IN THE SUPREME COURT OF TEXAS
════════════
No. 05-0202
Energy Service Company of
Bowie, Inc., Petitioner,
v.
Superior Snubbing Services,
Inc., Respondent
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On Petition for Review from the
Court of Appeals for the Second District of
Texas
Argued December 1,
2005
Justice Johnson, joined by Justice Wainwright, Justice Green, and
Justice Willett, dissenting.
Daryll Faulk was injured while working in the course
of his employment for Superior Snubbing Services, Inc. (Superior), who carried
workers’ compensation insurance and thus was a “subscribing employer.” Faulk did
not sue Superior
for his injuries. But he was working at a well site along
with employees of Mitchell Energy Corporation (Mitchell), Energy Service Company
of Bowie, Inc. (Energy), and others when he was injured. He sued them.
Energy and Superior were contractors for Mitchell. They
did not execute agreements with each other, but both executed agreements with
Mitchell. Their agreements with Mitchell contained indemnity provisions. As
relevant to this appeal, Energy settled with Faulk and sued Superior for indemnity.
Energy claimed that it was entitled to indemnity because Superior’s contract
with Mitchell provided that Superior “shall protect, defend, indemnify and hold
[Mitchell], its employees, partners, agents, representatives, invitees,
contractors and their employees . . . harmless from and against all claims,
demands, causes of action, suits or other litigation of every kind and character
for injury to . . . [Superior], its employees, partners, agents, . . . which is
incident to, arising out of, within the scope of, or in connection with the work
to be performed.”
Superior denied that it owed indemnity to Energy,
in part, on the basis of Texas Labor Code section 417.004 and the fact that
Energy had not executed an indemnity agreement with Superior. Section 417.004
provides:
In an
action for damages brought by an injured employee, a legal beneficiary, or an
insurance carrier against a third party liable to pay damages for the injury or
death under this Chapter that results in a judgment against the third party or a
settlement by the third party, the employer is not liable to the third party for
reimbursement or damages based on the judgment or settlement unless the
employer executed, before the injury or death occurred, a written agreement with
the third party to assume the liability. (emphasis
added)
I agree with
the court of appeals that section 417.004 does not permit Energy to recover
indemnity from Superior.
In construing a statute our objective is to determine and give effect to the
Legislature’s intent, which, when possible, we discern from the words used.
State v. Shumake, 199 S.W.3d 279, 284
(Tex. 2006); City of San Antonio v. City of
Boerne, 111 S.W.3d 22, 25 (Tex. 2003);
State v. Gonzalez, 82 S.W.3d 322, 327 (Tex. 2002); see also Tex. Gov’t Code § 312.005. We look first to
the “plain and common meaning of the statute’s words.” Gonzalez, 82 S.W.3d at 327. If the statute is clear and unambiguous, we
must apply its words according to their plain and common meaning without resort
to rules of construction or extrinsic aids. Fitzgerald v.
Advanced Spine Fixation Sys., Inc., 996 S.W.2d 864, 865-66 (Tex. 1999); St. Luke’s Episcopal Hosp. v. Agbor, 952 S.W.2d 503, 505 (Tex. 1997). The
statute’s words are to be read according to their ordinary meaning unless they
are defined otherwise in the statute or a contrary intention is apparent from
the context. See Taylor v. Firemen’s and Policemen’s Civil
Serv. Comm’n of Lubbock,
616 S.W.2d 187, 189 (Tex. 1981). In construing statutes
there are instances where courts may disregard the literal meaning of a statute,
but that is only when it is perfectly plain that the literal sense works an
absurdity or manifest injustice. Gilmore v. Waples, 188 S.W. 1037, 1039 (Tex. 1916). It is
inappropriate for courts to enlarge the meaning of any word in a statute beyond
its plain and ordinary meaning by implication when legislative intent may be
gathered from a reasonable interpretation of the statute as it is written. Sorokolit v. Rhodes, 889 S.W.2d 239, 241 (Tex. 1994). We
must not give the words used by the Legislature an exaggerated, forced, or
constrained meaning. See
City of Austin v. Sw. Bell Tel. Co.,
92 S.W.3d 434, 442 (Tex. 2002). Every word of a statute
must be presumed to have been used for a purpose. Eddins-Walcher Butane Co.
v. Calvert, 298 S.W.2d 93, 96 (Tex. 1957). Likewise, every word
excluded from a statute must also be presumed to have been excluded for a
purpose. Cameron v. Terrell & Garrett, Inc., 618
S.W.2d 535, 540 (Tex. 1981).
