The Texas Supreme Court has accepted a certified question from the U.S. Court of Appeals for the Fifth Circuit that may affect the interpretation of construction contracts across the state.
The case, Maxim Crane Works, L.P. v. Zurich American Insurance Company (No. 19-20849), arose from a 2013 accident on a construction site in Houston. The general contractor, Skanska USA, Inc., hired subcontractor Berkel & Co. Contractors as a subcontractor on the project and required all of its subcontractors to participate in a contractor-controlled insurance program (CCIP). The CCIP provided both workers’ compensation and commercial liability coverage. Berkel subsequently leased a crane from Maxim, which required Berkel to list Maxim as an additional insured under Berkel’s commercial liability policy, underwritten by Zurich. Berkel took sole responsibility for operating the crane while in its possession. While being operated by a Berkel employee, the boom collapsed, crushing the leg of a Skanska project supervisor. The employee received workers’ compensation benefits from the CCIP for his injured leg, which was eventually amputated. The employee then sued Berkel and Maxim in Texas state court for negligence. Maxim sought coverage under Berkel’s CGL policy from Zurich. On the basis that Maxim, a third party, could not obtain indemnification from Berkel for Berkel’s negligence under §150.102, Tex. Ins. Code (the Texas Anti-Indemnity Act, or TAIA), Zurich denied coverage. Maxim argues, however, that the anti-indemnity statute does not apply because the injured Skanska employee was at the same time an “employee” of Berkel. If this were the case, an additional insured could obtain indemnification under §150.103. Rather than explain this theory, I will defer to Judges Smith, Ho, and Oldham:
Maxim argues that Berkel was effectively Lee’s “co-employer,” so the employee exception applies. The logic goes like this: Maxim was covered by the Berkel CGL Policy, which insured injuries to Berkel’s employees caused by Maxim’s negligence. In the Berkel v. Lee suit, Berkel was deemed to be Lee’s “co-employee” under the TWCA. Next, “co-employee” and “co-employer” are interchangeable terms, meaning that Lee is “functionally” Berkel’s employee. And if Lee is Berkel’s employee, then the exception permitting additional insured coverage for employees applies and Maxim can claim coverage under Berkel’s CGL Policy. Thus, this case turns on the meaning of “employee” under the TAIA.
The “problem” here is that §150.101, the definitions section of the TAIA, does not define “employee.” Applying the rule of statutory construction that undefined terms are given their ordinary meaning, Zurich argues that the injured person was employed by Skanska, not Berkel. Maxim instead points to the Texas Workers’ Compensation Act, as interpreted by the 14th Court of Appeals (Houston), to supply the definition of “employee” for TAIA. That court held that Skanska’s employee was indeed a “co-employee” of Berkel under the Workers’ Compensation Act. See Berkel & Co. Contractors, Inc. v. Lee, 543 S.W.3d 288, 296 (Tex. App.—Houston [14th Dist.] 2018, pet. denied), reh’g granted in part (Jan. 23, 2018), reh’g denied (Mar. 6, 2018). Consequently, the court held that the employee’s suit against Berkel was barred by the exclusive remedy of workers’ compensation. The court also held that Maxim had not preserved its appeal with respect to the interpretation of TAIA. SCOTX declined review.
The present case, and why the TAIA question is now before SCOTX, arose out of a suit filed by Maxim against Zurich in state court. Zurich removed the case to federal court on diversity grounds. The federal district court granted summary judgment for Zurich on the basis that Skanska’s employee was not an employee of Berkel for purposes of §150.102. On appeal to the Fifth Circuit, the panel found no law interpreting TAIA with respect to whether a statutory employee under the workers’ compensation statute retains that identity for purposes of the anti-indemnity statute. In light of the prevalence of CCIPs in Texas construction contracts, the panel thought it advisable to ask SCOTX for an answer to the question. The precise question posed by the panel is this: Whether the employee exception to the TAIA, Texas Insurance Code § 151.103, allows additional insured coverage when an injured worker brings a personal injury claim against the additional insured (indemnitee), and the worker and the indemnitee are deemed “co-employees” of the indemnitor for purposes of the TWCA.
SCOTX has scheduled oral argument in the case for 9 a.m., December 2. We suspect the entire construction bar will be tuned in, as we will be.