Mid–Continent Cas. Co. v. Davis

• Decision Date: 08 June 2012
• Docket Number: No. 11–10142.,11–10142.
• Parties: MID–CONTINENT CASUALTY CO., Plaintiff–Appellant, v. Roger DAVIS d/b/a Davis Construction, Defendant–Appellee, Gloria Serrato, Individually and as personal representative of the Estate of Jorge Serrato; et al., Intervenors–Defendants–Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

683 F.3d 651

MID–CONTINENT CASUALTY CO., Plaintiff–Appellant,

v.Roger DAVIS d/b/a Davis Construction, Defendant–Appellee,Gloria Serrato, Individually and as personal representative of the Estate of Jorge Serrato; et al., Intervenors–Defendants–Appellees.

No. 11–10142.

United States Court of Appeals,Fifth Circuit.

June 8, 2012.

Richard Brent Cooper (argued), Diana L. Faust, Michelle Elaine Robberson, Cooper & Scully, P.C., Dallas, TX, for Plaintiff–Appellant.

Charles Clayton Miller, III, Lawrence Ray Lassiter (argued), Miller Weisbrod, L.L.P., Dallas, TX, for Intervenors–Defendants–Appellees.

Appeal from the United States District Court for the Northern District of Texas.

Before GARZA, DENNIS and HIGGINSON, Circuit Judges.

HIGGINSON, Circuit Judge:

Appellant Mid–Continent Casualty Company (“Mid–Continent”) appeals the district court's final judgment that Mid–Continent has a duty to indemnify Davis Construction in the underlying wrongful death action brought by the family of decedent Jorge Serrato (“Serrato”). We AFFIRM the district court's ruling, finding that the district court did not abuse its discretion in determining that Serrato was an independent contractor and not an employee of Davis Construction.

FACTS AND PROCEEDINGS

In June 2007, decedent Serrato fell through a hole on the second floor of a construction site where he was working as part of a framing crew for Davis Construction and eventually died from the fall. Davis Construction, owned by Roger Davis, was in the business of framing buildings (typically residential) and obtained jobs by bidding on projects with general contractors. Roger Davis or Bill Ritchie would hire crew members for projects Davis Construction was awarded. Davis Construction worked on one job at a time and, therefore, only used one crew. Typically, Davis Construction's crew consisted of four people in addition to Ritchie, who served as a supervisor, and the four workers on the crew often remained the same for years. During the month of Serrato's accident, the four workers on the Davis Construction crew were Vidal Negrete, Eduardo Negrete, Hector Sanchez, and Jorge Serrato.

Following the accident, the Serratos¹ filed a wrongful death, survival, and personal injury action (the “Underlying Lawsuit”) against Davis Construction and Tommy Richie Construction, LLC. Mid–Continent Casualty Company (“Mid–Continent”) sued Roger Davis d/b/a Davis Construction, seeking a declaratory judgment that Mid–Continent had no duty to indemnify Davis Construction in the Underlying Lawsuit because Serrato was an employee of Davis Construction. The Serratos filed a motion to intervene in the Mid–Continent action, and the district court granted that motion.

At the time of Serrato's accident, Davis Construction had a Commercial Lines Policy, issued by Mid–Continent under policy number 04–GL000660872 with an effective policy period from January 24, 2007 to January 24, 2008 (the “Policy”). The Policy contained two relevant coverage exclusions to which the Policy does not apply:

d. Workers' Compensation and Similar Laws

Any obligation of the insured under a workers' compensation, disability benefits or unemployment compensation law or any similar law.

e. Employer's Liability

“Bodily injury” to:

(1) An “employee” of the insured arising out of and in the course of:

(a) Employment by the insured; or

(b) Performing duties related to the conduct of that insured's business ....

Mid–Continent claims that because Serrato was an employee of the insured, Davis Construction, exclusions “d” and “e” of the Policy apply to exclude coverage for losses resulting from the Underlying Lawsuit.

The district court conducted a bench trial and issued a nine-page Memorandum Order and Opinion making findings of fact and conclusions of law. The following day, the district court signed its final judgment, declaring that Serrato was an independent contractor—not an employee of Davis Construction—and, therefore, Mid–Continent has a duty to indemnify Davis Construction in the Underlying Lawsuit.

STANDARD OF REVIEW

In an appeal from a district court's final judgment following a bench trial, we review the district court's findings of fact for clear error and review conclusions of law de novo. Dickerson v. Lexington Ins. Co., 556 F.3d 290, 294 (5th Cir.2009). Under this standard, “[w]here there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous.” Anderson v. City of Bessemer City, 470 U.S. 564, 573–74, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985).

