Energy Service Co. v. Superior Snubbing

• Decision Date: 24 August 2007
• Docket Number: No. 05-0202.,05-0202.
• Citation: 236 S.W.3d 190
• Parties: ENERGY SERVICE COMPANY OF BOWIE, INC., Petitioner, v. SUPERIOR SNUBBING SERVICES, INC., Respondent.
• Court: Texas Supreme Court

236 S.W.3d 190

ENERGY SERVICE COMPANY OF BOWIE, INC., Petitioner, v. SUPERIOR SNUBBING SERVICES, INC., Respondent.

No. 05-0202.

Supreme Court of Texas.

Argued December 1, 2005.

Decided August 24, 2007.

S. Todd Parks, Sidney H. Davis Jr., Touchstone Bernays Johnston Beall Smith & Stollenwerck, L.L.P., Daniel Lee Gus, Walker Sewell LLP, Gregory R. Ave, Walters, Balido & Crain, L.L.P., Dallas, for petitioner.

R. Lynn Fielder, Fisk & Fielder, Dallas, Stephen J. Wren, Woodruff & Wren, L.L.P., Decatur, for respondent.

Michael A. Golemi, William W. Pugh, Liskow & Lewis, Houston, for amicus curiae.

Justice HECHT delivered the opinion of the Court, in which Chief Justice JEFFERSON, Justice BRISTER, Justice MEDINA, and Justice LANG¹ joined.

Since 1963, the Texas Workers' Compensation Act has provided that a subscribing employer is not liable to indemnify others against an employee's personal injury claim unless it agreed to do so in writing before the injury occurred. Until the Act was overhauled in 1989, it referred to the required agreement as one "executed by the subscriber".² The new Act referred instead to an agreement "executed . . . with the third party" seeking indemnity.³ The issue in this case is whether this change was substantive. More particularly, the question is: under section 417.004 of the Texas Labor Code, may a subscribing employer's written agreement to indemnify a person and that person's contractors be enforced by one of those contractors even though the agreement was not executed by that contractor? The trial court answered yes, but the court of appeals disagreed.⁴ We agree with the trial court.

Petitioner Energy Service Company of Bowie, Inc. and respondent Superior Snubbing Services, Inc. both provided oilfield services to Mitchell Energy Corporation. In 1996, Superior and Mitchell signed an industry-standard "Master Service Agreement", which provided in part that they would indemnify each other and each other's contractors against their respective employees' personal injury claims arising out of work performed under the Agreement or at the jobsite, even if the indemnitee was at fault.⁵ Energy and Mitchell had signed a similar agreement in 1991, containing the identical provision. Each party agreed to support its obligation with liability insurance⁶ so that to the extent of coverage obtained the indemnification obligations would not be voided by the Texas Oilfield Anti-Indemnity Act.⁷ Superior and Energy did not have a mutual indemnification agreement between themselves, nor was either a party to the other's agreement with Mitchell, but each was covered, as a Mitchell contractor, by the terms of the other's agreement with Mitchell. Thus, Energy agreed to indemnify Mitchell and its contractors, one of which was Superior, against claims by Energy employees, and Superior agreed to indemnify Mitchell and its contractors, one of which was Energy, against claims by Superior employees.

Superior's employee, Daryll Faulk, sued Mitchell and Energy for injuries he suffered in 2000 while working at a Mitchell wellsite where Superior and Energy were both performing services for Mitchell. Mitchell and Energy settled with Faulk and then sued Superior for indemnity. The trial court severed Mitchell's claims from Energy's. Superior, a subscribing employer, contended that Energy's claim was barred by section 417.004 of the Labor Code.⁸ The trial court disagreed and granted summary judgment for Energy for the $330,135.37 in attorney fees and expenses it incurred in the Faulk suit.

