The Texas Supreme Court has answered in the negative to a certified question from the U.S. Court of Appeals for the Fifth Circuit concerning the scope of the “employee exception” to application of the Texas Anti-Indemnity Act (§§151.101, et seq. or TAIA).

The case, Maxim Crane Works, L.P. v. Zurich American Insurance Company (No. 21-0727; U.S. Fifth Circuit, 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 each 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), Zurich denied coverage. Maxim argued, however, that the anti-indemnity statute does not apply because the injured Skanska employee was at the same time an “employee” or “co-employee” of Berkel. If this were the case, an additional insured could obtain indemnification under §150.103. As the Fifth Circuit stated it:

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.

Maxim’s argument turned on §150.101, the definitions section of the TAIA, which does not define “employee.” Applying the rule of statutory construction that undefined terms are given their ordinary meaning, Zurich argued that the injured person was employed by Skanska, not Berkel. Maxim instead pointed 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 was certified to 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.

In an opinion by Justice Busby, SCOTX responded in the negative. The undefined term “employee” in §151.101 must be given its ordinary meaning and does not mean a statutory “employee” under the Texas Workers’ Compensation Act. The Court found no indication that the Legislature intended for §151.101 to import the definition from TWCA, which specifies that “employee” has a specific meaning solely for purposes of workers’ compensation. It found further that TAIA and TWCA have different policy objectives and are not part of a single statutory scheme. While TAIA’s purpose is to protect contractors against being required to indemnify another party for that party’s negligence, as well as to protect contractors against the effects of unequal bargaining power in certain situations, the statutory employer provision of TWCA aims to incentivize the extension of workers’ compensation coverage (together with its concomitant safety provisions and exclusive remedy) to all employees on a particular job site. In any event, as an additional insured on Berkel’s CGL policy, Maxim here attempted to claim indemnification for an injury to Skanska’s employee based on Maxim’s negligence. As SCOTX held, this clearly runs counter to the public policy enunciated in TAIA. Moreover, even if Berkel were deemed a co-employee of Skanska’s injured employee, that would not make Berkel the co-employer of Skanska’s employees. Either way, Berkel’s argument must fail.

This opinion provides an important clarification of TAIA. As a party to the negotiations that produced TAIA, TCJL believes SCOTX’s decision is right on target. In drafting the legislation, no one ever thought the term “employee” had anything other than its common meaning. If it had another meaning, the statute would have specified it or cross-referenced another statutory definition. SCOTX’s decision preserves this understanding and, more importantly, a consistent interpretation of existing construction contracts across the state.

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