Texas Justices Wrestle with Definition of “Employee”

In a coverage dispute between contractors, the Texas Supreme Court questioned how broadly the court should interpret the word “employee” under the Texas Anti-Indemnity Act (“TAIA”). One defendant, a crane company called Maxim Crane Works LPl, urged the court to adopt a definition that would result in Zurich American Insurance Co. paying $3.8 million in legal bills.

The court pondered the definition of “employee” during oral arguments in early December. The coverage dispute relates to an accident that occurred during the construction of a Houston office building. Skanska USA Inc., a general contractor, hired Berkel & Co. Contractors as a subcontractor to work on the project. Berkel subsequently leased a crane from Maxim Crane Works.

In September 2013, the crane boom collapsed on the worksite and injured the leg of a Skanska employee, Tyler Lee. The leg was later amputated, and Lee sued Berkel and Maxim in 2014, alleging that the companies’ negligence caused his injuries. Maxim then tried to recoup payment from Zurich as an additional insured under Berkel’s policy, but the insurance carrier denied coverage.

In 2015, Maxim settled with Lee for over $3.4 million and sought coverage from Zurich under its own policy. Although Zurich initially covered this amount and Maxim’s nearly $825,000 defense, the policy required Maxim to reimburse the insurer for a $3 million deductible and the full defense bill, at a later date.

In 2017, a Texas appellate court held that Lee was a co-employee of Berkel’s under the state’s workers’ compensation statute. As a result of this holding, Maxim requested that Zurich cover its settlement and defense costs under the additional insured provision of Berkel’s policy. Again, the insurer declined coverage.

Maxim contends that Lee is Berkel’s employee, which allows it to claim coverage under Berkel’s policy for legal fees in defending Lee’s claims. However, the federal district court later ruled in Zurich’s favor, holding that the TAIA precluded Maxim from coverage as an additional insured. Maxim then appealed to the Fifth Circuit.

Zurich argued that since Maxim has already assigned its rights to reimbursement to Zurich under its own CGL policy, it cannot recover the fees again as an additional insured under Berkel’s policy. However, the appellate court disagreed, saying Maxim’s own CGL policy does not assign its rights to Zurich. Therefore, Maxim can pursue this claim against the insurer under the Berkel policy.

Counsel for Maxim Crane Works LPl, Peter Laun of Jones Day, argued in a case of first impression that the definition of “employee” under the TAIA should encompass “co-employees” as well.

The Texas Supreme Court agreed to decide the issue this past September, accepting a certified question from the Fifth Circuit after that court said there was no precedent to guide it on the issue in an appeal involving the amputated leg of a construction worker that was caused by a worksite accident.

The state high court will decide whether the definition of “employee” under the Texas Anti-Indemnity Act should include “co-employees,” as it does under the state’s workers’ compensation statute.

The justices seemed to resist Laun’s argument that the broader definition of “employee” under the Texas Workers’ Compensation Act (“TWCA”), which is expressly restricted to use under the TWCA, should be referenced to define the word under the TAIA. Nevertheless, the justices recognized that the court should still consider the TWCA definition of “employee” as relevant to Maxim’s argument.

“This whole concept of co-employee/co-employer comes from the statutory definition in the Texas Workers’ Compensation Act, which the act tells us only applies in the workers’ compensation context,” Justice Jimmy Blacklock stated in response to Laun’s contention that the definition of “employee” under the TAIA should encompass “co-employees” as well. “That’s what you really need to grapple with.”

“I’m not suggesting we take it out of there and import it into the Texas Anti-Indemnity Act,” Laun responded. “When the context of the statute is that the Legislature had no qualms whatsoever allowing indemnification for injuries to employees, there’s no logical reason why it would be different for co-employees,” he said. “Zurich says we’re trying to import the definition from the Texas Workers’ Compensation Act. We’re not. We’re just saying that regime provides a backdrop for how to interpret the TAIA.”

Maxim is an additional insured under a subcontractor’s commercial general liability policy with Zurich, and it also holds a separate CGL policy with the insurer. After it failed to get the insurance payments under its own policy, it argued Zurich should reimburse its legal bills under the subcontractor’s policy because the injured worker was also the subcontractor’s co-employee and Maxim was the additional insured.

Maxim contends that Texas law applies a broad definition to the term “employee” in the TAIA and should include “co-employee” as the term does in the state’s workers’ compensation statute. Further, Maxim argues that this allows Maxim to recover its litigation costs as an additional insured under the subcontractor’s policy.

Zachary H. Bowman of Cain & Skarnulis PLLC, who represents Zurich, told the court that Maxim is asking it to “apply a results-oriented approach which bypasses interpreting legislative text.” “We have clear legislative directive not to construe those definitions for any other purpose than workers’ compensation,” he said.

Bowman suggested the justices should ask Maxim how exactly the company wants to define the word “employee” in this case. “They say they want to avoid the workers’ compensation definition but want it to inform the court’s decision on how to define it,” he said. “They want the result to be the employee exception is triggered and Maxim benefits in this case. But I don’t see how that creates any workable rule.”

HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.

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