The court of appeals reversed and rendered judgment for Superior. It noted that before the Workers' Compensation Act was completely revised in 1989, the predecessor provision to section 417.004 stated that a subscribing employer could not be liable to indemnify a person against an employee's personal injury claim "in the absence of a written agreement expressly assuming such liability, executed by the subscriber prior to such injury or death."⁹ The court of appeals determined, and Superior acknowledges in its brief, that the statute did not require that the employer's agreement be executed by the person claiming indemnity;¹⁰ the claimant was entitled to indemnity if it was covered by the agreement as an intended beneficiary, such as a contractor of the signatory. But according to the court of appeals, a 1989 change in the provision, carried forward into section 417.004, the current law, precludes liability "unless the employer executed, before the injury or death occurred, a written agreement with the third party to assume the liability."¹¹ The court concluded, in effect, that since Superior's indemnification agreement with Mitchell was not executed by Energy, it was not executed with Energy, and therefore Superior could not be liable to indemnify Energy.¹²

We granted Energy's petition for review to determine whether the Legislature intended, as part of its 1989 overhaul of the Workers' Compensation Act, to make a substantive change in the 26-year-old provision that is now section 417.004.¹³ That overhaul, enormously controversial, was not completed until December 1989, in the second called session of the 71st Legislature, after efforts to revise the Act during the regular session and the first special session had failed.¹⁴ But the controversy did not extend to the provision that is now section 417.004. Nothing in the lengthy history of the revision process indicates that the Legislature had any reason to change the substance of that provision.¹⁵

The common law allows parties to contract for the benefit of others—in effect, with others—if they do so explicitly, and when they do, the beneficiary can enforce the promisor's obligation in his favor as if he were himself a party.¹⁶ The pre-1989 predecessor to section 417.004 was consistent with that rule, allowing indemnification agreements to benefit a party's non-signatory contractors, but the present section, as construed by the court of appeals, is not. Of course, statutes can modify common law rules, but before we construe one to do so, we must look carefully to be sure that was what the Legislature intended.¹⁷

The Legislature has directed that "[i]n interpreting a statute, a court shall diligently attempt to ascertain legislative intent and shall consider at all times the old law, the evil, and the remedy."¹⁸ Superior has not pointed to anything suggesting that allowing indemnification agreements to cover persons working with the contracting parties was perceived to be an "evil" before the 1989 amendment. Superior argues that a contractor working in the oil field should not be economically pressured into surrendering its statutory immunity from liability for indemnity of an employee's personal injury claims, but the Texas Oilfield Anti-Indemnity Act, enacted in 1973, limits that liability,¹⁹ and nothing suggests that the Legislature thought those limits should be modified by amending the Workers' Compensation Act in 1989. Superior concedes that restricting such agreements to the parties themselves simply makes the protections such agreements afford much harder and costlier to obtain, especially in a work setting like the oilfield, where many contractors may come and go on a project over a long period of time. Trying to be sure that everyone working at a wellsite has a signed agreement may well be impractical. Superior also concedes that the continued widespread use after 1989 of standard mutual indemnification agreements like those in this case strongly suggests that the industry does not consider the practice an "evil" to be remedied. Indeed, the parties tell us that no one even appears to have noticed the 1989 change in language until this case.

Absent any identifiable reason for a substantive change to have been made in the statutory provision, or any extra-textual indication that one was intended, or any resulting change in industry practice, we think the most reasonable construction of section 417.004 is the same as its pre-1989 predecessors. In these circumstances, we think that when the Legislature required that a subscribing employer contract "with the third party" seeking indemnity, it considered that an agreement intending to cover third party beneficiaries was an agreement with the beneficiaries. The issue for us, of course, is not whether this is good policy, but whether it is what the Legislature intended by the 1989 amendments. We think it was.

This is not a situation like the one in Fleming Foods of Texas, Inc. v. Rylander, where the statutory text admitted of but one meaning, however doubtful it was that the Legislature intended it.²⁰ In that case, the prior law allowed a person to claim a refund of sales taxes only if he had paid the taxes "directly to the State".²¹ The recodified law omitted the quoted phrase, thus ostensibly allowing a refund claim by any taxpayer, even if taxes were made through an intermediary.²² Consistently, the statute defined "taxpayer" as "a person liable for a tax".²³ Fleming Foods claimed a refund of taxes it had paid, but through a vendor, not directly to the State.²⁴ Although the Legislature expressly provided that the recodification was nonsubstantive, we held that the plain language of the recodified law could not admit the limitation of the prior law.²⁵ The revised text gave no indication that the limitation of the prior law might still apply, and a person reading the new statute, unaware of its history, could not reasonably know of the limitation.²⁶ The statute in this case, unlike that one, is not so clear. An agreement with a third party does not necessarily exclude a third party beneficiary not identified expressly by name. Indeed, under the common law, an indemnity agreement could ordinarily include an obligation by the promisor to an unnamed third party beneficiary. The text of section 417.004 would not indicate to an ordinary reader that the third party was required to sign the agreement.

The dissent argues...