Roy Seger v. Yorkshire Insurance Co., Ltd., and Ocean Marine Insurance Co., Ltd.
503 S.W.3d 388
| Tex. | 2016Background
- Randall (Randy) Seger died in 1992 while working as a derrick hand on a Diatom-owned drilling rig; he was employed by Employer’s Contractor Services, Inc. (ECS), a company controlled by Diatom’s general partner.
- Diatom purchased a commercial general liability (CGL) policy (Lloyd’s-type) listing Diatom and ECS as insureds, with a $500,000 limit; the cover note included a “Excluding Leased-In Employees/Workers” condition.
- Randy’s parents sued Diatom for wrongful death, obtained a default-style $15 million (later larger) judgment after Diatom essentially failed to defend; Diatom assigned its claims against insurers to the parents.
- The parents sued the CGL insurers in a Stowers action for wrongful refusal to defend/settle; trial and appeals produced conflicting rulings on coverage, damages, and whether Randy was a “leased-in” worker.
- On remand a jury found the insurers negligent and that Randy was not a leased-in worker; the trial court entered a large judgment, but the court of appeals reversed as to damages and left coverage unresolved; the Texas Supreme Court held Randy was a leased-in worker as a matter of law and that the claim was excluded.
Issues
| Issue | Plaintiff's Argument (Seger) | Defendant's Argument (Insurers) | Held |
|---|---|---|---|
| Whether Segers met the initial burden to prove coverage (i.e., Randy was a third party/independent contractor) | Randy was not Diatom’s employee but an ECS worker/independent contractor, so Diatom’s CGL covers the claim | Policy excluded injuries to leased-in workers; Seger must prove he was not leased-in | Segers met initial burden generally, but ultimate coverage defeated by leased-in exclusion as a matter of law |
| Proper allocation of burden to prove/exclude coverage | Burden should be on insurers to prove exclusion/ noncoverage | Insured bears initial burden to show coverage; insurer bears burden to prove exclusion once coverage shown | Court: insured must prove coverage first; then insurer may prove exclusions |
| Whether CGL "leased-in worker" exclusion applied to Randy | The jury’s finding that Randy was not leased-in should control; factual issue for jury | Court of appeals’ definition applied; evidence conclusively shows Randy was leased-in under that definition | Randy was a leased-in worker as a matter of law; exclusion applies; no coverage |
| Enforceability of policy/exclusions given insurers were unauthorized surplus lines | Policy unenforceable by insurer due to statutory defects, so exclusions cannot be invoked | Even if insurer is unauthorized, insured may choose to enforce the policy and thus is bound by its terms including exclusions | Insured may enforce policy but must accept its terms; insurers may plead exclusions despite surplus-lines technicalities |
Key Cases Cited
- G.A. Stowers Furniture Co. v. American Indemnity Co., 15 S.W.2d 544 (Tex. Comm’n App. 1929) (establishing insurer’s duty to accept reasonable settlement within policy limits)
- State Farm Fire & Casualty Co. v. Gandy, 925 S.W.2d 696 (Tex. 1996) (addressing measure of damages when insurer refuses to settle)
- American Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842 (Tex. 1994) (Stowers element framework and insurer duty principles)
- Ulico Cas. Co. v. Allied Pilots Ass’n, 262 S.W.3d 773 (Tex. 2008) (insurer’s inability to waive or lose a noncoverage defense pre-coverage showing)
- City of Keller v. Wilson, 168 S.W.3d 802 (Tex. 2005) (standards for legal-sufficiency review of evidence)