On January 26, 2018, the Texas Supreme Court refused to review the July 14, 2016 decision by the Texas Court of Appeals in Ins. Co. of the State of Pennsylvania v. Roberts, 506 S.W.3d 498 (Tex. App. 2016), review denied (Jan. 26, 2018). Matthiesen, Wickert & Lehrer, S.C., (MWL) had filed an amicus brief on behalf the National Association of Subrogation Professionals (NASP) in the case. This establishes the Court of Appeal’s decision as good law and will serve as a boon to workers’ compensation subrogation efforts in Texas despite the ubiquitous presence of waiver of subrogation endorsements.
Exxon contracted with Savage Refinery Services to perform work at refinery in Baytown, Texas. The contract provided that Savage would obtain insurance and certain waivers of the insurers’ subrogation rights against Exxon, “to the extent liabilities are assumed by Savage.” In its contract with Exxon, Savage also agreed to indemnify Exxon for personal injury claims attributable to Savage’s own negligence. Savage obtained workers’ compensation insurance from AIG, and the policy included a waiver of subrogation endorsement that limited the waiver only to, “bodily injury arising out of the operations described in the Schedule where [Savage is] required by a written contract to obtain this waiver from us.” Two Savage employees were injured in an explosion at Exxon and they sued Exxon. Exxon moved for Summary Judgment, noting the waiver of subrogation endorsement. The trial court granted summary judgment, waiving subrogation because of the endorsement. However, AIG appealed, noting that the subrogation waiver endorsement was never “triggered” because Savage never “assumed liability” for Exxon’s negligence. Savage contended that the court had to look at the indemnity provision in the contract to determine which liabilities Savage “assumed.” Because Savage has no duty to indemnify Exxon for Exxon’s own negligence, Savage never “assumed liability” for the injuries.
The Court of Appeals reversed the trial court and stated that trial courts must look beyond the waiver of subrogation to the underlying contract, to determine if a waiver of subrogation is effective. Because the waiver endorsement directs the court elsewhere (i.e., to the contract), the contract must be consulted. The endorsement refers to the contract in two places:
- “where required by written contract”, and
- “any person or organization for whom Savage has agreed by written contract to furnish this waiver.”
To determine if the second condition is met, we must look at the terms of the contract and its indemnity requirements. Only when Savage is required to indemnify Exxon would AIG be required to waive subrogation. The court held that the indemnity provision required Savage only to indemnify Exxon for Savage’s own negligence. Because Savage was not required to indemnify Exxon under the indemnity provision of the contract, it did not “assume liability” under the contract. The Court of Appeals affirmed AIG’s subrogation rights.
Exxon appealed to the Supreme Court, and MWL was engaged by NASP to file an amicus brief. On January 26, 2018, the Supreme Court denied review of the Court of Appeal’s decision. The Court of Appeal’s decision is now precedent for requiring a close look at all documents surrounding a construction project to determine if there is a valid waiver of subrogation. Employers might instinctively, and without knowing why, enter into such blanket waivers of subrogation; but we now have additional tools to defeat those waivers. For more information on whether a waiver of subrogation agreement or endorsement, that may rear its ugly head in one of your workers’ compensation claims, will destroy your rights of subrogation and/or reimbursement, contact Gary Wickert at [email protected].