INSURANCE LAW

FALL 2009

HCBeck, Ltd v. Rice, W.L. 886160; LEXIS 120 (Tex. 2009)

Workers’ Compensation; Coverage; Subcontractors: The Texas Supreme Court considered the extent to which a general contractor must "provide" workers' compensation insurance under the Act to qualify for statutory employer status and the resulting immunity from the work-related claims of a subcontractor's employees. The court of appeals held that a general contractor did not "provide" coverage in the manner contemplated by the Texas Labor Code (§ 406.123(a)) when its written agreement with the subcontractor required only that the subcontractor enroll in the site owner's workers' compensation insurance plan. Held: “A general workplace insurance plan that binds a general contractor to provide workers' compensation insurance for its subcontractors and its subcontractors' employees achieves the Legislature's objective to ensure that the subcontractors' employees receive the benefit of workers' compensation insurance.” Thus, the Texas Supreme Court reversed the Court of Appeals. Note: One of the features of this contract (the Construction Management Agreement, or the Agreement) was a workers' compensation insurance plan provided by FMR that covered the work site. The Agreement required this insurance plan, part of an owner controlled insurance program (OCIP), together with its corresponding OCIP Handbook, to be incorporated into all construction contracts entered into by HCBeck with any subcontractors. . . . HCBeck and all subcontractors working on the project were required to enroll in the OCIP. As each contractor enrolled in the OCIP, FMR's insurance representative would designate the contractor "insured" for workers' compensation and other insurance coverage, and an individual policy would be issued in the enrolled contractor's name. The Agreement permitted FMR to terminate or modify the OCIP at any time. But in the event FMR decided to terminate the OCIP, an alternate insurance provision in the Agreement required HCBeck to secure, at FMR's cost, other insurance covering itself and all subcontractors and employees at the same level as the workers' compensation coverage required in the OCIP.”

Certain Underwriters at Lloyds London v. Law, W.L. 1524631; LEXIS 11771 (5^th Cir. 2009)

Commercial Property Coverage; Vandalism; Theft; Exclusion: Thieves climbed onto the roof of the Laws' building, tore off portions of the exterior panels that formed the housings of various air-conditioning units, then broke into the units themselves and stole their copper condenser coils. The salvage value of the stolen copper was less than $ 2,000, but the total damage to the air-conditioning units caused by the thieves in the course of stealing the copper was closer to $ 200,000. The Laws reported the theft to the police and filed a claim with their insurer for the costs of repair and replacement. One of the coverage provisions of the commercial property policy provided coverage for loss caused by vandalism, but excluded coverage for damage resulting from theft. The theft provision read as follows: “We will not pay for loss or damage caused by or resulting from theft, except for building damage caused by the breaking in or exiting of burglars.” Issue: “Whether the damage to the Laws' air conditioners is (1) vandalism (the "vandalism coverage"), (2) damage caused by or resulting from theft (the "theft exclusion"), or (3) building damage caused by the breaking in or exiting of burglars (the "ingress/egress exception"). The court acknowledged that, in its broadest conversational meaning, "vandalism" could encompass essentially all willful damage, including damage caused in the course of a burglary. But, the policy in issue defined "vandalism" more narrowly, as "willful and malicious damage to, or destruction of, the described property,” from which it then carved out and excluded from coverage the subset of damage which is caused in the course of committing a theft. Held: “Here, the damage was solely in furtherance of stealing the copper. Just enough of the air-conditioning units' exterior metal paneling was torn away to allow access to the machinery inside. Likewise, the actual cooling mechanisms inside the paneling were damaged by the thieves for the sole purpose of gaining access to the copper. There is no evidence of "malicious" damage in any of this, yet the policy defines vandalism conjunctively as willful and malicious damage to the property. Even though the damage done might have exceeded the minimum required to gain access to the copper tubing, it was done entirely to gain such access. As such, the damage was done solely to further the theft and was not vandalism as that term is used in the policy.” The Court when on to say that, “[b]ut for the thieves' desire to steal the copper tubing, the damage would not have occurred.” Note: The Court also rejected the insured’s assertion that the thieves' physical intrusion into the various free-standing, self-contained air conditioners themselves was sufficient to qualify the thieves as "burglars" or their actions as "breaking in or exiting" the building. Thus, the ingress/egress exception to the theft exclusion did not apply (although it is worth reading the dissent in this regard)

Nautilus Ins. co. v. County Oaks Apts. Ltd., 566 F.3d 452 (5^th Cir. 2009)

Absolute Pollution Exclusion; Carbon Monoxide: Workers accidentally blocked a vent to the furnace in several apartments causing carbon monoxide to be dispersed into the apartments. A resident sued the complex for damages claimed on behalf of a minor who allegedly suffered carbon monoxide exposure. After suit was filed, the insurer was asked to defend the suit by the apartment complex, and the insurer contended it had no duty to defend based on the absolute pollution exclusion. The Court had to determine if carbon monoxide was a "pollutant" within the meaning of the policy at issue and, if so, did it "discharge," "disperse," "release," or "seep" into the apartment in question. The policy defined “pollution" as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acid, alkalis, chemicals, or waste.” The petition in the underlying case alleged that the plaintiff in that case encountered a strong enough concentration of carbon monoxide to cause severe and permanent injuries to her child in utero. According to the Court, these allegations clearly involved a "pollutant" as defined by the policy. The underlying plaintiff alleged that unusually high levels of carbon monoxide accumulated in her apartment after her furnace vent became obstructed. The relevant clause of the pollution exclusion stated that there was no coverage for "'bodily injury' . . . which would not have occurred in whole or in part but for the . . . alleged . . . discharge [or] release . . . of 'pollutants.'" According to the Court, "[t]o 'discharge' a pollutant means to emit it." (citations omitted). "To 'release' a pollutant means to set it free from confinement." (citations omitted). Further, “the only way that carbon monoxide could have accumulated in the apartment was if it was first emitted from the plaintiff's furnace. The normal emission of carbon monoxide from an apartment furnace fell within the plain meaning of the terms ‘discharge,’ ‘disperse,’ ‘seep,’ and ‘release.’” According to the Court, it was irrelevant that a reasonable insured might not expect this result. Note: The Court recognized that “the result here is sad,” but went on to say that it is “not absurd to call carbon monoxide a pollutant” noting that people commit suicide using carbon monoxide and “without doubt . . . much of the efforts to improve air quality in major cities centers upon the deleterious effects of pollution caused by carbon monoxide in the air.” What this discourse has to do with construing the policy language in issue is a mystery.