Seger v. Yorkshire Ins. Co.

• Decision Date: 17 June 2016
• Docket Number: NO. 13–0673,13–0673
• Citation: 503 S.W.3d 388
• Parties: Roy SEGER, et al., Petitioners, v. YORKSHIRE INSURANCE CO., LTD., and Ocean Marine Insurance Co., Ltd, Respondents
• Court: Texas Supreme Court

503 S.W.3d 388

Roy SEGER, et al., Petitioners,

v.YORKSHIRE INSURANCE CO., LTD., and Ocean Marine Insurance Co., Ltd, Respondents

NO. 13–0673

Supreme Court of Texas.

Argued September 3, 2015

OPINION DELIVERED: June 17, 2016

Rehearing Denied December 2, 2016

David M. Russell, John T. Smithee, Templeton Smithee Hayes Heinrich & Russell LLP, Amarillo, TX, for Petitioners.

Charles R. 'Skip' Watson Jr., Mike A. Hatchell, Locke Lord LLP, Austin TX, David J. Plavnicky, Plavnicky & Marshall, P.C., Houston TX, Donald M. Hunt, Lawrence Matthew Doss, Mullin Hoard & Brown, LLP, Lubbock, TX, for Respondents.

Levon G. Hovnatanian, Martin Disiere Jefferson & Wisdom, L.L.P., Houston TX, Scott A. Brister, Leslie Ritchie Robnett, Andrews Kurth LLP, Austin TX, Elizabeth Holman Rivers, Henry S. Platts Jr., Michael A. Choyke, Thomas C. Wright, Wright & Close LLP, Houston TX, Mark A. Ticer, Law Office of Mark A. Ticer, Dallas TX, George S. Christian, Texas Civil Justice League, Austin TX, for Amicus Curiae parties.

JUSTICE GREEN delivered the opinion of the Court.

After a tragic accident, a deceased derrick hand's parents sued the company that owned the drilling rig upon which the fatal accident occurred. The drilling company demanded that its commercial general liability (CGL) insurers defend it in the litigation. The insurers refused based on lack of coverage. The parents obtained a judgment against the drilling company, the company assigned its rights against the insurers to the parents, and the parents brought a Stowers action against the insurers. See G.A. Stowers Furniture Co. v. Am. Indem. Co., 15 S.W.2d 544, 547–48 (Tex. Comm'n App.1929, holding approved). After years of litigation, the jury returned a verdict in the parents' favor. The court of appeals reversed the trial court's judgment and rendered judgment that the parents take nothing. Yorkshire Ins. Co. v. Seger, 407 S.W.3d 435, 443 (Tex.App.–Amarillo 2013, pet. granted). The court of appeals decided the issue of damages by applying our decision in State Farm Fire & Casualty Co. v. Gandy, 925 S.W.2d 696 (Tex.1996). We decide the case on different grounds, holding that the parents failed to establish coverage, an essential element of any Stowers action. The evidence is legally insufficient to support the jury's finding that the deceased worker was not a leased-in worker; in fact, the evidence is conclusive that he was a leased-in worker under the definition given by the court of appeals. Coverage is therefore precluded as a matter of law. Because the coverage issue is dispositive, we do not address the damages issue. We affirm the court of appeals' judgment that the parents take nothing, but on different grounds.

I. Facts and Procedural Background

Randall Seger (Randy) died in 1992 while working on a hydraulic-lift drilling rig that suddenly collapsed. At the time of the accident, Randy was employed by Employer's Contractor Services, Inc. (ECS), an oilfield service company. As an employee of ECS, Randy provided services to Diatom Drilling Co., L.P., which owned the drilling rig. ECS's president and founder, Cynthia Gillman, was also Diatom's general partner.

Diatom was insured under a CGL policy issued by fifteen offshore insurers, including lead insurers Yorkshire Insurance Co. and Ocean Marine Insurance Co. (collectively, the CGL Insurers). The "cover note" for Diatom's policy identified Diatom and ECS as the insureds, provided a maximum of $500,000 of coverage for any one bodily injury accident or occurrence, and contained a "condition" "Excluding Leased–In Employees/Workers." The policy also excluded employees, but included independent contractors, and provided that the CGL Insurers "shall have the right and duty to defend any suit against the insured seeking damages."

A. The Wrongful Death Action

The CGL Insurers were promptly notified of Randy's death, but Randy was erroneously referred to as a Diatom employee. The CGL Insurers did not investigate the incident and apparently conducted no inquiry or review of the policy to determine coverage. Rather, the CGL Insurers' strategy was to "keep a low profile" as they "[did] not wish to encourage any suit papers." Randy's parents, Roy Seger and Shirley Faye Hoskins (the Segers), ultimately brought a wrongful death action against Diatom and its partners in 1993, but the suit sat dormant for years.

