U.S. Fifth Circuit Certifies Question of Texas Law to Texas Supreme Court “Who is an employee under the Texas Anti-Indemnity Act?”
Maxim Crane Works, L.P. v. Zurich Am. Ins. Co., 2021 U.S. App. LEXIS 25014*, 2021 WL 3700934 (5th Cir., Aug. 20, 2021)
The facts and procedural history of this case are rather complex; hence, a more detailed review of the case will be forthcoming.
The primary issue in this case is whether an employee of the primary general contractor (Skanska USA, Inc.), who was severely injured by the negligence of the employee of a subcontractor (Berkel & Co. Contractors), can be an “employee” of Berkel in a claim for indemnity from the lessor of equipment which Berkel rented from Maxim Crane Works, L.P. Skanska as general contractor subcontracted Berkel on a major construction job in Houston. Skanska required all subcontractors to participate in a contractor-controlled insurance program ("CCIP") which provided for general commercial liability insurance as well as workers' compensation coverage. Thereafter, Berkel entered into a bare-rental agreement with Maxim which also obligated Berkel to name Maxim as an additional insured on its commercial general liability policy issued by Zurich America.[1]
After a state court jury awarded $35.4 million to the Skanska employee,[2] Maxim which was allocated 10% of the fault, settled for $3.4 million which was paid by its Comprehensive General Liability insurer, also Zurich which pursuant to its policy billed back Maxim $3 million of the settlement and $824,839.38 in legal fees. Maxim reimbursed Zurich. Having lost its cross appeal against Berkel, Maxim then made demand on Zurich America as an additional insured on the policy issued to Berkel. Zurich denied coverage. Maxim then sued in state court; Zurich removed the suit to federal court under diversity jurisdiction. The district court granted the Motion for Summary Judgment of Zurich and dismissed the case.
Maxim appealed. Zurich challenged the standing of Maxim to bring suit. The procedural and standing issues will be discussed in a later synopsis.
Though the injured employee is a statutory employee of the subcontractor under the Texas Workers’ Compensation Act (TWCA), the question is whether the general contractor’s employee is an employee of the sub-contractor?
The Texas Anti-Indemnity Act (TAIA)[3] voids certain indemnity provisions in construction contracts except for the bodily injury or death of “an employee of the indemnitor, its agent, or its subcontractors of any tier.”[4] This prohibition and exception also applies to additional insured requirements in the subject contracts.[5]
The term “employee” is defined in the TWCA but is not defined in the TAIA. Maxim asserted that the term and jurisprudence of the TWCA is relevant and should apply to the term “employee” in the TAIA thus entitling it to coverage and thus indemnity from Zurich. On the other hand, Zurich maintained as employee is not defined in the TAIA, the ordinary meaning of the word as used in the statutory text should apply.
The Fifth Circuit panel,[6] noted that other statutes in Texas define the term “employee” differently[7] adding further uncertainly whether “employee” means the same in the TWCA and TAIA. Also, having found nor having been referred to any jurisprudence on the issue, the panel exercised its discretion to certify the issue to the Texas Supreme Court posing the issue as follows:
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.
We do not purport to limit the Supreme Court of Texas to the precise form or scope of the question certified.[8]
A copy of the opinion may be found following this link:
https://www.ca5.uscourts.gov/opinions/pub/19/19-20489-CV0.pdf
[1] Maxim as a lessor was not subject to the Skanska CCIP requirement as it was not a “sub-contractor.” 2021 U.S. App. LEXIS 25014 *3
[2] The jury verdict against Berkel was reversed on appeal as the court found that the injured employee was a statutory employee of Berkel under the Texas Workers’ Compensation Act and was thus limited to recovery of workers’ compensation benefits. Id. at *4 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).
[3] Tex. Ins. Code §§ 151.102, 151.103
[4] Tex. Ins. Code § 151.103
[5] 2021 U.S. App. LEXIS 25014 *13-14
[6] The panel consisted of Judges Smith, Ho and Oldham.
[7] Id. at *17-18
[8] Id. at *19