In my view, the plain meaning of the words used in section 417.004, “the
employer is not liable to the third party for reimbursement or damages
based on the judgment or settlement unless the employer executed, before
the injury or death occurred, a written agreement with the third party to
assume the liability” (emphasis added), is clear and unambiguous. The phrase
“the third party” is used twice in the same sentence and clearly refers to the
same third party in each instance—the third party seeking indemnity. Because the
words “executed . . . with the third party” in the statute are clear and
unambiguous, we apply the words according to their plain and common meaning
without resort to rules of construction or extrinsic aids. Fitzgerald,
996 S.W.2d at 865-66; Agbor, 952 S.W.2d at 505. We should not read the
statute’s words other than according to their ordinary meaning, because a
contrary intention is not apparent from the context. See Taylor, 616 S.W.2d at 189. So read, the language precludes indemnity
unless the third party was a signatory to the written agreement executed by the
subscriber.
Further, we presume all the words in the statute were used purposely by the
Legislature. See Eddins-Walcher Butane Co.,
298 S.W.2d at 96. For example, the statutory provision
in question formerly provided, in relevant part, that if a party other than the
subscribing employer made a settlement with the injured employee, then the
subscribing employer had no liability to indemnify the third party “in the
absence of a written agreement expressly assuming such liability, executed by
the subscriber prior to such injury or death.” See former Tex. Rev. Civ. Stat.
Ann. art. 8306 §3. The same relevant part of the current statute
provides that the subscribing employer has no liability to indemnify the third
party “unless the employer executed, before the injury or death occurred, a
written agreement with the third party to assume the liability.” Tex. Lab. Code §
417.004. If the words “with the third party” are omitted
when reading the current language of section 417.004, then the section
effectively provides the same as did the former statute: in order to be liable
for indemnity to a settling third party, the subscribing employer must have
executed a written agreement assuming the indemnity obligation before the
injury, but the agreement was not required to have been with the third party
seeking indemnity. Direct comparison of the two statutory provisions makes it
clear that for the phrase “executed . . . with the third party” to have meaning,
section 417.004 limits the subscribing employer’s indemnity obligation to
parties who are signatories to the agreement executed by the subscriber.
In a similar vein, because the words “third-party beneficiaries” do not appear
in the statute, we presume they were excluded for a purpose. Cameron,
618 S.W.2d at 540. Only when it is necessary to give
effect to clear legislative intent can we insert, by interpretation, additional
words or requirements into a statutory provision. Id. And as the
Court’s opinion demonstrates, even if we look for legislative intent beyond the
statutory language itself, we find no clear legislative intent that the words
“executed . . . a written agreement with the third party” were
intended to encompass parties not signatories to an agreement.
Nor is it “perfectly plain” that giving the statutory language
its literal, plain, and common meaning works an absurdity or manifest
injustice. See Gilmore, 188 S.W. at 1039. First, the statute
effectively provides that parties such as Mitchell who require indemnity
agreements from subscribing employers may contract only for their own right to
indemnity. That concept is not absurd. It does not offend established contract
presumptions. See MCI Telecomms. Corp. v. Tex. Utils.
Elec. Co., 995 S.W.2d 647, 652 (Tex. 1999) (“[T]here is a presumption
against, not in favor of, third-party beneficiary agreements.”); Corpus
Christi Bank & Trust v. Smith, 525 S.W.2d 501, 503-04 (Tex. 1975)
(noting the presumption that parties contract for themselves and not for
third-party beneficiaries). And reading the statute according to its plain
language, which limits a subscribing employer’s indemnity obligation, furthers
the main inducement for employers to provide workers’ compensation insurance:
limited exposure to common-law damage claims of an employee injured in the
course of employment. See Tex.
Lab. Code § 406.034; Tex. Workers’ Comp.
Comm’n v. Garcia, 893 S.W.2d 504, 510-11
(Tex. 1995); Massey v. Armco Steel Co.,
652 S.W.2d 932, 933 (Tex. 1983) (noting that the Workers’
Compensation Act bars an employee’s common law action for negligence against his
employer). The benefit of a subscribing employer’s immunity from claims by an
injured employee is diminished whenever the employer is made subject to
indemnity claims for common-law damages recovered by the injured employee from
third parties. Narrowing the exception to immunity to those parties with whom
the employer executed a written agreement is wholly consistent with the
overarching theory of workers’ compensation: immediate benefits to injured
workers in exchange for employer immunity from claims. The former statute did
not require the employer to have a pre-injury agreement “executed . . . with the
third party” before the employer could be called on for indemnity. And the 1989
amendments were not a mere recodification of prior law
such as Texas
statutes have been undergoing for some years. See Fleming Foods of Tex.,
Inc., v. Rylander, 6 S.W.3d 278, 283 (Tex. 1999) (“In 1963, the
Legislature charged the Texas Legislative Council with the task of planning and
executing a permanent statutory revision program to ‘clarify and simplify the
statutes and to make the statutes more accessible, understandable, and usable.’