The determination of whether an individual is an employee or an independent contractor is a conclusion of law to be reviewed de novo. Rodriguez v. Sarabyn, 129 F.3d 760, 765 (5th Cir.1997). However, “[f]indings on the Limestone factors themselves” are factual determinations and, therefore, are reviewed for clear error. Amerisure Ins. Co. v. Navigators Ins. Co., 445 Fed.Appx. 756, 759 (5th Cir.2011) (unpublished); cf. Brock v. Mr. W. Fireworks, Inc., 814 F.2d 1042, 1044 (5th Cir.1987).

DISCUSSION

The issue before us is whether the district court erred in concluding that Mid–Continent had a duty to indemnify Davis Construction because Serrato was an independent contractor and not an employee of Davis Construction.²

When jurisdiction is based on diversity of citizenship, as it is in this case, we apply the substantive law of the forum state “in an attempt to rule as a [forum state's] court would if presented with the same issues.” Musser Davis Land Co. v. Union Pac. Res., 201 F.3d 561, 563 (5th Cir.2000). Therefore, because the forum state here is Texas, we apply the Texas definition of “employee” and “independent contractor” in our analysis.

In Texas, determining whether an individual is acting in the capacity of an “independent contractor” or as an “employee” requires assessment of the amount of control the employer exerts or has the right to exert over the “progress, details, and methods of operations of the work.” Limestone Prod. Distrib. Inc. v. McNamara, 71 S.W.3d 308, 312 (Tex.2002). The Texas Supreme Court set forth the following five factors to assess whether a worker is an employee or independent contractor:

(1) the independent nature of the worker's business; (2) the worker's obligation to furnish necessary tools, supplies, and material to perform the job; (3) the worker's right to control the progress of the work except about final results; (4) the time for which the worker is employed; and (5) the method of payment, whether by unit of time or by the job.

Id. at 312. Importantly, “the legal test for determining independent-contractor status in Texas is right to control, not comparison of control.” Id.

The district court, after conducting a trial on the merits during which testimony was heard from five witnesses about who controlled Serrato's fate, held that Serrato was an independent contractor and not an employee of Davis construction based on an analysis explicitly applying the five factors laid out by the Texas Supreme Court in Limestone. We examine the district court's analysis of each of the five Limestone factors, reviewing each of these factual determinations for clear error. Amerisure, 445 Fed.Appx. at 759.

Considering the first Limestone factor, “the independent nature of the worker's business,” the district court acknowledged that this factor “does very little to shed light on ... Davis' right to control the crew's work,” and Mid–Continent concedes that the district court's analysis of this factor “was inconclusive.”³See Limestone, 71 S.W.3d at 312. On the one hand, the district court found that Davis “does not have control over whether the crew members work for other framing crews or even run their own framing business.”⁴ On the other hand, the district court also found that, “Jorge Serrato and the other crew member's business does not appear to be independent in nature.” Because the district court's findings are mixed, we consider the first Limestone factor to be neutral, supporting neither a finding that Serrato was an employee nor a finding that Serrato was an independent contractor.⁵

The district court found that, “[t]he second Limestone factor, ‘the worker's obligation to furnish necessary tools, supplies, and material to perform the job’ weighs heavily in favor of finding that Jorge Serrato was an independent contractor.” Though framing crew member Vidal Negrete testified that Davis Construction provided some of the tools to the crew members, ⁶ he also testified, both before and after his single statement that Davis provided some tools, that: (1) the compressors used by the crew in 2007 belonged to either him or Ritchie; (2) that Serrato had his own nail gun, saw, and hand tools; and (3) that Davis did not provide any tools to Serrato. Similarly, Ritchie testified that: (1) he had a compressor that the other crew members would use; (2) “everybody has got a compressor;” and (3) that most workers had their own nail guns, but if they did not, they would “be a cut man instead of a nail man or something of that nature.” Crew member Hector Sanchez testified that he and his fellow crew members had their own tools or borrowed them from other crew members.⁷ Finally, in his deposition, Davis stated, “[t]he guys furnish all their hand tools, that's nail guns, they've got—they carry their own compressors and everything.”⁸

At oral argument, Mid–Continent contended that the district court's finding that, “there is no evidence that Davis or Davis Construction ever provided any of the crew members with tools” (emphasis added) was clearly erroneous. ⁹ We agree that this particular factual finding is clearly erroneous because, as discussed above, there was a statement by Vidal Negrete that Davis Construction provided some tools to crew members. However, considering the inherent inconsistency of Vidal Negrete's testimony, coupled with the testimony from crew members and Davis himself that shows Davis did not provide tools...