Who’s on First – Defense and/or Indemnity

Post 4717

See the full video at https://rumble.com/v4801wq-whos-on-first-defense-andor-indemnity.html  and at https://youtu.be/_BTsDxR5J4Y

In an insurance coverage dispute that arose out of the tragic death of an employee on a construction site the Fifth Circuit was called upon to determine which insurer was obligated to deal with the claims of the family of the deceased employee because the insurers could not agree.

In Gemini Insurance Company v. Indemnity Insurance Company of North America, No. 23-20026, United States Court of Appeals, Fifth Circuit (January 12, 2024) the court dealt with the coverage disputes over which insurer is obligated to defend and or indemnify which person or entity.


ExxonMobil Corporation (“Exxon Mobil”) retained Bechtel Oil, Gas, and Chemicals, Inc. (“Bechtel”) as a general contractor to build a new hydrocarbon processing facility in Beaumont, Texas (the “Project”). As part of its contract with Bechtel, Exxon Mobil implemented an Owner Controlled Insurance Program (“OCIP”), which provided workers’ compensation and employers’ liability coverage to Bechtel and all of its subcontractors. Bechtel retained Echo Maintenance, L.L.C. (“Echo”) as a subcontractor to perform mechanical, structural, and piping work on the Project. Bechtel and Echo subsequently entered into a contract that incorporated the OCIP and required Echo to enroll in the program (the “Subcontract”). Both Bechtel and Echo were enrolled in the OCIP.

Indemnity’s Workers’ Compensation and Employers’ Liability Policies Issued Under The OCIP

Under the OCIP, Indemnity Insurance Company of North America (“Indemnity”) issued a workers’ compensation and employers’ liability insurance policy to Bechtel (“OCIP Policy”). Separately, Gemini Insurance Company (“Gemini”) issued a general commercial liability policy to Echo under which Bechtel was an additional insured.

Part Two the OCIP Policy sets forth the type of covered claim that Indemnity agreed to defend and indemnify Bechtel. The OCIP contained a VCEL Endorsement whose first provision explains that the endorsement “adds Voluntary Compensation Insurance to the policy,” and that the insurance applies to bodily injury by accident so long as it is “sustained by an employee included in the group of employees described in the Schedule” and “arise[s] out of and in the course of employment necessary or incidental to work in a state listed in the Schedule.”

Employers’ Liability Insurance

It defines “State of Employment” in relevant part as “Texas but only at the site indicated in the designated premises endorsement.”

Underlying Incident and Lawsuit

In December 2017, Ms. Espinoza was working as a pipefitter helper on the Project when she was struck by a piece of pipe and sustained fatal injuries. In response to the suit brought by her heirs, Bechtel sought coverage as an additional insured on the commercial general liability policy issued by Gemini to Echo and received a defense from Gemini under a reservation of rights.

Bechtel moved for summary judgment on the heirs suit because Exxon Mobil’s OCIP provided blanket workers’ compensation insurance and coverage to Bechtel and Echo, Intervenors’ sole remedy in accordance with Texas Labor Code was workers’ compensation benefits. The state court granted Bechtel’s motion for summary judgment.


The main issue was whether Ms. Espinoza was an “employee” of Bechtel within the terms of the OCIP policy. Reading the VCEL Endorsement together with Part Two, the Fifth Circuit concluded that the only reasonable interpretation was that the VCEL Endorsement expanded the definition of a Bechtel “employee.” The ordinary meaning of “employee” is someone who works in the service of another person (the employer) under an express or implied contract of hire, under which the employer has the right to control the details of work performance. The Fifth Circuit concluded that the VCEL Endorsement expanded the OCIP Policy’s definition of “employee” to include employees of Bechtel’s subcontractors, such as Ms. Espinoza.


Duty to Defend

Ms. Espinoza was an employee of Echo, but also simultaneously working for Bechtel at the designated premises, thus satisfying the VCEL Endorsement. Ms. Espinoza was killed while working in the scope of her employment. The allegations, construed liberally, constitute a claim potentially within the OCIP policy. As a result Indemnity had a duty to defend Bechtel in the Underlying Litigation.

Duty to Indemnify

There is no dispute that Ms. Espinoza was an Echo employee, that Echo was a subcontractor of Bechtel, that Bechtel and Echo had a written contract, and that the work they performed was on a “designated premises” within the meaning of the OCIP Policy the workers’ compensation OCIP coverage applies. Bechtel “provided” workers’ compensation insurance to Echo when they executed the Subcontract. Accordingly, Indemnity has a duty to indemnify Bechtel as well.

Contractual and Equitable Subrogation

Because the district court concluded that Indemnity did not have a duty to defend or indemnify Gemini, it never addressed the substance of Gemini’s subrogation arguments. The Fifth Circuit reversed the district court’s grant of Indemnity’s motion for summary judgment and remanded the case back to the district court with instructions to:

  1. grant Gemini’s motion for summary judgment on Indemnity’s duties to defend and indemnify under the Policy, and
  2. consider the subrogation issues in the first instance.

Insurance policies must be dealt with as an entirety, no matter how extensive or complex. Once the court determined that Ms. Espinoza was an employee it resolved the dispute and found that Indemnity owed defense and indemnity to the defendants. The insurer’s should not have engaged in this litigation but worked out a resolution to the benefit of the insureds with the assistance of a mediator knowledgeable about insurance issues. Failing to do so, after the expenditure of discovery, a summary judgment and an appeal the obvious resulted a case where only one party was happy and there existed a possibility that much would be saved by an agreement between equals.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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