Present: Carrico, C.J., Compton, Stephenson, Lacy, Keenan,
Koontz, JJ., and Whiting, Senior Justice
VIRGINIA ELECTRIC AND POWER COMPANY
OPINION BY JUSTICE LAWRENCE L. KOONTZ,
v. Record No. 951919 September 13, 1996
NORTHBROOK PROPERTY AND CASUALTY INSURANCE COMPANY
FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND
Melvin R. Hughes, Jr., Judge
In this appeal we consider whether, under a liability policy
which excludes coverage for suits for bodily injury filed by "an
employee" of the insured, an insurance company has an obligation
to defend an insured where such a suit is brought by an
individual who would be deemed a statutory employee of the
insured under the Virginia Workers' Compensation Act.
The essential facts of the case are not in dispute. In
October 1989, Commercial Courier Express (Commercial Courier)
entered into a contract with Virginia Electric and Power Company
(VEPCO) to provide designated courier services to VEPCO. The
contract included provisions which referenced Commercial
Courier's existing general liability policy (the policy) with
Northbrook Property and Casualty Insurance Company (Northbrook).
As required by its contract with VEPCO, Commercial Courier
submitted and Northbrook accepted an addendum to the policy
adding VEPCO as an additional insured for suits arising out of
courier services Commercial Courier provided to VEPCO. The
policy included a standard "duty to defend" clause, as well as
various exclusions from coverage. One such exclusion eliminated
Northbrook's liability for bodily injury to an employee of the
insured for injuries "arising out of and in the course of
employment by the Insured." In the context of this case, VEPCO
is the insured party.
On March 23, 1990, Margaret C. Laveri (Laveri), a Commercial
Courier employee, delivered parcels to VEPCO's office at One
James River Plaza. Subsequently, in a suit filed against VEPCO,
Laveri alleged that while making the delivery she fell and was
injured after stepping on a slippery substance in VEPCO's
delivery area.
VEPCO requested that Northbrook defend the Laveri suit under
the duty to defend clause in Commercial Courier's liability
policy. Northbrook denied coverage, and VEPCO proceeded to
successfully defend the Laveri suit on its own by asserting that
Laveri was its statutory employee as defined by the Virginia
Workers' Compensation Act. Code § 65.2-302. VEPCO asserted
that, as a statutory employee, Laveri's sole remedy was under the
Act, Code § 65.2-307, thus barring the civil suit.
VEPCO then filed a bill of complaint seeking a declaratory
judgment that Northbrook had wrongly refused to provide a defense
to VEPCO as an additional insured under Commercial Courier's
policy. Northbrook moved to dismiss on the ground that VEPCO had
an adequate remedy at law. The chancellor transferred the case
to the law docket, granting VEPCO leave to file a motion for
judgment. VEPCO thereafter filed a motion for judgment asserting
that Northbrook had breached its duty to defend and seeking
damages in the amount of the legal fees expended in defending the
Laveri suit.
The parties filed cross-motions for summary judgment. In
its motion, Northbrook asserted various defenses including the
exclusion of coverage for a claim filed by an employee.
Following an ore tenus hearing, the trial court rejected VEPCO's
assertion that the exclusion did not apply to a statutory
employee, reasoning that the language of the exclusion of
coverage for injuries to an employee "suggest[s] an employee in
the context of workers['] compensation." Accordingly, the trial
court found that Northbrook properly refused to defend the suit
on the ground that Laveri was "an employee of [VEPCO]." We
awarded VEPCO this appeal.
We have previously addressed at length the question of an
insurer's duty to defend, holding that the "obligation to defend
is broader than [the] obligation to pay, and arises whenever the
complaint alleges facts and circumstances, some of which would,
if proved, fall within the risk covered by the policy." Lerner
v. Safeco, 219 Va. 101, 104, 245 S.E.2d 249, 251 (1978). In
Lerner, we went on to say "that such a provision [to defend]
places no obligation on the insurer to defend an action against
the insured when, under the allegations of the complaint, it
would not be liable under its contract for any recovery therein
had." Id. (citing Travelers Indem. Co. v. Obenshain, Committee,
219 Va. 44, 46, 245 S.E.2d 247, 249 (1978)). In addition, we
have explained that:
[I]f it is doubtful whether the case alleged is covered
by the policy, the refusal of the insurer to defend is
at its own risk. London Guar. Co. v. White & Bros.,
Inc., 188 Va. 195, 199-200, 49 S.E.2d 254, 256 (1948).
And, if it be shown subsequently upon development of
the facts that the claim is covered by the policy, the
insurer necessarily is liable for breach of its
covenant to defend. Id. at 200, 49 S.E.2d at 256.
Brenner v. Lawyers Title Ins. Corp., 240 Va. 185, 189, 397 S.E.2d
100, 102 (1990).
However, as will become apparent from our analysis in the
present case and is perhaps self-evident, the obligation to
defend is not negated merely by the unsuccessful assertion of a
claim otherwise facially falling within the risks covered by the
policy. Various defenses applicable to specific factual
circumstances may be successfully asserted against claims
otherwise covered by the policy. The insurer has the obligation
to defend the insured in such circumstances even though the
obligation to pay is not ultimately invoked. It is in this
context that the obligation to defend is said to be broader than
the obligation to pay. Stated differently, the insurer has a
duty to defend against risks covered by the policy even though
the defense successfully litigates the issue of its lack of
obligation to pay the claim.
