Executive officers of non-construction companies are typically
exempt from workers' compensation coverage. They may also
be exempt from general liability insurance coverage, due to the
"employee injury exclusion" sometimes found in those
policies. One employer fell almost one million dollars into
this "coverage gap" and the Ontario Court of Appeal
won't make their insurer pay.
On March 28, 2013 the Ontario Court of Appeal ruled in the case
of Sam's Auto Wrecking Co. Ltd. (Wentworth
Metal) v. Lombard General Insurance Company of
Canada, 2013 ONCA 186 on whether an employer could
look to its general liability insurer to indemnify injury claim
Wentworth's executive officer Mr. Ferber was badly injured
in a May 1998 accident. Some years prior, Wentworth had
amended its coverage under the Ontario workers' compensation
law – the Workplace Safety and Insurance Act
("WSIA") to ensure it did not pay premiums for its
executives. Mr. Ferber alleged negligence on the part of his
employer and a co-worker, sued and the matter was settled for just
under one million dollars in damages. The employer –
Wentworth – then pursued its insurer, Lombard, seeking
The insurance policy contained this key provision: This
insurance does not apply to:
d. "Bodily injury" to an employee of the Insured
arising out of and in the course of employment by the Insured.
This language is an exact replica of the standard workers'
compensation law which provides WCB coverage to persons who suffer
"personal injury by accident arising out of and in the
course of employment." It appears that the insurer
and insured, agreeing to such language, would ordinarily expect
workers' compensation to apply to any such injury case. Where
the injured employee is excluded from WCB coverage, however, there
is the "gap."
Lombard, the insurer, pointed to that gap in its refusal to
indemnify Wentworth for the large damage sum it had paid to Mr.
To address this, Wentworth sued Lombard for
indemnification. Losing at trial, Wentworth attempted to
persuade the Court of Appeal that an executive officer was not
"an employee" within the meaning of the policy
exclusion. The Court did not accept this, reciting a list
characteristics of Ferber's engagement which matched that of an
"employee" (including the regular reference to him as
At trial, a Wentworth owner "testified he did not
appreciate the relationship between Workers' Compensation and
the coverage purchased from Lombard." Ultimately this
proved a very costly mistake. The "coverage gap" is
an area of potential risk for organizations, which should carefully
examine the insurance coverage available for executives to avoid
the costly liability which befell Wentworth in this case. Your
Gowlings lawyer may assist, or contact the author for a referral to
the appropriate professional for advice.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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