coverage and an employers’ general liability policy.” Id. Thus, “employers’ liability insurance applies to actions brought by an employee against an employer, when the employer and the employee are not entitled to the benefits and protections under any workers’ compensation law, or when, even though covered by a workers’ compensation law, the employee has a right to bring an action for common law damage against the employer.” Id. (citing Appleman on Insurance, §1.17 (2d Ed. 1996)).
Of course, as illustrated above, until Mandolidis, there was no potential for liability between the coverages afforded by worker’s compensation policies and commercial general liability policies. However, Mandolidisessentially created the “gap” coverage, thereby creating a new market for insurance in Pennsylvania. In his concurrence in Stage Show Pizza, Justice Albright recognized the rise and applicability of such coverage:
Unless that stop-gap coverage is construed to provide coverage in the case of a deliberate intent action for which the workers’ compensation provides employers no immunity, those policy provisions must be seen as essentially illusory and meaningless. Such a construction would be absurd. Moreover, the history of the development of W.Va. Code § 23-4-2 and the emergence and marketing of such “stop-gap” insurance coverage in this state track each other rather nicely. This tends to confirm the conclusion reached by the majority in regard to coverage for the deliberate intent action in consonant with the intent of the parties to the insurance contract, as expressed by the language in the “stop gap” portion of the insurance policy at issue. . . .
Id. at 268 (emphasis added).
As the foregoing makes clear, Mandolidis marked a significant change in the jurisprudence under the “deliberate intent” provision of Section 23-4-2. Most notably, Mandolidis opened the door to a new insurance market, the “stop-gap” or “employer’s liability” market, which was designed to cover claims pursued under the revised version of Section 23-4-2. This new brand of insurance was necessary, of course, as it is well-understood that typical commercial general liability policies do not afford coverage to employers for injuries to their employees.
Based on the foregoing, employers throughout Pennsylvania must be cognizant of the fact that they may face civil liability for claims asserted by their employees, notwithstanding the immunity most often provided by the workers’ compensation system. Moreover, employers must be mindful that they will not be insured against such liability through the mere purchase of a commercial general liability policy. Accordingly, employers would be well served to double-check their policies and contact their agents to ensure that they are, indeed covered for this risk. Insurers and insurance agents must likewise appreciate this risk and advise their clients appropriately.
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Alan S. Miller - Practice Chair
Alan has more than thirty-eight years of experience in complex litigation and counseling, concentrating in the areas of environmental law, insurance coverage and bad faith, and commercial litigation. He chairs the firm’s Environmental and Energy Law practice and the Insurance Coverage and Bad Faith Litigation Practice.
Alan’s environmental law practice has involved counseling, litigation and alternative dispute resolution of matters involving municipal, residual, and hazardous waste permitting and compliance, contribution and cost recovery actions under CERCLA and related state statutes, claims for natural resource damages, contamination from leaking underground storage tanks, air and water pollution regulatory permitting and enforcement actions, oil and gas drilling compliance and transactions, and real estate transactions involving contaminated and recycled industrial sites.