On April 3, 2025, a Texas state appeals court reversed a trial court order awarding Exxon Mobil $25 million under an umbrella insurance policy issued by Lexington Insurance Co. to Brock Services Ltd. The appeals court found that the umbrella policy’s employer’s liability exclusion applied to preclude coverage for bodily injury claims made against Exxon given its status as a “statutory employer” of the injured claimants.
Brock Services contracted with Exxon to provide scaffolding at one of Exxon’s Texas refineries. The contract stated that Brock would obtain insurance coverage for the project, including workers’ compensation coverage and a general liability policy naming Exxon as an additional insured. The contract also provided, however, that Exxon could procure workers’ compensation coverage and general liability coverage for Brock through Exxon’s owner-controlled insurance program (OCIP). Exxon procured such coverage through its OCIP and deducted the cost of such insurance from its contract payments to Brock. In addition to the insurance required by the contract, Brock obtained an umbrella liability policy issued by Lexington, under which Exxon later claimed to be an additional insured.
In April 2013, an explosion at Exxon’s facility injured three Brock employees. These employees received workers’ compensation benefits under the OCIP policy issued to Exxon and then sued Exxon for the injuries they sustained in the explosion. Exxon sought a defense under the Lexington policy and demanded that Lexington contribute to a settlement Exxon would later reach with the injured Brock employees. Lexington denied coverage for the suit, after which Exxon filed a coverage action. During the coverage litigation, Exxon settled the claims of the Brock employees for approximately $35 million.
Lexington and Exxon went to arbitration to adjudicate the question of Exxon’s additional insured status under the policy. Ultimately, the panel determined that the Lexington policy covered Exxon as an additional insured. Once back in Texas state court, the trial court granted summary judgment to Exxon on the issues of defense and indemnity and found that Lexington must pay its policy limit plus attorneys’ fees and interest. Lexington appealed from the determination of the arbitration panel regarding Exxon’s additional insured status, and the trial court order on Lexington’s duty to defend and indemnify. The appeals court declined to disturb the arbitration ruling and turned instead to the basis of the trial court’s summary judgment award.
On appeal, Lexington asserted that coverage for Exxon was barred both by the policy’s workers’ compensation exclusion and by its employer’s liability exclusion.
Per the workers’ compensation exclusion, the Lexington policy does not provide coverage for any obligation of the insured arising “under a workers’ compensation, disability benefits or unemployment compensation law or any similar law.” The appeals court noted, however, that Exxon did not seek coverage for any obligation owed under any workers’ compensation law and, therefore, that this particular exclusion did not apply.
However, the appeals court determined that the policy’s employer’s liability exclusion barred coverage for Exxon. The exclusion provided that the policy does not apply to “bodily injury” to 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 the ‘Insureds’ business.” It further provided that the exclusion applies “whether the insured may be liable as an employer or in any other capacity.”
The appeals court held that the exclusion applied because Exxon was a “statutory employer” for the purpose of Texas’s workers’ compensation law, emphasizing that Exxon paid the workers’ compensation and general liability policy premiums on the insurance procured from its OCIP and deducted those costs from its payments to Brock. According to the appeals court, Exxon’s provision of workers’ compensation insurance to the Brock employees rendered it a “statutory employer” under section 406.123 of the workers’ compensation statute. The court extended Exxon’s status in that regard to the Lexington policy, such that Exxon also qualified as an “employer” within the meaning of the employer’s liability exclusion. Moreover, the court held that Exxon was entitled to the “exclusive remedies” afforded by the Texas Labor Code and was not subject to common law actions for negligence.
To this end, the appeals court held that Lexington neither owed a duty to defend Exxon in the underlying suit nor had to indemnify Exxon in connection with Exxon’s settlement of the claims by the Brock employees. The court found the Brock plaintiffs sued for injuries sustained in the course of their employment at the Exxon facility, which was covered by the OCIP. The court found that coverage should have precluded the employees from bringing claims against Exxon and the other OCIP plan participants after workers’ compensation benefits had been paid. Given the generally accepted premise that an insurer has no duty to defend when a pleading sets forth facts bringing the claim entirely within a policy exclusion, and given the determination of the arbitration panel that Exxon was an additional insured under the Lexington policy, the court found the employer’s liability exclusion operated to preclude coverage for Exxon’s liability as a statutory employer for the bodily injuries of the plaintiffs in the underlying case, and Lexington therefore had no duty to defend. The same analysis applied to Lexington’s alleged duty to indemnify as well.
As such, the appeals court reversed the judgment of the Texas trial court and held that Exxon is entitled to no right to recover any amounts under the Lexington policy.
