Jerry C. McClelland v. Robert C. Gronwaldt

• Court: Court of Appeals of Texas
• Decided: January 10, 2008
• Docket: 09-06-00566-CV
• Status: Published

Opinion

In The

Court of Appeals

Ninth District of Texas at Beaumont

____________________

NO. 09-06-566 CV

JERRY C. McCLELLAND, ET AL., Appellants

V.

ROBERT C. GRONWALDT, ET AL., Appellees

On Appeal from the 58th District Court

Jefferson County, Texas

Trial Cause No. A-144,481

MEMORANDUM OPINION

This is an appeal from an order granting summary judgment. Finding no reversible error, we affirm the trial court's judgment.

Background

Appellant Jerry C. McClelland and numerous other plaintiffs sued appellees Mobil Oil Corporation ("Mobil"), National Union Fire Insurance Company of Pittsburgh, Pennsylvania ("National Union"), Insurance Company of the State of Pennsylvania ("ISOP"), American Home Assurance Company ("American Home"), AIG Risk Management, Inc. ("AIG Risk"), American International Group, Inc. ("AIG Group"), Forum Insurance Company ("Forum"), Robert C. Gronwaldt, and Glenda Matous. ⁽¹⁾ Plaintiffs alleged that Mobil schemed to deprive appellants of their common-law causes of action for work-related injuries by fraudulently representing to its employees that it carried workers' compensation insurance, when Mobil actually had a cash-flow retrospective plan pursuant to side agreements with its insurance carriers. ⁽²⁾ Plaintiffs 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, violations of article 21.21 of the Texas Insurance Code, breach of contract, civil conspiracy, and common law fraud.

Defendants 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 (i.e. carried workers' compensation insurance) as a matter of law from 1965 through 1993. The motion asserted that defendants were entitled to summary judgment because plaintiffs' causes of action for fraudulent inducement, commercial bribery, securing execution of a document by deception, conspiracy, common law fraud, and common law negligence are "predicated on a finding that Mobil was not, in fact, a subscriber[,]" and defendants introduced summary judgment evidence in support of its subscriber status. The trial court found that Mobil was a workers' compensation subscriber during the pertinent time periods and entered a partial summary judgment in favor of defendants. Defendants subsequently filed a no-evidence motion for summary judgment, in which they asserted that plaintiffs lacked evidence of failure to pay benefits or delay in paying benefits and had no evidence of any injuries separate and distinct from injuries sustained in the course and scope of their employment with Mobil. ⁽³⁾ 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 filed this appeal.

Standards of Review

We review traditional summary judgment orders de novo. See Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003). The movants for a traditional judgment have the burden to establish that no genuine issues of material fact exist and they are entitled to judgment as a matter of law. Tex. R. Civ. P. 166a©; Nixon v. Mr. Prop. Mgmt. Co., Inc., 690 S.W.2d 546, 548 (Tex. 1985). 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.

Issues One and Two

In their first issue, plaintiffs contend 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 'workers['] compensation insurance' agreements were true contracts or sham contracts without legal merit." In their second issue, plaintiffs broadly assert that the trial court erred in granting summary judgment. We address these issues together.

The determination of an employer's status as a subscriber is a question of law that we review de novo. ExxonMobil Corp. v. Kirkendall, 151 S.W.3d 594, 598 (Tex. App.--San Antonio 2004, pet. denied). Under the Texas Labor Code, which contains the current version of the Texas Workers' Compensation Act, an "employer" is "a person who makes a contract of hire, employs one or more employees, and has workers' compensation insurance coverage." Tex. Lab. Code Ann. § 401.011(18) (Vernon Supp. 2007). Currently, an employer may obtain workers' compensation insurance coverage through a licensed insurance company or through self-insurance. Id. § 406.003 (Vernon 2006). Prior to the Legislature's comprehensive revision of the workers' compensation scheme in 1989, which became effective on January 1, 1991, the law required employers to obtain workers' compensation insurance from an authorized insurer. See Tex. Rev. Civ. Stat. Ann. art. 8309, § 2 (repealed by Act of December 12, 1989, 71st Leg., 2d C.S., ch. 1, § 16.01(15), 1989 Tex. Gen. Laws 1, 115, 122). If an employer carries workers' compensation insurance coverage, "the exclusive remedy for an employee who does not opt out is the recovery of workers' compensation benefits for personal injuries sustained in the course of employment." Kirkendall, 151 S.W.3d at 599 (citing Tex. Lab. Code Ann. § 408.001(a)).

Accordingly, we examine the summary judgment evidence to determine whether it established that Mobil carried workers' compensation insurance from 1965 to 1993. Mobil produced summary judgment evidence which showed that Forum insured Mobil from 1965 to 1981, National Union insured Mobil from 1982 to 1990, and National Union, American Home, and ISOP insured Mobil from 1991 to 1993. 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; declaration pages from policies Forum issued to Mobil; workers' compensation and employers' liability policies issued to Mobil by National Union, American Home, and ISOP; certificates of authority issued to Forum, National Union, American Home, and ISOP. The trial court found that defendants' summary judgment evidence conclusively established Mobil's status as a subscriber during the relevant time period. 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 validity of a workers' compensation insurance policy is an issue of law judged from the policy itself. 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.

Id. (citations omitted). "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." Id. (citing Patterson v. Mobil Oil Corp., 355 F.3d 476, 489-90 n.13 (5th Cir. 2003)). 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. Kirkendall, 151 S.W.3d at 601. We adopt the reasoning of the San Antonio Court of Appeals and hold 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. See id. at 600-01. 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.

AFFIRMED.

STEVE McKEITHEN

Chief Justice

Submitted on October 17, 2007

Opinion Delivered January 10, 2008

Before McKeithen, C.J., