Court Finds Hotel Worker Not “Employee” Under Policy for Theft Loss Coverage

The United States District Court for the Eastern District of Virginia, applying Virginia law, has held that a hotel’s former maintenance worker was not an “employee” as defined by a business insurance policy, thereby precluding coverage for loss resulting from the worker’s theft.   GRM Mgmt., LLC v. Cincinnati Ins. Co., 2017 WL 1712520 (E.D. Va. May 1, 2017).

A hotel hired a maintenance worker who later stole personal property and building materials while on the job.  The hotel tendered the claim to two insurers under policies covering distinct risks.  The first policy, providing commercial property insurance, excluded coverage for loss resulting from theft by an employee.  The second policy, a business insurance policy, covered loss “resulting directly from ‘theft’ committed by an ‘employee.’”  The hotel argued in litigation with the property insurer that coverage existed under the policy because the worker was an independent contractor, not an employee.  The parties settled, and the hotel brought suit against the second insurer.  The second insurer denied coverage on the basis that the worker was not an “employee” as defined by the policy and filed a motion for summary judgment.

The court granted the insurer’s motion and dismissed the case with prejudice.  The court pointed to the policy’s language, which defined “employee” as a “natural person” whom the hotel “compensate[d] directly” and whom the hotel had “the right to direct and control while performing services.”  The court found the first two elements were satisfied, but that the third was not.  In particular, the court observed that although the hotel directed the ends of the worker’s work, it had not controlled the means – the worker used his own tools, had no supervisor or weekly hour requirement, and worked on a project-by-project basis.  The court also relied on testimony elicited from the hotel general manager during the hotel’s lawsuit with the property insurer, who had described the financial and legal benefits of hiring maintenance workers as independent contractors, rather than employees.  Finally, the court relied on the worker’s contract, which was a “sub-contractor” agreement in which the hotel disclaimed all liabilities for the worker.