Court of Appeals: Carrier Did Not Waive its Right to Subrogation

A Texas Court of Appeals has reversed a summary judgment for a claimant and third party defendant and has held that a subrogating workers’ compensation carrier did not waive its right to subrogation recovery. The court remanded the case to the trial court for further proceedings in light of its opinion.

In Insurance Co. of the State of Pa., v. Roberts et al., No. 01-15-00453-CV (July 14, 2016), the court considered whether the trial court erred in granting summary judgment declaring that a subcontractor’s workers’ compensation carrier had waived its rights of subrogation entitling it to recoup payments made on behalf of its insured. The case arose following a refinery accident in which two of the subcontractor’s employees were seriously injured. The subcontractor’s workers’ comp carrier paid benefits to and on behalf of both employees. Both employees pursued third party recoveries against the general contractor. The workers’ compensation carrier sought to subrogate in that litigation.

During settlement negotiations the third party defendant, Exxon, approached the comp carrier, ICSP, about acknowledging a waiver of its subrogation rights, which the carrier refused to do. Exxon then added ICSP as a third-party defendant in the suit, seeking a declaratory judgment that the comp carrier had waived its subrogation rights against Exxon. Exxon also filed a Motion for Summary judgment regarding the same. Subsequently, Exxon reached a settlement with both injured workers. It was apparently undisputed that Exxon’s negligence, rather than the negligence of the subcontractor (Savage) was the cause of the accident that injured the two employees.

Exxon contended that the carrier had waived its right to subrogation in the comp policy. That policy contained a blanket waiver of subrogation endorsement. That endorsement provided:

Texas Waiver of Our Right to Recover From Others Endorsement

We [ICSP] have the right to recover our payments from anyone liable for an injury covered by this policy. We will not enforce our right against the person or organization named in the Schedule, but this waiver applies only with respect to bodily injury arising out of the operations described in the Schedule where [Savage is] required by a written contract to obtain this waiver from us.

Schedule

(x) Blanket Waiver.

Any person or organization for whom [Savage] has agreed by written contract to furnish this waiver.

The contract between Exxon and Savage also contained an indemnity provision whereby each promised to indemnify the other for personal injury claims brought by third parties (including each other’s employees), arising out of their own negligence. In other words, Savage would indemnify Exxon for personal injury claims that were attributable to Savage’s own negligence. The specific language of the indemnity provision provides in relevant part as follows:

12. Third Party Indemnity. [Exxon] and [Savage] shall indemnify, defend, and hold each other harmless from all claims, demands, and causes of actions asserted against the indemnitee by any third party (including, without limitation [Exxon’s] and [Savage’s] employees) for personal injury, death, or loss of or damage to property resulting from the indemnitor’s negligence, Gross Negligence, or Willful Misconduct.

Eventually, the trial court signed a final summary judgment in favor of Exxon and ordering that ICSP take nothing on its claims for subrogation and a credit against future benefits. The comp carrier appealed.

On appeal, Exxon argued that the court’s focus should remain on the policy language and endorsement. The carrier argued that the court must review both the policy endorsement and the contract between the subcontractor and Exxon. The court disagreed with Exxon and held that it was required to examine both the endorsement and the contractual language.

Exxon urges the court to stop here in its analysis without looking to the underlying contract to determine whether Savage was obligated to furnish Exxon with such a waiver in this case under the terms of a written contract. We disagree. The Texas Supreme Court addressed a similar issue regarding additional insured status in the Deepwater Horizon case. See 470 S.W.3d at 460. The court began its analysis by noting that:

[W]e determine the scope of coverage from the language employed in the insurance policy, and if the policy directs us elsewhere, we will refer to an incorporated document to the extent required by the policy. Unless obligated to do so by the terms of the policy, however, we do not consider coverage limitations in underlying transactional documents.

Id.

In that case, the insurance policy referenced the underlying contract in two places. In the first, the insurer agreed that “where required by written contract . . . additional insureds are automatically included hereunder.” Id. at 458 (emphasis added). The policy also defined an “Insured” as “any person or entity to whom the ‘Insured’ is obliged by an oral or written ‘Insured Contract’ . . . to provide insurance such as is afforded by this Policy.” Id. at 472 (emphasis added). The Court, relying on these two references to the underlying contract in the insurance policy itself, held that the references served to incorporate the terms of the underlying contract (and its coverage limitations) into the insurance policy, thereby requiring that the underlying contract to be consulted in order to interpret the insurance policy. Id. at 464.

The same is true in this case. The insurance endorsement twice refers to the underlying contract between Exxon and Savage. First, it states that “this waiver [of ISCP’s subrogation rights] applies only with respect to bodily injury arising out of the operations described in the Schedule where [Savage is] required by a written contract to obtain this waiver from us.” (emphasis added). Second, the Schedule indicates that the blanket waiver of ISCP’s subrogation rights benefits “[a]ny person or organization for whom [Savage] has agreed by written contract to furnish this waiver.” To determine whether Savage was “required by a written contract” to cause its insurer to waive subrogation rights in favor of Exxon, we must necessarily consider the terms of the contract between Exxon and Savage, just as the supreme court considered the underlying contract in the Deepwater Horizon case to determine whether additional assured coverage was “obliged” or “required” by contract. Thus, we decline Exxon’s invitation to ignore the terms of the underlying contract between Exxon and Savage in determining whether there are any limitations to the ISCP’s waiver of subrogation endorsement.

Having determined that the answer to the problem presented rested in the contractual language, the court of appeals turned to the question of whether the contract required the subcontractor to obtain a subrogation waiver. The endorsement at issue provides:

We [ICSP] have the right to recover our payments from anyone liable for an injury covered by this policy. We will not enforce our right against the person or organization named in the Schedule, but this waiver applies only with respect to bodily injury arising out of the operations described in the Schedule where [Savage is] required by a written contract to obtain this waiver from us. (emphasis added).

The court reviewed the indemnity provisions of the Exxon/Savage contract and concluded that they limited the scope of the subcontractor’s duties under the insurance clause. Specifically, the court reviewed the indemnity provisions of the Exxon/Savage contract to determine whether Savage “assumed liability,” i.e., had a duty to indemnify Exxon under the circumstances of this case. Absent such a duty to indemnify Exxon, was not required to obtain a waiver of subrogation rights from the comp carrier.

The parties agreed that the effect of the indemnity provisions required the subcontractor to indemnify Exxon for personal injury claims resulting from Savage’s own negligence, gross negligence, or willful misconduct. However, there was no dispute that the subcontractor had not agreed to indemnify Exxon for personal injury claims attributable to Exxon’s own negligence, gross, negligence, or willful misconduct. Because there were no allegations made that the injuries were caused by anyone’s negligence other than Exxon’s, the subcontractor was not required to indemnify Exxon under the contract.

Because the subcontractor was not required to indemnify Exxon under the indemnity provisions of section 12 of the Exxon/Savage Contract, it did not “assume liability” under insurance provisions of section 14 of the Exxon/Savage Contract. Because the subcontractor did not “assume liability” for the damages alleged in the suit, it was not contractually obligated to cause its insurer to waive its subrogation rights against Exxon. Because the Exxon/Savage Contract did not require the subcontractor to obtain a waiver of subrogation from the comp carrier under these circumstances, the policy endorsement containing the waiver by ICSP did not apply.

Accordingly, the court of appeals concluded that the comp carrier had not waived its right to seek subrogation from Exxon, and the trial court erred in holding otherwise. The case was remanded to the trial court for proceedings in light of this decision.