I wrote a post last week entitled, “For Texas Subrogation, the Devil is in the (Policy) Details.” It concerned a Texas Supreme Court Decision where an insurance carrier had attempted to collect from an injured workers’ third-party liability suit despite the existence of a waiver of subrogation in the policy issued to their insured. The carriers position was that the waiver applied to the protected business entity, but not to money paid to an injured worker by that same entity. The court disagreed with their position and ruled against them.
I questioned the wisdom of such a waiver, and while freely admitting I did not know much in this arena, suggested that there may be a whole lot of policy revision in Texas as a result of the decision. It turns out I was indeed wrong – but not as much as some would like to think.
The morning the article was posted, an attorney friend in Austin texted me. It essentially said, “Call me, and I’ll tell you why the court was right, and you were wrong.” In that subsequent call, he explained that the waiver in question has been used for many years and is endorsement language dictated by the Texas Department of Insurance. Used frequently in manufacturing, construction and the trades, it reduces liability and is often required in business contracts between vendors and service recipients. This raises the employer’s workers’ comp premiums, which is an acceptable trade off given the benefits regarding liability.
In my friend’s opinion, the carrier in the case I wrote about was “trying to be cute,” and do an end run around the waiver. He indicated most watching the case expected the court to rule exactly as they did. The Supremes supported the status quo; the precedent that had been in place for at least two decades.
The waiver (WC 42 03 04 A), reads:
TEXAS WAIVER OF OUR RIGHT TO RECOVER FROM OTHERS ENDORSEMENT
This endorsement applies only to the insurance provided by the policy because Texas is shown in Item 3.A. of the Information Page.
We have the right to recover our payments from anyone liable for an injury covered by this policy. We will not enforce our right against the person or organization named in the Schedule, but this waiver applies only with respect to bodily injury arising out of the operations described in the Schedule where you are required by a written contract to obtain this waiver from us.
This endorsement shall not operate directly or indirectly to benefit anyone not named in the Schedule. The premium for this endorsement is shown in the Schedule.
Schedule
- ( ) Specific Waiver
Name of person or organization - Blanket Waiver
Any person or organization for whom the Named Insured has agreed by written contract to furnish this waiver. - Operations:
- Premium
The premium charge for this endorsement shall be ______ percent of the premium developed on payroll in connection with work performed for the above person(s) or organization(s) arising out of the operations described.
- Advance Premium
Notes:
- Use this endorsement to effect a waiver of recovery from others in accordance with Rule II, Section G, of the Texas Workers’ Compensation Manual.
- If blanket waiver of recover from others is written, the following wording should be inserted following Operations in schedule: All Texas Operations.
The carrier, which we assume was earning additional premium for the waiver, tried to subrogate their losses in an indirect manner that the courts determined was in fact a direct attempt, and was not allowed by the policy in force.
So, it appears, despite my normally spot on predictions (which are right, like almost 50% of the time), that the policy language in the state won’t be changing anytime soon.
Our Austin attorney then pointed me to a more interesting subrogation case in the state, and suggest I research it a bit. Earlier this year. in Ins. Co. of the State of Pennsylvania v. Roberts, the Texas Supreme Court declined to review a Court of Appeals decision that allowed subrogation despite the existence of a waiver.
An excellent review of that case is provided by Gary L. Wickert, of Matthiesen, Wickert & Lehrer, S.C. Essentially, an explosion at an Exxon facility resulted in a subrogation attempt by AIG, which insured a vendor whose employees were injured in the event. Initially the action was denied by the trial court, which issued a summary judgment at Exxon’s behest, citing the subrogation waiver in the vendors policy. The Court of Appeals, however, reversed the decision, based on the specific language of the contract between the two companies. That document called for “certain waivers of the insurers’ subrogation rights against Exxon, ‘to the extent liabilities are assumed by’” the vendor. According to Wickert, AIG claimed “that the subrogation waiver endorsement was never ‘triggered’ because Savage never ‘assumed liability’ for Exxon’s negligence.” The court agreed with that position.
Ah, those pesky little contractual details.
Wickert says in his blog that the Supreme Court’s decision to let the Appeals decision stand without review “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.”
Initially, I had incorrectly speculated that there may be a great deal of revision in insurance policy language as a result of the Supreme Court decision discussed in last weeks post. I might have been wrong about the specific document to be revised, but suspect I was right about those potential revisions. Vendor services agreements all across the Lone Star State may get another look due to the ramifications of Ins. Co. of the State of Pennsylvania v. Roberts decision.
And that was the lesson for me in this specific chapter. While it turns out that in the world of subrogation waivers the devil may not be in the policy details, he certainly exists in the syntactical world of the standard service contract.