Who Is An Employee Under The Texas Anti-Indemnity Act?

• Published date: 19 April 2022
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Real Estate and Construction, Contracts and Commercial Law, Personal Injury, Construction & Planning
• Law Firm: Wood, Smith, Henning & Berman LLP
• Author: Justin England

The Supreme Court answered the Fifth Circuit's certified question inquiring whether the employee exception in the Texas Anti-Indemnity Act (TAIA) permits additional insured coverage when an employee who was injured on the job site sues the additional insured for his personal injuries. Can the injured employee recover under these circumstances and is he a co-employer of the indemnitor under the Texas Workers' Compensation Act (TWCA)?

Facts

Skanska USA, Inc. (Skanska) was hired by Berkel & Co. Contractors (Berkel) as a general contractor on a large construction project in Houston, Texas. Skanska required all of the subcontractors it hired on site to participate in a contractor-controlled insurance program (CCIP), which provided both commercial liability and worker's compensation insurance. In the course of the work at the project, Berkel leased a crane from Maxim Crane Works, L.P. (Maxim) for work on the construction site. The lease required that Berkel name Maxim as an additional insured under Berkel's commercial general liability insurance, which was Zurich American Insurance Company (Zurich). Maxim did not enroll in Skanska's CCIP.

The incident at the center of this case stemmed an injury suffered by Tyler Lee when a Berkel employee operating the Maxim crane caused the boom to collapse crushing his leg. Lee recovered worker's compensation benefits under Skanska's CCIP and sued Berkel, Maxim and others in Texas state court. The jury returned a verdict for Lee, allocating 90% of the fault to Berkel and 10% to Maxim.

In a separate lawsuit, which was removed to federal court, Maxim and Zurich disagree as to whether additional insured coverage is enforceable in this situation. The answer depends on whether or not Lee is considered an employee of Berkel who is the indemnitor under TAIA section 151.103.

Question Before the Court

The U.S. Court of Appeals for the 5th Circuit has requested guidance as to the scope of the employee exception to the Texas Anti-Indemnity Act (TAIA). The general rule under the TAIA is that the indemnitor is prohibited from indemnifying or insuring another party (the indemnitee) against a claim caused by the negligence or other fault of the indemnitee or its employees or agents. Tex. Ins. Code '151.102. An exception to this general provision allows the indemnitor to insure the indemnitee against a claim for the bodily injury or death of the indemnitee's employee, agent, or subcontractor. The issue here involves whether the exception is impacted by provisions contained in the Texas Worker's Compensation Act. (TWCA)

The TAIA

The general rule under the TAIA is that indemnification provisions are prohibited in construction contracts. "A provision in a construction contract, or in an agreement collateral to or affecting a construction contract, is void and unenforceable as against public policy to the extent that it requires an indemnitor to indemnify, hold harmless, or defend a party, including a third party against a claim caused by negligence or fault, the breach or violation of a statute, ordinance, governmental regulation, standard, or rule, or the breach of contract of the indemnitee, its agent or employee, or any third party under the control or supervision of the indemnitee, other than the indemnitor or its agent, employee, or subcontractor of any tier," Tex. Ins Code '151.102.

The TAIA also limits the enforceability of some provisions for additional insured coverage: "A provision in a construction contract that requires the purchase of additional insured coverage is void and unenforceable to the extent that it requires or provides coverage the scope of which is prohibited under this subchapter for an agreement to...