On October 8, 2015, Don and two employees of DJ's Trash, Walter Lee Bull III and Carey Likens, were scheduled to collect trash on DJ's Trash's regular route. Don was sick that day, so Louis assigned Christopher Donaldson, an employee of Don's Trash, to serve as Don's substitute driver. Apparently, while Donaldson was driving along their route, he accidentally drove off the right shoulder of the road, overcorrected, and lost control of the garbage truck. Bull was killed and Donaldson and Likens were seriously injured.

Thereafter, State Farm asked a North Carolina court to declare whether it was responsible under its insurance policy for the death, personal injuries, and property damage that resulted from the October 8, 2015 accident.

Bull's estate, which had filed a wrongful death claim against Don's Trash and Donaldson, moved for summary judgment in State Farm's declaratory judgment action.

The trial court entered summary judgment in favor of Bull's estate, and State Farm appealed, relying on two exclusions in its policy.

The State Farm Policy

The State Farm policy's employee exclusion excluded liability coverage for:

bodily injury to any employee of the insured arising out of and in the course of his employment by the insured or to any obligation of the insured to indemnify another because of damages arising out of such injury; but this exclusion does not apply to any such injury arising out of and in the course of domestic employment by the insured unless benefits therefor are in whole or in part either payable or required to be provided under any workmen's compensation law. . . .

The State Farm policy's "employer business" exclusion provided that:

None of the following is an insured: (i) any person while engaged in the business of his employer with respect to bodily injury to any fellow employee of such person injured in the course of his employment. . . .

The Appellate Court's Decision

The appellate court reversed.

In its decision, the appellate court explained that the "plain language" of the employee exclusion precluded coverage for bodily injury to any employee injured during the course of the employee's employment where the insured company either had workers' compensation insurance or was required to have workers' compensation insurance. The appellate court added that both Don's Trash and DJ's Trash were required by North Carolina's workers' compensation law to carry workers' compensation insurance because both companies had "three or more employees [who were] regularly employed in the same business or establishment." N.C. Gen. Stat. § 97-2(1). Therefore, the appellate court ruled, Bull was excluded from coverage by this provision.

The appellate court then turned to the employer business exclusion, noting that Bull's estate argued that Bull and Donaldson were not fellow employees and, therefore, that this provision did not exclude coverage for Bull's death.

The appellate court pointed out that the parties did not contest that Bull was an employee of DJ's Trash or that the work being performed was on a DJ's Trash route. According to the appellate court, if Donaldson qualified as an employee of DJ's Trash, including under the "borrowed servant" doctrine, then the employer exclusion withdrew liability coverage for Donaldson's actions "in the business of his employer" that resulted in Bull's death.

The court noted that, on the day of the accident, Donaldson had been assigned by Louis to replace Don because Don was sick and could not work. In replacing Don, the appellate court continued, Donaldson became the employee of DJ's Trash, the entity to whom he had been loaned. DJ's Trash controlled both Donaldson's work and the manner in which it was to be performed.

Concluding that Donaldson, at the time of the accident, was the employee of DJ's Trash and, therefore, a fellow employee of Bull, the appellate court held that the employer exclusion also excluded coverage.

The case is State Farm Mutual Automobile Ins. Co. v. Don's Trash Co., Inc., No. COA18-735 (N.C. Ct. App. Sept. 17, 2019). Attorneys involved include: Waters Law, PLLC, by Dena White Waters, for plaintiff-appellant. Martin & Jones, PLLC, by Huntington M. Willis, for defendants-appellees.