In October 1998, the Segers made their first offer to settle the case within policy limits for $500,000. Diatom forwarded the offer to the CGL Insurers and made its first demand that the CGL Insurers provide a defense and settle the case within the policy limits. The CGL Insurers denied that Randy's death was a covered occurrence, notified Diatom that two of the CGL Insurers had become insolvent and therefore the demand exceeded policy limits, and refused to provide a defense or settle the case. In June 1999, the Segers made a second settlement offer within coverage limits, offering to accept $368,190 to "resolve all claims and all pending litigation arising out of the death of Randy Seger." The CGL Insurers rejected that offer. With a trial setting looming, Diatom made a second demand for a defense, asking the CGL Insurers to "come in and accept defense and acknowledge coverage on our behalf and settle the case within the policy limits." In June 2000, Diatom repeated that demand. The Segers made a third settlement offer prior to the March 2001 trial, offering to accept $250,000 to "resolve all pending litigation between the parties." The CGL Insurers again declined to accept the settlement offer.

Before trial, the Segers nonsuited Diatom's individual partners, leaving Diatom as the only defendant. Diatom's counsel then withdrew from the case, claiming that Diatom was "unable to pay attorney fees."

At trial, Diatom appeared only through Gillman, its general partner, who is not a lawyer and had been subpoenaed to appear as a witness. Diatom did not announce ready when the proceeding was called, presented no opening or closing argument, offered no evidence, and did not cross-examine any witnesses. Gillman testified and was excused after her testimony. The CGL Insurers, despite having notice of the trial, elected not to attend or participate. The Segers presented evidence to prove both Diatom's liability and damages. After a full day of hearing evidence, the trial court found Diatom liable for Randy's death and awarded the Segers $15 million, plus interest.

Following entry of the judgment, Gillman contacted the CGL Insurers and inquired about what they intended to do. Receiving no answer, Diatom assigned to the Segers "any and all claims and causes of action" against the CGL Insurers, but reserved Diatom's right to recover its attorney's fees incurred in the underlying suit. In exchange, the Segers agreed to release Diatom's partners from any personal liability, even though they had already been nonsuited.

B. The Stowers Action

The Segers filed a Stowers action, see G.A. Stowers Furniture, 15 S.W.2d at 544, against the CGL Insurers, seeking damages for wrongful refusal to defend Diatom and negligent failure to settle the Segers' wrongful death claim within the $500,000 limits of Diatom's CGL policy. Before the Stowers action went to trial, all claims against the insolvent CGL Insurers were settled and dismissed, leaving only claims against Yorkshire and Ocean Marine (collectively, the Stowers Insurers). The Segers filed a nonsuit as to the other CGL Insurers.

The Stowers Insurers filed a third-party claim against Diatom and ECS for declaratory relief or for reformation of the CGL policy, arguing that the policy excluded coverage for Diatom's liabilities to leased-in workers. The Stowers Insurers also sought a declaration that Randy was a leased-in worker on the date of his death and that the Stowers Insurers had no duty to defend Diatom. At a pretrial hearing, the trial court denied the Stowers Insurers' motion for summary judgment and granted summary judgment in favor of Diatom and ECS on the issues of "coverage, demand within limits, fully adversarial relationship, and trial." The trial court then severed the third-party claims from the Segers' Stowers action.

The Stowers action went to trial on the remaining issues of negligence, causation, and damages. The jury returned a verdict in favor of the Segers as to the Stowers Insurers' negligence and causation, and the trial court directed verdict as to damages based on the underlying judgment against Diatom. In April 2006, the trial court entered a $37,213,592.01 final judgment in favor of the Segers.

C. The Stowers Action Appeals

In the first appeal, the Stowers Insurers challenged some of the trial court's procedural rulings, the court's disposition of competing motions for summary judgment, and the court's rulings on motions for directed verdict. Yorkshire Ins. Co. v. Seger, 279 S.W.3d 755, 761 (Tex.App.–Amarillo 2007, pet. denied).¹ The court of appeals affirmed the trial court's summary judgment that the Segers' $250,000 settlement demand was within the CGL policy limits. Id. at 769, 775. However, the court reversed the trial court on six other holdings. Id. at 775. On the issue of coverage, the court of appeals held that Diatom's CGL policy excluded claims for bodily injury or property damage brought by or on behalf of persons who performed work for the insured under an agreement with another allowing the temporary use of the worker. Id. at 768. Because there was more than a scintilla of evidence that the Segers' claims were excluded by the CGL policy and the Segers failed to negate the applicability of the leased-in worker exclusion as a matter of law, the court held that the trial court erred in granting summary judgment on the issue of coverage. Id. The court also held that the Stowers Insurers had raised a fact issue regarding whether the underlying judgment was the result of a fully adversarial trial, reversed the damages portion of the Stowers action judgment, and remanded the case for a...