How do you define the term "contractor?" In the case of California Specialty Insulation Inc. v. Allied World Surplus Lines Insurance Company, No. B324805 (2024), the court ultimately honored the reasonable expectations of the insured and ordered that the insurer defend and indemnify in an underlying suit stemming from the policy. This case involves a commercial general liability insurance policy issued by Allied World Surplus Lines Insurance Company (Allied) to California Specialty Insulation, Inc. (CSI). The central issue is whether Allied World is obligated to defend and indemnify CSI against a negligence claim stemming from a construction site accident. The dispute hinges on the interpretation of a policy exclusion for bodily injury to employees of any "contractor," a term not defined in the policy.

Factual Background

In 2017 Air Control Systems. Inc. (Air Control) was contracted to perform improvement work at a Los Angeles building and subsequently hired CSI to install duct insulation. In 2019, Jason Standiford, and Air Control employee, filed a negligence lawsuit against CSI, alleging injuries from a 2017 incident where a CSI employee allegedly drove a scissor lift into a ladder Standiford was on, causing him to fall. CSI requested Allied World to defend it in the Standiford lawsuit. Initially, Allied World accepted the defense, but later withdrew, citing the Contractor Exclusion in the policy. CSI filed for declaratory relief, leading to cross-motions for summary judgment. The trial court ruled in favor of CSI, finding the term contractor ambiguous and construing it in CSI's favor. Allied World appealed the decision.

The Insurance Policy

The insurance policy governing the incident contained a Contractor Exclusion in an endorsement entitled, "Bodily Injury to Any Employee or Temporary Worker of Contractors Exclusion." The exclusion applied to "Any employee or temporary worker of any contractor or subcontractor arising out of or in the course of rendering or performing services of any kind or nature by such contractor or subcontractor." The term "contractor" was not defined in the policy or the endorsement.

The Contractor Exclusion and Ambiguity

Courts ordinarily interpret insurance policies pursuant to the rules of contract law. State of California v. Continental Ins. Co. (2012) 55 Cal.4th 186, 194. "If the terms are ambiguous, we interpret them to protect the objectively reasonable expectations of the insured." Id. The next question was whether the term "contractor" was ambiguous in this instance.

Allied argued that it did not have a duty to indemnify or defend CSI against Standiford's claim because the Contractor Exclusion eliminated this obligation. Allied World argued that the term contractor has a standard meaning and includes anyone contracted to work on a project. CSI disagreed and argued that it only included those contractors directly hired by CSI. The court found that both interpretations were reasonable as "contractor " could mean "any party to the contract" or "a person in contractual privity with the insured." Thus, that the term contractor was ambiguous in the policy because it could reasonably be interpreted in multiple ways.

Reasonable Expectations of the Inured

Given the ambiguity, the court interpreted the policy to protect the insured's objectively reasonable expectations. As the California Supreme Court has stated, a commercial general liability policy is meant to “‘provide the insured with the broadest spectrum of protection against liability for unintentional and unexpected personal injury or property damage arising out of the conduct of the insured’s business.” MacKinnon v. Truck Ins. Exchange (2003) 31 Cal.4th 635, 654. CSI reasonably expected the policy to cover injuries to third parties, from its business operations unless the injured party was its employer or an employee of a contractor it hired. This aligns with the purpose of commercial general liability insurance, which aims to provide broad protection for bodily injury or damage from the insured's operations.

The court's reasoning was supported by the First Circuit's decision in U.S. Liability Ins. Co. v. Benchmark Construction Services, Inc., 797 F.3d 116 (2015), which found a similar exclusion ambiguous and interpreted it in favor of the insured. The court stated, "a reasonable insured would expect the contractual relationship between the insured and the injured party to govern the applicability of an employer's liability exclusion to a given injury." This interpretation ensured that the exclusion does not depend on the unrelated contractual relationships of injured parties, which would be an unreasonable expectation for the insured.

In the case at hand the court pointed out that the Contractor Exclusion aligned with the Employer's Liability Exclusion, which provides that the policy does not cover work related bodily injuries of any employees of the insured. When this exclusion is read together with the Contractor Exclusion, it is clear that the policy did not intend to provide coverage for injuries of employees of the insured or injuries of employees of the insured's contractors. Those injuries could be covered by workers compensation.

Allied World argues that reading the exclusions together should not be determinate of the outcome. The policy does not refer to CSI as a “contractor” and instead uses the words “you” and “your” to refer to the named insured. The court disagreed with this interpretation and found that the language in the policy implies CSI is a “contractor.” For example, under an “Additional Insured” endorsement, the policy explains the insurance afforded to additional insureds does not apply to bodily injury occurring after “[t]hat portion of ‘your work’ out of which the injury or damage arises has been put to its intended use by any person or organization other than another contractor or subcontractor engaged in performing operations for a principal as a part of the same project.” The court reasoned that the phrase “another contractor” means a contractor in addition to CSI.

Thus, with the reasonable expectations of the insured at the forefront, “contractor,” as it is used in the Contractor Exclusion, means “anyone hired by the insured pursuant to contract,” or more simply, “CSI’s contractor.” Under this definition, Standiford was not a contractor’s employee because CSI did not hire his employer, Air Control. Therefore, the Contractor Exclusion does not apply to preclude Allied World’s defense and coverage obligations for purposes of Standiford’s negligence claim.


The term "contractor" in the policy's Contractor Exclusion is ambiguous and, when interpreted considering CSI's reasonable expectations, does not apply to the negligence claim brought by Standiford. Therefore, Allied World has a duty to defend and indemnify CSI under the policy. The trial court's ruling in favor of CSI is affirmed, ensuring coverage in line with the policy's intended broad protection for the insured's business operations.

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