Proof Of Insurance Endorsement Does not Change Policy Exclusion of Employee

Barry Zalma

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Joshua Ochoa sued his employer, Riata Cattle Company, Inc. ("Riata" ) in Texas state co

urt alleging that he suffered bodily injury when Riata's truck, which he was driving, malfunctioned and crashed due to Riata's failure to repair and maintain it. Ochoa claimed an endorsement required by state statute eliminated the employee exclusion. In National Liability & Fire Insurance Company v. Riata Cattle Company, Incorporated, also known as Riata Cattle Co., No. 21-40846, United States Court of Appeals, Fifth Circuit (December 21, 2022) the USCA resolved the dispute.

FACTS

This insurance coverage dispute arose from a single vehicle accident that led to a lawsuit by Joshua Ochoa against his employer, Riata Cattle Company, Inc. ("Riata" ). Ochoa sued Riata in Texas state court alleging that he suffered bodily injury when Riata's truck, which he was driving, malfunctioned and crashed due to Riata's failure to repair and maintain it. Ochoa also alleged that Riata committed negligence and gross negligence by failing to provide him with safe equipment, failing to warn him of any dangers, failing to inspect or repair the equipment, and other negligence theories.

Riata sought coverage defense from its auto liability insurer, National Liability &Fire Insurance Company ("National Liability" ), which is currently defending Riata in the underlying litigation under a reservation of rights letter. National Liability sued seeking declaratory judgment seeking a determination that it owes Riata neither a defense nor indemnity under the insurance policy (the "Policy" ). National Liability contended it is entitled to a declaratory judgment because the Policy excludes coverage for employees of Riata. Ochoa seemed to concede this argument but contended that the "Form F" endorsement on the Policy compeled National Liability to defend and indemnify Riata.

THE TRIAL COURT DECISION

The district court made two rulings:

1. the Policy provides an exclusion with regard to the lawsuit brought by Riata's employee, Ochoa; and

2. the Form F endorsement does not change that exclusion. The district court came to this conclusion because "it couldn't be clearer in the insurance policy . . . [that the employee is] not covered."

THE POLICY

Under the exclusion section of the Policy, coverage does not apply to an "'[e]mployee' of the 'insured' arising out of any course of:

1. employment by the 'insured' or

2. performing the duties related to the conduct of the 'insured's' business."

An "'[e]mployee' includes a 'leased worker,' but does not include a 'temporary worker.'" A leased worker is not relevant for this case, and a "temporary worker" is defined as "a person who is furnished to you to substitute for a permanent 'employee' on leave or to meet seasonal or short-term workload conditions."

DISCUSSION

Ochoa alleged that he "was working in the course and scope of his employment with Defendant when he sustained serious and permanent injuries when the tractor trailer rig Defendant owned and provided to Plaintiff to drive, malfunctioned and caused a crash." Therefore, it was undisputed that Ochoa is Riata's employee and Riata is excluded from coverage under the Policy.

Riata contended that the finding that Ochoa is its employee is not the end of the analysis. Specifically, Riata claims that the Form F endorsement "overrides exclusions in the underlying policy to provide an independent duty to defend[.]" Form F provides, in part, “[t]he certification of the policy, as proof of financial responsibility under the provisions of any state motor carrier law or regulation promulgated by any state commission having jurisdiction with respect thereto, amends the policy to provide insurance for automobile bodily injury and property damage liability in accordance with the provisions of such law or regulations to the extent of the coverage and limits of liability required thereby; provided only that the insured agrees to reimburse the company for any payment made by the company which it would not have been obligated to make under the terms of this policy except by reason of the obligation assumed in making such certification.”

Form F is a statutorily required proof of insurance. TEX. TRANSP. CODE § 643.103. On its face, Form F does not guarantee anything. It exists to certify the policy as required by applicable regulations. Texas Transportation Code § 643.103 provides that "[a] motor carrier that is required to register under Subchapter B must file with the [Texas Department of Motor Vehicles ("TxDMV" )] evidence of insurance . . . or evidence of financial responsibility . . . in a form prescribed by the [TxDMV]."

The form prescribed by the TxDMV refers to Texas Transportation Code § 643.051, which provides, in part, that "a motor carrier may not operate a commercial motor vehicle . . . on a road or highway of this state unless the carrier registers with the [TxDMV] under this subchapter." These regulations require insurers to file Form F with the TxDMV. Under Texas law, Form F "protects third parties against the possibility that a motor carrier will be underinsured with regard to the requirements of state or federal law." [Lancer Ins. Co. v. Shelton, 245 Fed.Appx. 355, 357 (5th Cir. 2007).]

And these regulations-which are designed to protect the public-are different and distinct from regulations that protect employees. As the district court noted, "[t]here is a difference between the public as opposed to … an employe who are excluded already in the insurance contract, to begin with."

The purpose of state compulsory insurance laws and Form F is to protect members of the public who have been injured by the negligent acts of a motor carrier even if the vehicle involved in an accident is not covered under the motor carrier's insurance policy. Form F has no effect on the validity of the employee exclusions in the policy where the employer was not required by state law to obtain workers' compensation insurance or where workers' compensation was otherwise not available.

Insurance contract endorsements frequently modify the terms of an insurance policy. But this is not the scenario here. Rather, Form F is a boilerplate endorsement filed with the Texas Department of Motor Vehicles and it serves as a "guaranty to the public that the insurer will be liable for any damages awarded if the insured is unable to pay." Form F exists to ensure that liability insurance is always available for the protection of motorists injured by commercial motor carriers.

Employees are not considered members of the public for the purposes of Form F. Therefore, Form F does not save Riata's claims for coverage under the Policy.

Since Ochoa was an employee of Riata, and according to the applicable Policy, National Liability is excluded from providing insurance coverage to Riata for the underlying litigation and Form F does not change the employee exclusion in the Policy.

ZALMA OPINION

Riata and its counsel were creative in arguing Form F, it just didn't work because Form F was designed to protect innocent members of the public, not employees who should be entitled to workers' compensation if they were injured in the course and scope of their employment.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

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Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and [email protected]

Write to Mr. Zalma at [email protected]; http://www.zalma.com; http://zalma.com/blog; daily articles are published at 
Zalma on Insurance

Insurance, insurance claims, insurance law, and insurance fraud .
By Barry Zalma

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