Insurance Case Law Update: New Decisions Impacting Your 2020 Risk Management Strategy – Part II

Last year marked several big courtroom decisions impacting risk management. To keep you up to date, we’ve created a two-part series of important cases that could affect your risk mitigation procedures. Part I focuses largely on additional insured endorsements and commercial general liability exclusions. Part II focuses on workers’ compensation. Following case law updates helps your company stay ahead of risk and away from costly litigation. When it comes to loss prevention, operating proactively is the best strategy of all.

The Case: Texas Mut. Ins. Co. v. Hofer Bldrs., Inc.

Case Overview: Texas-based Hofer Builders Inc. (HBI) remotely hired Florida resident David Hope as a supervisor for a Louisiana construction site where HBI operated as a subcontractor. Hope was injured while on the job and filed for workers’ compensation benefits through HBI’s insurer Texas Mutual Insurance Company. The insurer denied benefits based on Texas labor code and limited reimbursement rights for employees working outside the state. Hope then sought coverage in Louisiana under the general contractor’s policy through Hartford Underwriters Insurance Company. Louisiana state regulations required that HBI indemnify Hartford for payments made to Hope on behalf of the general contractor. HBI and Hartford brought claims against Texas Mutual for breach of contract and subrogation for compensation benefits. Texas Mutual issued a counterclaim stating it had no duty to defend or indemnify for benefits paid in Louisiana.

The Decision: The Texas Court of Appeals sided with Texas Mutual and determined the insurer did not owe workers’ compensation benefits or subrogation based on Texas Labor Code 406.071. The statute stipulates two requirements for benefits paid outside of Texas:

1. An employee injured while working in another jurisdiction is entitled to benefits if the injury would be compensated had it occurred in Texas and the employee has significant contacts or employment is principally located in Texas.
2. An employee is considered to have significant contacts in Texas if the employee was hired or recruited in the state and the employee was injured no later than one year after being hired or has worked in the state for at least 10 working days during the 12 months preceding the date of injury.

The code further defines principal location of employment as where the employer has a place of business from which the employee regularly works or where the employee resides and spends a substantial part of the employee’s working time.  

Based on the definitions, the court found that Hope’s employment did not meet the requirements for workers’ compensation benefits under HBI’s plan with Texas Mutual. While employment was offered through a phone call and mailed documents originating at the Texas office location, Hope immediately began work in Louisiana and never physically entered the Texas office prior to injury. His residence remained in Florida. As such, he failed to meet the state’s labor code stipulations. The Texas Mutual policy also included an endorsement citing limited reimbursement for Texas employees injured in other jurisdictions which excluded employees hired outside Texas for work in other states.

The Takeaways:

• Review the exclusions of your workers’ compensation policy – workers’ compensation insurance may not translate to all states the same way and could impact hiring practices. For companies doing business across state lines, it is important to understand how an insurance policy applies. Coverage limitations combined with different state labor codes may require additional policies for every state where employees work. The Texas Mutual policy specifically stated that HBI must notify the agent before beginning work in any location outside of Texas and that hires recruited for out-of-state work are excluded from benefits.
• Understand liabilities for indemnification and subrogation – the court’s finding that Texas Mutual owed no duty to defend leaves HBI liable for Hartford’s indemnification and subrogation claims. With no insurance coverage to leverage, HBI may forfeit significant out-of-pocket costs for repayment of Hope’s workers’ compensation benefits and any additional fees associated with Hartford’s litigation.

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