ASA: Insureds Must be Able to Depend on Workers' Comp Policies, State Laws

📅   Wed September 27, 2017 - National Edition


he issue before the appeals court is whether the trial court erred when it refused to use the “exclusive remedy” provision of the workers' compensation bar on negligence claims to dismiss lawsuits against the contractor participants in a controlled insurance program (CIP).
he issue before the appeals court is whether the trial court erred when it refused to use the “exclusive remedy” provision of the workers' compensation bar on negligence claims to dismiss lawsuits against the contractor participants in a controlled insurance program (CIP).

Workers' compensation insurance has long played an important role for the construction industry in managing the many risks that are inherent in the construction process, and insureds should be able to depend on the workers' compensation policies and Texas laws to provide protection against financial harm, the American Subcontractors Association and others in the construction industry told a Texas appeals court in an amici curiae, or “friends of the court,” brief filed on Sept. 25 in the case of Manhattan | Vaughn, JVP, Appellant, v. Josefina Garcia, Individually and as Heir to the Estate of Angel Garcia; and Orbelinda Herrera, as Next Friend of A.G. and B.G. (Minors).

The issue before the appeals court is whether the trial court erred when it refused to use the “exclusive remedy” provision of the workers' compensation bar on negligence claims to dismiss lawsuits against the contractor participants in a controlled insurance program (CIP). Texas appellate courts almost uniformly validate and uphold CIPs, noting that one of the benefits is to provide workers' compensation coverage for the industry. In this case, however, the trial court rejected the defendants' attempt to use the “exclusive remedy” provision of the workers' compensation laws and the result was an almost $54 million verdict against two contractors who were enrolled in the CIP. ASA and the amici curiae urged the First Court of Appeals in Houston, Texas, to reverse the judgment of the trial court.

In the underlying case, Texas A&M University hired Manhattan | Vaughn as a general contractor on a $4.5 million project to expand and renovate Kyle Field, and Manhattan | Vaughn hired Lindamood Demolition as a subcontractor to perform demolition work. The project was insured under an Owner-Controlled Insurance Program, often referred to as a wrap-up insurance policy, purchased by Texas A&M, and both the general contractor and subcontractor were OCIP participants. Such an insurance program provides compensation coverage to all employees on the project site. An employee of the subcontractor, Angel Garcia, fell to his death when a piece of machinery he was operating was overloaded and tipped over and fell. The family sued. The general contractor and subcontractor have appealed.

Under Texas law, an employer can choose not to subscribe to workers' compensation and therefore can be subject to a civil suit for an employee's injury or death. (This is different from most other states where workers' comp is the exclusive remedy for an employee's injuries or death unless the employer can be found guilty of intentionally bad conduct.) Even though all parties involved in this case were OCIP participants, and the OCIP included workers' compensation coverage for the enrolled participants and their employees, a trial court denied the defendants' motion for summary judgment as to the provision of workers' compensation coverage through the OCIP (and extension of exclusive remedy protection) to all OCIP participants. The jury returned a verdict for $53.8 million against the general contractor (who the jury determined bore 75 percent of the responsibility) and against the subcontractor (who the jury determined was 25 percent responsible) for the circumstances at the stadium that led to Garcia's death.

“Manhattan | Vaughn provided workers' compensation insurance as contemplated by the [Texas Workers Compensation] Act, coverage was in place, and the Garcias received workers' compensation benefits as prescribed for Mr. Garcia's unfortunate death,” the amici curiae said. “As a result, the exclusive remedy rule applies. The trial court's ruling to the contrary runs afoul of a substantial body of Texas case law and frustrates the purpose of the Act. It also ignores the most recent Texas Supreme Court precedent interpreting OCIPs, which unequivocally extends exclusive remedy protection throughout all tiers on a project and provides an alternate means for extending exclusive remedy protection to Manhattan | Vaughn.”

The amici curiae continued, “... the death of Angel Garcia was a terrible and heart-rending occurrence. But the mechanism contemplated in the [Texas Workers Compensation] Act performed flawlessly, and Mr. Garcia's family received their statutory benefits in exchange for giving up the right to sue their employer. They were not left without a remedy.”

The amici curiae cited cases in the brief where Texas appellate courts have supported their position: “... by recognizing and approving CIPs, that is, insurance programs in which an upper tier provides compensation coverage to all employees on the project site through the CIP, Texas appellate courts have universally upheld a CIP as a means whereby an upper tier owner, such as Texas A&M, provides workers compensation to employees of a lower tier, such as Manhattan | Vaughn and its subcontractors. The result is that a CIP provides protection for all of the employees on the job site through workers compensation insurance for employee injuries, and at the same time, all parties on the job site are also protected by the exclusive remedy protection conferred under … [the Texas Workers Compensation Act]. By providing workers compensation protection for all workers on the jobsite, a CIP is a perfect vehicle by which to advance to public policy of Texas ... to extend workers compensation insurance to as many workers as possible.”

Amici curiae in the brief are: Texas Building Branch of the Associated General Contractors of America, Associated Builders and Contractors of Texas, TEXO—The Construction Association, Associated General Contractors—Houston Chapter, American Subcontractors Association, Inc., Higginbotham Insurance and American Contractors Insurance Company Risk Retention Group. Patrick J. Wielinski and Travis M. Brown of Cokinos Young, Irving, Texas, filed the brief for ASA and the amici curiae. ASA's Subcontractors Legal Defense Fund financed the brief. Contributions to the SLDF may be made online.