DERRICK WORKER FOUND TO BE “LEASED-IN WORKER” NOT COVERED UNDER CGL POLICY - PLAINTIFF’S STOWERS ACTION RENDERED VOID

In Roy Seger, Et Al. v. Yorkshire Insurance Co., Ltd., and Ocean Marine Insurance Co., Ltd NO. 13-0673T (June 17, 2016) the Texas Supreme Court determined a deceased derrick worker was a leased-in worker when he died on the job, and his estate’s wrongful death action was therefore excluded under the drilling company’s CGL policy.  Consequently, Plaintiff’s Stowers action also failed as a matter of law. 

After a tragic accident, a deceased derrick hand’s parents (“Plaintiff”) sued the company that owned the drilling rig upon which the fatal accident occurred.  The drilling company demanded that its commercial general liability (CGL) insurers defend it in the litigation.  The insurers refused based on lack of coverage.  The parents obtained a judgment against the drilling company, the company assigned its rights against the insurers to the parents, and the parents brought a Stowers action against the insurers. See G.A. Stowers Furniture Co. v. Am. Indem. Co., 15 S.W.2d 544, 547–48 (Tex. Comm’n App. 1929, holding approved).  At trial, the jury returned a verdict in the deceased worker’s parents’ favor.  The court of appeals reversed the decision of the trial court, and the Texas Supreme Court decided the case on different grounds.  The Texas Supreme Court held that the Plaintiff’s parents failed to establish coverage, an essential element of any Stowers action, and the evidence is legally insufficient to support the jury’s finding that the deceased worker was not a leased-in worker; in fact, the evidence is conclusive that he was a leased-in worker.

Prior to the underlying trial, Plaintiff demanded settlement on several occasions—all of which the CGL carrier refused to settle on behalf of the drilling company.  Each time, the insurer determined no coverage existed.  The drilling company’s counsel withdrew from the case due to its failure to pay, and at trial the company appeared through its general partner, who was not a lawyer and had been subpoenaed to appear as a witness.  After a full day of hearing evidence, the trial court found the drilling company liable for the derrick hand’s death and awarded plaintiff $15 million, plus interest.

Following judgment, the drilling company assigned plaintiff “any and all claims and causes of action” against the CGL insurer in exchange for a release. 

The Stowers case went to trial, and the jury returned a verdict in favor of the Plaintiff as to the Stowers Insurers’ negligence and causation, and the trial court issued a directed verdict as to damages based on the underlying judgment against drilling company.  The trial court entered a $37,213,592.01 final judgment in favor of Plaintiff.  The court of appeals reversed the trial court’s judgment.  The court, however, only determined the issue of the construction of the leased-in worker exclusion and rendered judgment declaring that the CGL policy “excluded liability for injury or death to leased-in employees/workers,” and remanded to the case back to the trial court.

On remand, the Stowers case was tried, and the jury found that: (1) the Stowers Insurers negligently failed to settle the Plaintiff’s wrongful death claim against the drilling company, proximately causing the underlying judgment against the drilling company; (2) the plaintiff’s son was not an employee or leased-in worker of the drilling company; and (3) the Stowers Insurers’ wrongful refusal to provide the drilling company with a defense in the underlying action waived their right to control Diatom’s defense. The trial court entered a judgment, and awarded damages in the amount of $71,696,547.  The Stowers Insurers appealed.

The Supreme Court determined that under the policy, the drilling companies’ liabilities for bodily injuries to third parties, including independent contractors, were covered.  Accordingly, to prevail under a Stowers cause of action, the Plaintiff had the burden to prove that the derrick hand was an independent contractor or other third party.

In its analysis, the Supreme Court noted the drilling company could not afford workers’ compensation insurance for all of its employees, as an alternative the drilling company established an arrangement under which its general partner created another company (leasing company) to employ the drilling workers and provide the workers as independent contractors to the drilling company.  Consequently, neither company provided worker’s compensation.  The drilling company purchased a CGL policy which provided a maximum of $500,000 coverage for any one bodily injury accident or occurrence.  The CGL policy expressly covered independent contractors, and it excluded leased-in workers. 

The Supreme Court found that an agreement, titled “Contract for Personnel Services,” was signed by the General Partner of the drilling company twice, both as the general partner of drilling company and as the president of leasing company.  The agreement was only for the temporary use of personnel.  The agreement stated that leasing company would “provide [the drilling company] with all necessary personnel for the operation of one or more drilling rigs in accordance with the needs of [the drilling company].” Under these terms, leasing company would provide the drilling company with workers only “as needed” depending on the drilling company’s project. Not every worker was necessary for every stage of drilling company’s drilling business, so the use of each worker was only temporary.

The Supreme Court concluded, even if the derrick worker was an independent contractor to drilling company through his employment at the leasing company, he would still be considered a “leased-in worker” under the policy.  Consequently the Supreme Court held the derrick worker was a leased-in worker as a matter of law.  Therefore Plaintiff’s claim was excluded from coverage under the CGL policy and its Stowers action fails as a result.