June 17, 2016


By Jeff Sistrunk
Editing by Marjorie Backman.
All Content © 2003-2016, Portfolio Media, Inc.

Law360, Los Angeles (June 17, 2016, 12:18 PM ET) — The Texas Supreme Court on Friday axed a $72 million judgment against a drilling company’s insurers won by the family of a rig worker killed on the job, holding that the wrongful death claim isn’t covered under the insurance policies since the deceased fell within an exclusion for “leased-in” personnel.

In a unanimous decision, the Texas high court ruled in favor of Diatom Drilling Co. insurers Yorkshire Insurance Co. Ltd. and Ocean Marine Insurance Co. Ltd. in their dispute with the family of deceased Diatom worker Randall Seger. The Texas justices found that the insurers’ policy excluded claims of injuries to a leased-in worker, someone who temporarily performs duties for one company under an agreement with another business. Accordingly, the Segers can’t collect the $72 million award they obtained against Yorkshire and Ocean Marine, the court said.

In the Diatom case, the Texas high court was asked to decide whether its 2008 decision in Evanston Insurance Co. v. Atofina conflicted with its 1996 decision in State Farm Fire & Casualty Co. v. Gandy. The court held in the Atofina case that an insurance company cannot challenge the reasonableness of a settlement or judgment when it has refused to defend its policyholder, while the Gandy decision required that the determination of an insured’s damages must result from a fully adversarial trial.

On Friday the Texas justices dodged the damages issue entirely and did not weigh in on any potential conflict between the Gandy and Atofina cases. Instead, the high court struck the award, finding that the lower court jury had erred in concluding that Randall Seger had not been a leased-in worker as defined by Diatom’s policies. Because the deceased was leased in, the wrongful death claims are excluded from coverage, the court said.

“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,” Justice Paul Green wrote for the court. “Coverage is therefore precluded as a matter of law.”

The case stems from Randall Seger’s 1992 death in a rig collapse. Diatom dissolved shortly after Seger’s death.

Seger’s parents received a $15 million default judgment in a wrongful death suit against Diatom in 2001, after which the company assigned all claims against its insurers to the Segers.The assignment allowed the Segers to step into Diatom’s shoes and sue the insurance companies in an attempt to collect from the default judgment as well as damages stemming from the insurers’ alleged refusal to defend Diatom in the initial suit.

The family members then won rulings that Diatom’s insurers were liable for negligence and causation, that their claims were covered by Diatom’s commercial general liability policies and that the 2001 judgment was the result of an adversarial trial. In 2001 they were awarded $71.6 million in damages against the insurers — a sum that includes interest.

In 2013, however, the state Seventh Court of Appeals applied the Gandy ruling and held that the underlying judgment was based on insufficient evidence of damages and could not form the basis of a later suit against the insurers over their refusal to provide a defense. The initial trial had not been a truly adversarial proceeding, the appeals court said.

In February 2014 the Texas Supreme Court initially denied the Segers’ petition for review, but after the Segers moved for a rehearing, the high court changed course and agreed to look at the case in 2015.

Charles “Skip” Watson of Locke Lord LLP, who represents the insurers, said the Texas Supreme Court’s ruling “confirmed that CGL insurers can decline defense of uncovered claims without fear that plaintiffs can sue them to collect default judgments in amounts they choose under assignment of insureds’ claims of negligent failure to defend or settle.”

“Insureds and their assignees cannot seek to enforce parts of a policy while ignoring exclusions,” Watson said. “The opinion is also important because it clarifies that if proper objections are made, legal sufficiency of the evidence required to prove coverage is based on what the definition of terms should be, not how they are submitted to the jury.”

An attorney for the Segers did not immediately respond to a request for comment.

The insurers are represented by Charles “Skip” Watson and Mike Hatchell of Locke Lord LLP and Lawrence Doss of Mullin Hoard & Brown LLP.

The Segers are represented by John Smithee, David Russell and Robert Templeton of Templeton Smithee Hayes Heinrich & Russell LLP.

The case is Seger et al. v. Yorkshire Insurance Co. Ltd. et al., case no. 13-0673, in the Supreme Court of the State of Texas.