Justices: Mobil's side insurance polices do not revoke worker's comp status

By David Yates | Jan 16, 2008

Texas justices on the Ninth Court of Appeals upheld a trial court's decision that stopped ExxonMobil from being sued over an alleged scheme to deprive workers of insurance benefits for personal injuries.

The class action suit, Jerry C. McClelland vs. Mobil Oil, was originally filed with the Jefferson County District Court in 1992 and assigned to the 58th Judicial District. The plaintiffs sued Mobil Oil and several of its insurance companies, including AIG Risk Management Inc. and Forum Insurance Co.

The suit alleged that Mobil schemed to deprive the class members of their common-law causes of action for work-related injuries by fraudulently representing to its employees that it carried workers' compensation insurance. The plaintiffs claimed Mobil actually had a cash-flow retrospective plan pursuant to side agreements with its insurance carriers.

The suit asserted causes of action for fraudulent inducement, commercial bribery, securing execution of a document by deception, breach of the duty of good faith and fair dealing, violation of the Texas Insurance Code, breach of contract, civil conspiracy and common law fraud.

Mobil's attorneys filed a traditional motion for partial summary judgment, in which they asserted there were no genuine issues of material fact and that Mobil was a workers' compensation subscriber as a matter of law from 1965 through 1993.

The trial court agreed and entered a partial summary judgment in Mobil's favor. Mobil then filed a no-evidence motion for summary judgment, claiming the plaintiffs failed to show that Mobil delayed or refused to pay any benefits and had no evidence of any injuries separate and distinct from injuries sustained in the course and scope of employment.

By submitting evidence that supported the company's subscriber status, Mobil shot down the plaintiffs' causes of action for fraudulent inducement and common law negligence, which hinged on the claim that Mobil was not a workers' compensation subscriber.

The trial court entered a final judgment that granted summary judgment against all but five of the plaintiffs. The parties filed a joint motion to dismiss, and the trial court accordingly dismissed the claims of the five remaining plaintiffs with prejudice.

Plaintiffs then took the case to the Ninth District Court of Appeals.

On the appeal, justices reviewed several traditional summary judgment orders and found that "all evidence favoring the non-movants is taken as true and every reasonable inference from the evidence is indulged in their favor ( Nixon, 690 S.W.2d at 548-49)," the opinion, written by Chief Justice Steve McKeithen on Jan. 10, stated.

In their first issue, the plaintiffs contended that the "trial court erred in granting summary judgment because there is a genuine issue of material fact as to whether the 'sham contract' doctrine allowed the jury to consider whether the worker's compensation insurance agreements were true contracts or sham contracts without legal merit," the opinion stated.

In their second issue, the plaintiffs broadly argued that the trial court erred in granting summary judgment altogether.

The justices examined the summary judgment evidence and found from 1965 to 1993 Mobil was insured with various companies. Mobil's summary judgment evidence included deposition excerpts from an employee of Forum, notices of coverage and notices of subscriber status, certifications of coverage from the Texas Workers' Compensation Commission and declaration pages from policies Forum issued to Mobil.

"The trial court found that defendants' summary judgment evidence conclusively established Mobil's status as a subscriber during the relevant time period," McKeithen wrote.

"We agree. Plaintiffs do not contend that the policies of insurance demonstrated by defendants' summary judgment evidence did not exist. Rather, plaintiffs contend that Mobil entered into illegal and fraudulent side agreements with the various insurers, thereby implicating the sham contract doctrine, and stripping Mobil of its status as a subscriber.

"As the San Antonio Court of Appeals explained in its well-reasoned opinion in Kirkendall, even if Mobil's insurance policies were merely sham contracts due to the existence of side agreements with the various insurers, Mobil did not forfeit its subscriber status. (Kirkendall, 151 S.W.3d at 600).

The appellate court stated that the validity of a workers' compensation insurance policy is an issue of law judged from the policy itself and that the "mere presence of an illegal side agreement does not invalidate a policy."

"When the policy does not incorporate the illegal agreement, but instead is apart from it, the policy itself is valid," the opinion states. "Therefore, while Mobil's plan most likely violates an administrative rule, nothing in Texas law provides that this violation causes an employer to forfeit its subscriber status. In addition, as explained by the Kirkendall court, Mobil's use of its own employees to handle workers' compensation claims, which may have violated certain administrative rules, does not prevent Mobil from maintaining subscriber status."

The justices of the Ninth District adopted the reasoning of the San Antonio Court of Appeals in Kirkendall and held that "Mobil's side agreements with its various insurers, as well as its use of its own employees to handle workers' compensation claims, did not invalidate the insurance policies."

"Therefore, because defendants' summary judgment evidence conclusively established that Mobil carried workers' compensation insurance from 1965 to 1993, the trial court did not err by entering the partial traditional summary judgment in favor of defendants. Accordingly, we overrule plaintiffs' issues and affirm the trial court's judgment."

Trial Cause No. A-144,481
Appeals No. 09-06-566 CV

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