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Team Industrial Services Inc. v. Zurich American Insurance Co.

No. 22-3275. 11/29/2023. D.Kan. Judge Hartz. Contracts—Insurance Policies—Promissory Estoppel—Breach of Contract—Breach of Fiduciary Duty.

November 29, 2023

In 2010 Westar Energy, Inc. (Westar) entered into separate Master Services Agreements (MSAs) with Furmanite America, Inc. (Furmanite) and Team Industrial Services, Inc. (Team) to perform work at the Westar power plant and other sites. The MSAs stated that Furmanite and Team were independent contractors required to obtain their own liability insurance and to name Westar as an additional insured on the policies, and that neither could assign or transfer contractual rights without Westar’s consent. In 2013, Westar instituted its Owner-Controlled Insurance Program (OCIP), through which contractors and subcontractors could obtain insurance protection for work performed at covered Westar locations. Westar determined OCIP eligibility, and eligible contractors had to complete enrollment forms to be considered for OCIP participation. During the time relevant to this dispute, OCIP insurance was provided by a Zurich American Insurance Company (Zurich) policy, which provided that an enrolled contractor’s rights and duties under the policy could not be transferred without Zurich’s written consent. Furmanite was enrolled in the OCIP in 2013 and obtained login credentials to an online portal operated by Westar’s insurance broker, Aon Risk Services Southwest, Inc. (Aon), where Furmanite was required to report payroll hours for each month. Team was never enrolled in the OCIP.

In 2016, Team’s parent company acquired Furmanite’s parent company, but the companies remained distinct legal entities and never merged. In 2017, Team and Westar amended their agreement (Change Order No. 2), consolidating the MSAs of Furmanite and Team, retiring the Furmanite MSA, and providing that purchase orders that had been issued to Furmanite would be reissued to Team. After Change Order No. 2 was executed, Team assumed Furmanite’s work at the power plant. Furmanite’s insurance coverage under the Westar OCIP continued even though its service contract had been retired, and a Team employee used Furmanite’s login credentials to upload payroll hours to the Aon payroll portal. Team subsequently had a $222 million judgment entered against it in a wrongful death lawsuit arising from a steam turbine failure at a Westar power plant. Team sought but was denied coverage for this liability from Westar, Zurich, and two other insurance companies (defendants). Team brought claims in district court for promissory estoppel, breach of contract, and breach of fiduciary duty, arguing that it should have been provided protection by the OCIP because its liability for the Westar power plant failure arose from work that Furmanite previously performed. The district court granted summary judgment to defendants.

On appeal, Team contended that the district court erroneously rejected its breach of contract claims because Change Order No. 2 unambiguously entitled it to Furmanite’s insurance coverage. However, Westar never invited Team to enroll in its OCIP, Team never enrolled in the OCIP, and Zurich never gave written approval to a transfer of coverage from Furmanite to Team. And Change Order No. 2 contains no mention of insurance coverage or the OCIP. Because there was no contractual promise entitling Team to coverage under the OCIP, the district court properly rejected Team’s claims for breach of contract.

Team also asserted that Westar’s OCIP insurance policy with Zurich should be reformed, claiming that it was Westar’s error that led Zurich to issue coverage in Furmanite’s name rather than Team’s name. Even if Westar made a mistake with respect to Team’s coverage under the Zurich policy, reformation requires mistakes by both parties to the contract. Here, there is no evidence that Zurich intended to name Team as an insured, and the Zurich policy explicitly required that any transfer of coverage to be approved by Zurich in writing, so there could be no mistake on Zurich’s part. Therefore, reformation is not appropriate.

Team further contended that the district court erred in rejecting its breach of fiduciary duty claim. Team maintained that Westar breached a fiduciary duty imposed by the OCIP to ensure that Team was covered by the OCIP or, at a minimum, provide notice to Team if it was not to be covered for the work that had been performed by Furmanite. Even assuming that Westar owed a fiduciary duty, it was not a duty owed to Team because Team had never been covered under the OCIP. Such duty would have been owed to Furmanite, whose OCIP coverage Team did not inherit. Accordingly, the district court did not err.

Lastly, Team argued that Westar was estopped from denying that it was to provide coverage for Team under the OCIP because Change Order No. 2 constituted a promise to cover Team under the OCIP. However, no such promise was made under Change Order No. 2. Further, Team’s reporting of payroll data through the Aon portal after Team took over the work previously performed by Furmanite does not support promissory estoppel, because there was no evidence of a promise by Zurich to provide insurance coverage to Team; and there is no allegation that Westar knew about this reporting, so it not would have been expected to induce Team’s reliance on Westar.

The judgment was affirmed.

Official US Court of Appeals for the Tenth Circuit proceedings can be found at the US Court of Appeals for the Tenth Circuit website.

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