State News : Texas

A contractor hired a sub-contractor to perform work at one of its refineries.  The contract between them established that the sub-contractor would acquire insurance coverage and a waiver of the insurer’s subrogation rights.  It also contained an indemnity provision in which each agreed to indemnify the other for injuries arising out of its own negligence.  

The sub-contractor did obtain work comp coverage before two of its employees were severely injured on the job.  They received work comp benefits and then filed suit, eventually settling with the contractor.  There was no dispute that it was the negligence of the contractor that led to the accident. 

Because the Carrier would not acknowledge waiver of subrogation, it was named as a third party defendant.  The Carrier argued that the waiver of subrogation applied only to liabilities assumed by the subcontractor, not the contractor.

The contractor sought to convince the court that only the waiver provision, and not the underlying contract, controlled.  However, since the insurance policy references the contract, the court determined that the contract must also be considered. 

Because the subcontractor was required to indemnify the contractor only for thesub-contractor’s own negligence, it had not assumed liability for the contractor’snegligence, and was therefore not contractually obligated to induce the Carrier to waive subrogation against the contractor.  The court concluded that the Carrier had not waived its subrogation rights. The Insurance Company of the State of Pennsylvania v. Kevin Roberts and Exxon Mobil Corporation,– S.W.3d –, No. 01-15-00453-CV, 2016 (Tex. App.– Houston July 14, 2016).

Another case dealing with subrogation came out of the same Court on July 26.  The injured worker, an employee of a contractor, was fatally electrocuted while using an electric transfer pump on an oil rig owned by the operator.  Workers’ compensation coverage was supplied through the contractor, and death benefits were paid to the decedent’s family, who thereafter brought a wrongful death suit.  The Carrier intervened to establish its subrogation rights. 

The contract between the operator and the contractor established that the operator would obtain waivers of its insurers’ subrogation rights against the operator.  The contract also included two indemnity provisions.  In one, the contractor agreed to release and indemnify the operator from liability for claims arising out of the death of a contractor employee.  However, in another, the contractor would not be liable for any loss or damage resulting from the use of materials furnished by the operator, and the operator would indemnify the contractor from any such liability. 

The Carrier argued that the defective electric transfer pump was rightfully classified as a “material” furnished by the operator and therefore permitted subrogation against the operator under the second indemnity provision.  Plaintiffs argued that the pump was not a “material,” but rather “equipment,” which would not activate the second indemnity provision, and no subrogation rights would follow.

The court agreed with the Carrier that, although undefined in the contract, the term “materials” is used throughout the contract interchangeably with other terms such as “equipment.”  Without a distinction between the two terms, the court determined the contractor had not assumed liability for damage caused by the transfer pump provided by the operator, and was therefore not contractually obligated to cause its insurer to waive its subrogation rights. New Hampshire Insurance Company v. Mora, – S.W.3d –, No. 01-15-00406-CV, 2016 (Tex. App.– Houston July 26, 2016).  For questions, contact Jane Stone at Stone Loughlin & Swanson, LLP.