In applying these well established principles to determine
Northbrook's obligation to defend in this particular case, we are
concerned exclusively with the risks covered by the express
provisions of the policy and the allegations of Laveri's motion
for judgment. As it did in the trial court, Northbrook urges
this Court to interpret the policy in the context of the
provisions of the contract between VEPCO and Commercial Courier.
While referring to several provisions of that contract in
rendering its judgment, the trial court expressly ruled that "the
focus must remain on the insurance contract at issue between
[Northbrook and VEPCO]." Assuming, without deciding, that the
applicable rules of evidence would have permitted consideration
of the provisions of the Commercial Courier/VEPCO contract to
determine the intended coverage of the insurance policy,
Northbrook's failure to assign cross-error to the trial court's
failure to do so precludes our consideration of that issue. Rule
5:18(b).
We turn then initially to the allegations of Laveri's motion
for judgment. That pleading alleged that Laveri was a "business
invitee" of VEPCO and that, as a result of VEPCO's negligent
maintenance of its delivery area, she was injured while making a
delivery to that area "in the course and scope of her then
employment." Unquestionably, if proven at trial, these
allegations would fall within the ambit of the risks for which
the policy's general liability provisions for bodily injury
afford protection to VEPCO.
A fair reading of the record makes it clear, and the parties
are not in disagreement, that at the time of her injury Laveri
was an employee of Commercial Courier. Similarly, it is clear
that Northbrook's decision, and the risk it ran, not to defend
against her claim was based on the provision of the policy that
excluded coverage for bodily injury to an employee of the
insured. Thus, the sole question is whether the trial court
correctly ruled that Laveri's status as a statutory employee of
VEPCO for purposes of workers' compensation brought her within
the definition of the term "employee" as used in the coverage
exclusion contained in the policy.
Exclusionary language in an insurance policy is to be
construed most strongly against the insurer, and the burden is
upon the insurer to prove that an exclusion applies. Johnson v.
Insurance Co. of No. America, 232 Va. 340, 345, 350 S.E.2d 616,
619 (1986). This is true whether the insurer is asserting the
exclusion to deny liability for payment or to avoid its duty to
defend the insured. Accordingly, Northbrook bears the burden of
showing that the policy clearly intended the term "employee" as
used in the exclusion to include a statutory employee as defined
in Code § 65.2-302 of the Virginia Workers' Compensation Act.
Northbrook asserts that the policy contemplated use of the
statutory definition of the term "employee" found in the Act, as
shown by the use of the phrase "[a]n employee of the Insured
arising out of and in the course of employment by the Insured" in
the exclusion provision. (Emphasis added.) Indeed, the trial
court agreed with this assertion, noting that: "It is significant
that this policy language while mentioning the word 'employee'
also mentions 'arising out of and in the course of employment,'
words that suggest an employee in the context of workers[']
compensation . . . ." We disagree.
The Act defines statutory employees for the specific purpose
of applying workers' compensation laws. Thus, we hold that the
statutory definition contained in the Act will not be applied to
an insurance policy unless the policy provides by reference to
the specific statute that the statutory definition is intended to
be applied. Cf. United Services Auto. Ass'n v. Pinkard, 356 F.2d
35, 37-38 (4th Cir. 1966) (workers' compensation rationale used
where employee exclusion specifically precluded coverage for
injury arising out of employment "if benefits thereof are in
whole or in part either payable or required to be provided under
any [workers'] compensation law").
In American Reliance Insurance Co. v. Mitchell, 238 Va. 543,
385 S.E.2d 583 (1989), an insurance policy "excluded coverage for
'bodily injury to any farm employee . . . arising out of and in
the course of his employment by any insured.'" Id. at 545, 385
S.E.2d at 584. In addressing the employee exclusion clause, the
insurance company urged the application of workers' compensation
analysis to expand the definition of employee to include persons,
including the injured party in that case, who would be eligible
for workers' compensation benefits even though they were merely
occasional or irregular laborers. We declined to apply workers'
compensation definitions in interpreting the term "farm
employee", holding that the plain and generally accepted meaning
of employee "connotes continuous service of a person who works
full time for another for a consideration." Id. at 549, 385
S.E.2d at 586.
The same rationale we employed in Mitchell applies here.
While it is true that the exclusion in the policy uses language
evocative of a workers' compensation law definition of
"employee," nothing in the policy expressly designates the Act as
providing the definition for terms used in the coverage
exclusion. Id. at 548, 385 S.E.2d at 586; cf. Pinkard, 356 F.2d
at 37. * T Thus, as in Mitchell, the plain and generally accepted
*
We note that a separate exclusion within the policy
meaning of the term "employee" is controlling. Using that
definition, we hold that, although deemed a statutory employee
for purposes of workers' compensation, Code § 65.2-302, Laveri
was not an employee of VEPCO within the plain meaning of the
policy. Accordingly, the trial court erred in determining that
the employee exclusion clause of the policy permitted Northbrook
to refuse to fulfill its obligation to defend VEPCO.
For these reasons, we will reverse the judgment of the
circuit court and enter judgment for VEPCO, and the case will be
remanded for a determination of damages.
Reversed and remanded.
(..continued)
excludes coverage for "[a]ny obligation of the Insured under a
workers' compensation, disability benefits or unemployment
compensation law or any similar law." In the trial court,
Northbrook relied on this exclusion to bolster its argument that
the policy excluded generally any claim that was subject to
workers' compensation law. Northbrook did not reassert this
argument on appeal.