MVT Services, LLC v. Great West Casualty Co.
No. 23-2070. 10/2/2024. D.N.M. Judge Carson. Workers’ Compensation and Employers’ Liability Policy—Policy Limits—Exclusive Remedy of Worker’s Compensation Benefits—Breach of Insurance Contract—Damages—Attorney Fees.
October 2, 2024
MVT Services, LLC (MVT) purchased a workers’ compensation and employers’ liability policy (the GW policy) from Great West Casualty Company (Great West) that required Great West to defend MVT against suits seeking the payable benefits of the GW policy. The GW policy limited indemnity for bodily injury by accident to $1 million per accident. MVT subsequently entered into a Staff Leasing Agreement with OEP Holdings, LLC (OEP) under which MVT transferred its Texas-based employees, including its driver Parada, to OEP and then leased OEP’s employees. MVT terminated the GW policy and obtained insurance from Crum & Forster Specialty Insurance Company (C&F) (C&F policy) for employers’ liability coverage but not workers’ compensation coverage. The day before coverage termination, an MVT tractor trailer crashed, killing Parada, its driver. Parada’s widow filed a beneficiary claim for death benefits with the Texas Department of Insurance, Division of Workers’ Compensation (TDI). She also filed suit against MVT in a Texas state district court, claiming negligence and gross negligence (Parada lawsuit). Great West formally refused to defend MVT’s claim, but C&F agreed to defend MVT through its coverage. MVT filed an answer in the Parada lawsuit without invoking the Texas Labor Code’s exclusive remedy of workers’ compensation benefits (exclusive remedy)—which bars employees covered by workers’ compensation benefits from initiating simple negligence claims against an employer—because the C&F policy coverage did not enable MVT to invoke the exclusive remedy. MVT later sought to invoke the exclusive remedy in the Parada lawsuit, but the Texas district and appellate courts denied the request. The Parada lawsuit ultimately settled for $3.5 million, which included C&F’s policy limit of $1 million; Great West’s policy limit of $1 million; an unrelated excess insurer’s contribution of $1 million; and $500,000 from MVT, which included $250,000 to the settlement in satisfaction of the C&F Policy and another $250,000 in contribution to the settlement. Great West also paid Texas workers’ compensation death benefits as part of the settlement.
MVT then sued Great West for breach of contract and violation of Chapter 542 of the Texas Insurance Code. MVT moved for summary judgment. The district court granted partial summary judgment but found genuine factual disputes over whether the breach caused damages to MVT. The district court also granted summary judgment to MVT on its claim that Great West violated the Prompt Payment of Claims Act under the Texas Insurance Code, but the claim proceeded to trial to determine damages. The district court then found that if Great West had defended MVT under the GW policy, its retained counsel would have invoked the exclusive remedy defense and diverted the simple negligence claims to the Texas Department of Insurance, Division of Workers’ Compensation (TDI). The district court also found a low likelihood that the Parada plaintiffs would have obtained a jury verdict on the gross negligence claims. So, the district court found that any gross negligence claims the Parada plaintiffs pursued would not have exceeded the $1 million policy limit. The district court thus found that, if Great West hadn’t breached its contractual duty to defend, MVT would not have invoked the C&F Policy; paid money toward the settlement; or retained attorney Blanco, who helped C&F’s attorney defend the case. Based on these factual findings, the district court found that MVT incurred damages of (1) the $250,000 retention paid under the C&F Policy; (2) the $250,000 that MVT contributed to the Parada lawsuit settlement; and (3) $41,476.84 in attorney fees paid to Blanco. The district court awarded these damages and attorney fees to MVT.
On appeal, Great West challenged the damages award, arguing that the district court erred in finding that the Parada lawsuit would have resolved within the policy limit because Parada plaintiffs demanded $12.5 million to settle and the Parada lawsuit did not settle within the policy limit. Under Texas law, an insured may not recover damages above the policy limit for breach of the duty to defend unless (1) the claim would have resolved within the policy limits or (2) the insurer breached its duty of good faith and fair dealing. MVT did not argue that Great West breached its duty of good faith and fair dealing, so the Tenth Circuit addressed whether the Parada lawsuit would have resolved within the policy limits had Great West not breached its duty to defend. Here, though the Parada lawsuit settled above the policy limit, the district court found with record support that absent Great West’s breach (1) MVT would have invoked the exclusive remedy, transferring the simple negligence claim to TDI; and (2) the remaining gross negligence claim would have resolved within the policy limit. Because the district court did not clearly err in its factual findings, MVT may recover damages above the policy limit.
Great West also argued that the district court erred in awarding damages to MVT because its contractual breach did not proximately cause MVT’s damages and because it could not foresee MVT’s damages. However, the record supports the district court’s findings that had Great West not breached, MVT would have invoked the exclusive remedy and the Parada plaintiffs would have settled the remaining gross negligence claims within Great West’s policy limits; and MVT would not have activated or invoked its C&F Policy because the GW policy would have covered MVT’s liability. And MVT’s settlement contribution flowed necessarily from the breach, and the district court’s award of the amount of MVT’s settlement contribution restores the benefit of the bargain, so the district court also did not err when it awarded MVT damages for its $250,000 settlement contribution.
Great West further contended that the district court erred in awarding MVT Blanco’s attorney fees because MVT voluntarily incurred those fees after C&F refused to cover his services. However, Great West forfeited the right to select the attorney to defend the claim when it breached its duty to defend, so MVT was free to retain an attorney of its choice to defend the Parada lawsuit, and Great West must reimburse MVT for its reasonable attorney fees.
Lastly, Great West asserted that the district court awarded a grossly excessive amount of attorney fees. However, Great West did not overcome the presumption that the fee award is reasonable.
The damages and attorney fees awards were affirmed.