A recent Texas Court of Appeals decision parsing the wording of a workers’ compensation policy’s waiver of subrogation endorsement reminds us that, like an onion, a waiver endorsement has many layers and should be peeled back fully before giving up on subrogation and/or reimbursement potential.
In Insurance Co. of the State of Pennsylvania v. Exxon, No. 01-15-0453-CV (Tex. Civ. App. – Houston [1st Dist.] July 14, 2016), Kevin Roberts and Arturo Munoz were injured in January 2013 while working for Savage Refinery Services at Exxon Mobil’s Baytown, Texas plant. A tank exploded and a discharge of hot water seriously burned both of them. Savage’s workers’ compensation carrier, Insurance Company of the State of Pennsylvania (“ISCP”), paid nearly $700,000 in benefits to them. Roberts and Munoz sued Exxon Mobil (“Exxon”) and Exxon added ISCP as a third-party defendant to allow the court to determine its subrogation rights in the face of a waiver of subrogation endorsement to the ISCP policy. Despite the waiver of subrogation endorsement, ICSP was asking the court to allow it to subrogate and seek reimbursement of the benefits it paid. After peeling back the layers of its waiver endorsement, ICSP felt that the endorsement didn’t apply to their case.
Some years before this incident, Exxon hired Savage Refinery Services (“Savage”) to perform some work at its refinery. The contract between them provided that Savage would obtain certain insurance coverages and obtain certain waivers of its insurer’s subrogation rights against Exxon. Specifically, paragraph 14(a) of the contract read as follows:
Savage shall carry and maintain in force at least the following insurances and amounts: (1) for all its employees engaged in performing services, workers’ compensation and employers’ liability insurance or similar social insurance in accordance with applicable law which may be applicable to those employees:…Savage and its insurer providing coverage in this Section shall waive all rights of subrogation and/or contribution against Exxon and its affiliates to the extent liabilities are assumed by Savage, except Savage expressly agrees not to cause itself or its insurer(s) to waive any right of subrogation and/or contribution against Exxon and its affiliates under any workers’ compensation and employers’ liability insurance, or similar social insurance in accordance with law which may be applicable to those employees of Savage, when Exxon elects to furnish or arrange same.
In complying with paragraph 14(a), Savage obtained workers’ compensation coverage from ICSP which contained the following endorsement:
TEXAS WAIVER OF OUR RIGHT TO RECOVER FROM OTHERS ENDORSEMENT – WC 42 03 04
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 named in the Schedule.
The premium for this endorsement is shown in the Schedule.
(1) ( ) Specific Waiver
Name of person or organization
( x ) Blanket Waiver
Any person or organization for whom the Named Insured has agreed by written contract to furnish this waiver.
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.
(4) Advance Premium
(1) Use this endorsement to effect a waiver of recovery from others in accordance with Rule II, § G, of the Texas Workers’ Compensation Manual.
(2) If blanket waiver of recovery from others is written, the following wording should be inserted following Operations in Schedule: All Texas Operations.
The contract with Exxon also contained an indemnity provision whereby each promised to indemnify the other for personal injury claims brought by third parties (including each other’s employees), arising out of their own negligence. In other words, Savage agreed to indemnify Exxon for personal injury claims that were attributable to Savage’s own negligence.
The Court of Appeals in Exxon tells us that the waiver of subrogation endorsement is not the only place we must look to determine if a waiver is valid. Exxon, supra. The contract with Exxon required Savage to indemnify Exxon only for Exxon’s own negligence. Exxon agreed that it alone was responsible for the injuries. The court, therefore, held that Savage was not required by the contract to obtain the waiver because it only applied “to the extent liabilities are assumed by Savage.” No liability was assumed by Savage in this case, so there was no waiver of subrogation.
If we keep peeling the endorsement, we see that with every layer, a subrogated workers’ compensation carrier has an opportunity to avoid the harsh effects of waiver. It waives the right to “recover our payments from anyone liable for an injury.” However, what about “reimbursement” from the injured employee? In addition to a right of subrogation, most states’ statutes also grant the carrier a statutory right of reimbursement when the employee makes a third-party recovery. Texas does not allow reimbursement of the carrier from the employee, when a waiver of subrogation endorsement is attached to the workers’ compensation policy. Allen v. Texaco, Inc., 510 F.2d 977 (5th Cir. 1975) (Longshoreman Case); Hartford Acc. & Indem. Co. v. Buckland, 882 S.W.2d 440 (Tex. Civ. App. – Dallas 1994, writ denied). Neither does Louisiana. Harris v. Tenneco Oil Co., 563 So.2d 317 (La. App. 1990). Wisconsin does. Fowler v. Boise Cascade Corp., 948 F.2d 49 (1st Cir. 1991).
What about the right to a credit? Can the carrier maintain its right to a statutory credit notwithstanding the waiver endorsement? In California, the endorsement waives “subrogation” and “reimbursement”, but not the right to a future credit. Gonzalez v. W.C.A.B. and Consol. Fire Protection, 77 Cal. Comp. Cases 425, 2012 WL 1572131 (Ct. App., April 11, 2012), denying petition to review Gonzalez v. Consol. Fire Protection and Zurich Am. Ins., 2011 WL 7946014 (W.C.A.B., Nov. 3, 2011).
In order for there to be an effective waiver of subrogation, the tortfeasor against whom recovery is sought must be named in the Schedule if a specific waiver is selected. The operations which are being performed at the time of the injury must be the operations listed in the waiver endorsement. There must be a contract which requires the waiver endorsement in the first place. And, as we have seen in the Exxon case, the contract itself may provide limitations as to when the waiver applies.
The existence of a waiver of subrogation endorsement requirement in a contract isn’t good, but it doesn’t necessarily mean you can’t subrogate or pursue reimbursement or a credit. You must look to the policy to see if there is a waiver endorsement. Even when there is a waiver endorsement in the policy, you must peel back the layers of the endorsement and compare each layer to the facts of your case in order to determine whether your subrogation file should be closed.