Carrier had no Duty to Defend Employer under EL Policy Exclusion

The Texarkana Court of Appeals has affirmed the judgment of a trial court that held that a workers’ compensation carrier had no duty to defend its policy holder under Part Two of its workers’ compensation policy—the employer’s liability portion of the policy. The case, Bush Construction v. Texas Mutual Ins. Co., No. 06-18-00021-CV (Aug. 15, 2018) involves an employee who suffered serious on-the-job injuries while operating a hy-rail-enabled brushcutter to clear vegetation along railroad lines operated by Union Pacific Railroad Company.

The employee, Hall, sued his employer, Bush Construction, Inc., and Union Pacific for the damages he incurred. Bush’s workers’ compensation carrier, Texas Mutual Insurance Company, initially tendered a defense on behalf of Bush under a reservation of rights. However, after about a year, Texas Mutual determined that there was no coverage for Hall’s claims under its policy and withdrew its defense. Consequently, Bush assumed the burden of its own defense of the suit, which was eventually settled.

Bush then filed a lawsuit against its insurance agent, Texas Mutual, and two other defendants, seeking to recoup the sums it incurred in defending the suit and other damages. In its first amended petition, Bush asserted claims against Texas Mutual for breach of contract, violations of the Texas Prompt Payment Act, unfair and deceptive acts or practices in the business of insurance, breach of the implied duty of good faith and fair dealing, and tortious interference.

The trial court granted Texas Mutual’s motion for summary judgment as to all claims asserted against it, and then severed those claims and entered final judgment in favor of Texas Mutual. Bush appealed, challenging the trial court’s grant of summary judgment in favor of Texas Mutual.

The EL portion of the Policy provided, in certain circumstances, for payment of damages, where permitted by law, because of bodily injury to Bush’s employee that arose out of and in the course of employment. Among the exclusions from coverage under Part Two were any obligation imposed by workers’ compensation and “[b]odily injury to any person in work subject to the Federal Employers’ Liability Act (45 USC Sections 51-60), any other federal laws obligating an employer to pay damages to an employee due to bodily injury arising out of or in the course of employment.” Although Part Two provided that Texas Mutual had the duty to defend any claim against Bush payable under the Policy, it also provided that Texas Mutual had “no duty to defend a claim, proceeding or suit that [was] not covered by [the Policy].”

Bush conceded that Hall had asserted a cause of action under the FELA and that such cause of action would be excluded under the Policy. Nevertheless, it argued that Hall also alleged a cause of action for products liability, separate and apart from his FELA claim. Since the cause of action for products liability was asserted against it in a capacity other than as an employer, Bush contended that the products liability claim was covered under the Policy. In addition, Bush argued that the allegations regarding Hall’s FELA claim had no bearing on the products liability claim. The court of appeals disagreed.

In his second amended petition, Hall alleged that at the time of the incident causing his injuries, (1) Bush was a common carrier by railroad, (2) Hall was working in the course and scope of his employment for Bush, in the furtherance of, and directly and closely related to, interstate commerce, and (3) due to Bush’s negligence, the keeper and blade cutter of the brushcutter Hall was operating became detached and struck and shattered the bones in his legs. As previously noted, the FELA applies to a common carrier by railroad whose employee is injured while engaging in interstate commerce due to the negligence of the employer. See 45 U.S.C.A. § 51. Thus, the origins of Hall’s injuries occurred while he was performing work subject to the FELA. One of the exclusions to coverage under the Policy was for “[b]odily injury to any person in work subject to the [FELA].” There is no exception to this exclusion for claims asserted against Bush in a capacity other than as an employer. While Hall also alleged that Bush negligently designed the brushcutter, this does not allege a separate origin of his injury, but rather a separate legal theory of recovery. Under either legal theory of recovery, negligence or products liability, the origin of Hall’s injuries occurred in work subject to the FELA, which was excluded under the plain terms of the Policy. Consequently, Texas Mutual did not have a duty to defend the Hall suit.

Bush also argued that its claim for unfair or deceptive trade practices under Section 541.060 of the Texas Insurance Code was not coverage dependent. The court rejected the argument, noting that the Texas Supreme Court has held that under the predecessor statute to Section 541.060, there can be no liability under the statute if there is no coverage under the policy. The Supreme Court recently reaffirmed this rule for claims asserted under Section 541.060. was severely burned while working at Premcor’s Port Arthur refinery.