The authors of this article have spotlighted an emerging issue regarding employer’s liability coverage and asbestos cases in Pennsylvania and Illinois. Since plaintiffs can now bring suit against an employer outside of the exclusivity of Workers Compensation, the relatively low cost Employer’s Liability coverage may see a significant increase in claims and the amounts of those claims. It is certainly something that liability adjusters need to be aware of when investigating such losses.
Insurance Law Update
Asbestos Suits Against Employers Present New Risk for Employer’s
Liability Insurers
Two asbestos hotbed jurisdictions, Pennsylvania and Illinois, have recently opened the door to long-tail occupational disease claims against employers in the tort system. These decisions held that the exclusivity provisions of the applicable state workers’ compensation acts do not prohibit employees diagnosed with occupational diseases long after their retirement from suing their former employers in the tort system alongside the traditional panoply of asbestos defendants. Employers and their employer’s liability insurers should be aware of this new risk and the issues it may present going forward.
In Pennsylvania – as in almost any other state – the Workers’ Compensation Act is and has been the exclusive means for an employee to recover from his or her employer for workplace-related injuries. Certain enumerated “occupational diseases,” such as asbestosis, are included within the act’s ambit provided that they occur “within three hundred weeks after the last date of employment . . .” 77 P.S. § 411(2). This 300-week provision had been interpreted as a statute of limitations and/or repose, closing the door on claimants’ recovery from employers when a latent disease manifests after 300 weeks. Therefore, employees could not sue their employers in the tort system because of the workers’ compensation exclusivity provision, nor could they pursue workers’ compensation benefits because of the statute of repose.
The Supreme Court of Pennsylvania abrogated this long-standing interpretation in Tooey v. AK Steel Corp., 81 A.3d 85 (Pa. 2013). The court held that because the occupational disease claims manifesting outside the 300-week period are not covered by the act, the act’s exclusivity provision does not apply, and employees are free to sue their former employers in tort. Similarly, in Illinois, the Workers’ Compensation Act and Workers’ Occupational Diseases Act contain exclusivity provisions that bar employees’ direct tort actions against employers for workplace injuries. Under those statutes, an employee must file claims within three and 25 years, respectively.
In Folta v. Ferro Engineering, (Ill. App. Ct. 1st Dist. June 27, 2014), an Illinois intermediate appellate court held that the Foltas could maintain a tort claim against James Folta’s former employer because he first discovered his asbestos-related injury outside of the acts’ statutes of repose. Unlike Pennsylvania, where a legislative amendment to the workers’ compensation statute appears to be the only “fix,” there remains a possibility that Folta is reversed on appeal or that the Illinois Supreme Court overrules Folta in another case. The defendant in Folta filed a petition for leave to appeal, which remains pending.
While the traditional asbestos products and premises defendants seek coverage from their historical general liability insurers, commercial general liability policies are unlikely to provide coverage to employer defendants because of the policies’ employer’s liability exclusions. Instead, employers may look to their workers’ compensation/employer’s liability policies. Employer’s liability coverage exists “to ‘fill the gaps’ between workers’ compensation coverage and an employers’ general liability policy… to protect the insure[d] from tort liability for injuries to employees who do not come under the exclusive remedy provisions of workers’ compensation.” See Erie Ins. Prop. & Cas. Co. v. Stage Show Pizza, JTS, Inc., 210 W. Va. 63, 68, 553 S.E.2d 257, 262 (2001). Tooey and Folta have created a new “gap,” and that gap may widen into a chasm, as Philadelphia’s The Legal Intelligencer reported on June 3 that courts are “universally” accepting plaintiffs’ attempts to join employers in pending mesothelioma cases, and that virtually every new filing names employers as defendants.
Employer’s liability coverage is fundamentally different and much more limited than general liability coverage. Because this coverage was offered to fill the narrow “gap” between general liability and workers’ compensation coverage, it was offered inexpensively. As a result, employer’s liability coverage often includes high deductibles (or loss reimbursement provisions) and low aggregate limits. Some employer’s liability coverage forms include time limitations, limiting coverage to claims filed against the employer within three or five years of the policy’s expiration date. Further, most employer’s liability coverage contains specific trigger language, limiting coverage to those policies in effect only on the last date of the worker’s exposure to hazardous conditions at the workplace. Therefore, the “continuous trigger” applicable to general liability policies is unlikely to apply to employer’s liability insurers. Employers risk only being able to access a single policy year that is subject to a high deductible and low aggregate limit (with no excess coverage available).
It remains to be seen whether the decisions in Pennsylvania and Illinois represent an emerging risk that may spread to other jurisdictions, or if the legislatures of both states will react swiftly to amend their respective states’ laws. For now, however, employers and their employer’s liability insurers should be prepared to address these potential newfound liabilities.
Reprinted from:
Copyright © 2014
Gordon & Rees LLP
Our address is 275 Battery Street, Suite 2000, San Francisco, CA 94111, United States
Our address is 275 Battery Street, Suite 2000, San Francisco, CA 94111, United States
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