A decision out of the United States District Court for the Southern District of Texas[1] showcases the practical challenge in the relationship between workers’ compensation and the pleading standards required to trigger insurance coverage. The underlying facts follow a familiar pattern.
Nautilus Summarized
Blazer Building Texas, LLC (“Blazer”) hired Ranger Fire, Inc. (“Ranger”) to install fire sprinklers during the construction of an apartment building. Ranger employee Ramiro Morin (“Morin”) suffered catastrophic injuries after falling into an open elevator shaft. In his pleadings, Morin stated he was on site “working for a fire sprinkler installation contractor” but did not expressly name Ranger. Blazer’s insurer, LM Insurance Corporation (“LMI”), sued Ranger’s insurer, Nautilus Insurance Company (“Nautilus”), requesting the court declare that Nautilus had a duty to defend and indemnify Blazer in the underlying lawsuit. The core question for the court was whether Nautilus had a duty to defend Blazer from Morin’s claims as an additional insured under Ranger’s policy.
An insurer’s duty to defend is usually determined by Texas’s eight corners rule, which requires a court to look at the “four corners” of the relevant contract and the “four corners” of the pleading to determine whether the facts plead trigger coverage under the policy. Because Morin’s petition did not expressly identify Ranger as his employer, and because the policy language only afforded Blazer additional insured coverage for claims “resulting from” Ranger’s work for Blazer, applying the eight corners rule would defeat Nautilus’s duty to defend.
Fortunately for LMI and Blazer, the Texas Supreme Court’s decision in Monroe Guaranty Insurance Co. v. BITCO General Insurance Corp.[2] provides a narrow exception to the traditional eight corners rule. Monroe allows information outside of the pleadings (extrinsic evidence) when a gap in the pleadings does not answer the coverage question. Such evidence must (1) go solely to the issue of coverage and not overlap with the merits of liability; (2) not contradict facts alleged in the pleading; and (3) conclusively establish the coverage fact to be proved.
When Morin alleged he worked for a fire sprinkler installing company, he left a gap in the pleading as to his employer’s identity. LMI threaded the needle of the narrow Monroe exception to present extrinsic evidence of Morin’s employer’s identity that went solely to the issue of whether Blazer is an additional insured and did not overlap with liability. The evidence presented— the subcontract under which Blazer hired Ranger to install the sprinklers —also did not contradict the alleged fact that Morin worked for a fire sprinkler installation company and conclusively established Morin was working in his capacity as Ranger’s employee. As such, LMI’s use of extrinsic evidence to inform the eight corners rule conclusively proved Ranger employed Morin.
The court further held that the mere fact that Morin was at the site performing work for Ranger was sufficient to extend coverage to Blazer as an additional insured based on a broad construction of the policy language. The policy made Blazer an additional insured for any claims “resulting from” Ranger’s work at the site, and Texas case law finds “resulting from” synonymous with “arising out of”— a phrase broadly construed as extending coverage to additional insureds for claims bearing a rational relationship to the work of the primary insured.[3] Accordingly, the Court granted LMI’s motion for summary judgment on Nautilus’s duty to defend and deferred ruling on the duty to indemnify until entry of a final judgment in the underlying litigation.
Practical Applications and Consequences of Nautilus
A common “informational gap”—as was the case in Nautilus—occurs when a plaintiff injured on the job fails to name his or her employer in the pleadings. This often occurs because of the “workers’ compensation bar” or the Exclusive Remedy Doctrine. Under the Exclusive Remedy Doctrine, an employer who is a worker’s compensation subscriber is typically immune from suit because workers’ compensation benefits are the sole remedy available for job-related injuries. As such, employees have little incentive to sue their employers or even identify the employer by name in pleadings, let alone to allege the employer caused the employee’s injuries.
Prior to Monroe, this type of “informational gap” could not be filled by extrinsic evidence which complicates triggering additional insured coverage. Additional Insured endorsements typically provide coverage for bodily injury or property damage “arising out of” the Named Insured’s operations or “caused in whole or in part by” the Named Insured, and the Named Insured is usually the employer. That language, and an employee’s failure to identify his or her employer in the pleadings, may allow the insurer to avoid its duty to defend. Note, the ruling on Nautilus’s duty to defend may have been different had the relevant additional insured provision provided coverage for Blazer for bodily injury caused “in whole or in part” by the Named Insured. Even with the factual allegation that Morin “worked for a fire sprinkler installing company,” there is no allegation that Morin’s employer caused Morin’s injuries.
The Monroe exception to the eight-corners rule is still new for courts accustomed to applying the stringent eight corners rule. Most often, Monroe has been applied to fill informational gaps on vehicle identification in automobile accident cases. With Nautilus, there is now precedent for extrinsic evidence to determine an employer’s identity which is so often excluded from an injured plaintiff’s pleadings. A party seeking additional insured coverage from another party’s insurance carrier or, as in Nautilus where a party’s insurance carrier seeks to enforce coverage from the other party’s carrier, should look to extrinsic evidence if needed to receive a defense of the claims against it as long as the evidence fits within the criteria above.
[1] LM Ins. Corp. v. Nautilus Ins. Co., S.D. Tex., No. 4:22-CV-3723. (S.D. Tex. March 18, 2024).
[2] 640 S.W.3d 195 (Tex. 2022).
[3] See Lancer Ins. Co. v. Garcia Holiday Tours, 345 S.W.3d 50 (Tex. 2011).
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