Tex. Gov’t Code § 323.007(a). The Legislature
directed, however, that ‘the council may not alter the sense, meaning, or effect
of [a] statute.’ Id. §
323.007(b).”). The 1989 changes to the workers’ compensation statute were
extensive and controversial. The driving force behind the 1989 changes was the
system’s increasing cost to employers which had pushed the system to a crisis
point. Garcia, 893 S.W.2d at 512. Business
groups claimed that the increasing cost of compensation insurance forced large
businesses to locate operations elsewhere and forced small businesses to cease
operations or opt out of coverage. Id. The parties and amicus Texas
Oil and Gas Association naturally focus their arguments on the statute’s effects
on the oil and gas industry. But the crisis which generated the 1989 changes
encompassed all Texas employers. See id. Indemnity
agreements such as the Mitchell agreement attempt to, in effect, circumvent some
of the financial inducement provided by the 1989 changes for employers to become
and remain subscribers. One effect of enforcing such broad indemnity agreements
is that the subscribing employer pays premiums for workers compensation
insurance, yet remains liable for common-law damages to an employee by reason of
having to indemnify numerous third parties for judgments or settlements in the
employee’s common-law damages suit. This case was disposed of in the trial court
by summary judgment. The record contains no evidence of how either
interpretation of the statute contended for by the parties might affect the
economics of the state’s workers’ compensation system and its cost to Texas employers. But
Superior’s
workers’ compensation policy was part of the summary judgment record. The
employer’s liability part of the policy excludes coverage for contractually
assumed liabilities, which would presumably include liabilities such as the
indemnity agreement. Even assuming subscribing employers purchase separate
liability insurance to cover contractually assumed indemnity agreements (as was
required by Superior’s contract with Mitchell) so as to minimize their personal
liability for indemnity, the indemnity agreements result in employers paying for
both compensation insurance and liability insurance for injuries to its own
employees. Intuitively, the broader the indemnity agreement and the greater the
exposure to claims, the greater the cost of liability insurance will be to
subscribing employers.
The plain language of section 417.004 respects the freedom of subscribing
employers to contract away their statutory immunity from liability, yet protects
them from economic pressures to enter broad indemnity agreements contracting
away their immunity as to third parties with whom the employers do not have
direct contractual agreements. The effect of interpreting section 417.004 to
include persons or entities who are not signatories and direct parties to the
agreements means that subscribing employers signing such indemnity agreements
remain in the position they were in before the 1989 amendments: having no
control over whom they may be called upon to indemnify because the owner or
other actual contracting party with whom the employers executed the agreements
remain able to contract with any third-party contractor they desire.
Energy asserts that reading the statute to apply only to direct parties to the
agreement will be in derogation of the Texas Oilfield Anti-Indemnity Act
(TOAIA) and disruptive to the oil and gas
industry. But a significant reason for passage of the TOAIA was to protect
certain contractors who could not effectively protect themselves from being
economically pressured into executing broad indemnity contracts in order to get
oilfield work. See Tex. Civ.
Prac. & Rem. Code § 127.002(a),(b); Getty Oil Co. v. Ins. Co. of
N. Am., 845 S.W.2d 794, 802-03 (Tex. 1992). The primary thrust of the TOAIA
is to generally make certain oilfield indemnification agreements void and
unenforceable and to limit the enforceability of other such agreements,
not to enhance enforceability of broad oilfield indemnity agreements. The
TOAIA allows enforcement of certain specified types of indemnity agreements
subject to its provisions by excluding those types of agreements from the
operation of its general language. See Tex. Civ. Prac. & Rem.
Code §§ 127.003-.005.
The TOAIA does not, however, specifically address the anti-indemnity provision
of the workers’ compensation statutes, much less
provide that the TOAIA negates such provision. The closest the TOAIA comes to
addressing the workers’ compensation anti-indemnity provision is section
127.006, which provides that the TOAIA is not intended to affect the
validity of an insurance contract or a benefit conferred by the workers’
compensation statutes.
In my view, the Court’s construction of section 417.004: (1) does not comport
with the literal, plain meaning of the statute; (2) dilutes subscribing
employers’ immunity from common-law damages claims of the employers’ injured
employees which is a key concept underlying the workers’ compensation statutes;
and (3) does not square with one of the main reasons for the 1989 revision of
the workers’ compensation statutes—reducing costs to subscribing employers. I
would hold that language in Superior’s contract
with Mitchell, which requires Superior to indemnify Energy, a nonsignatory to the contract, conflicts with section 417.004
and that, to the extent of the conflict, the contractual language is invalid. I
would affirm the judgment of the court of appeals.
________________________________________
Phil Johnson
Justice
OPINION DELIVERED: August
24, 2007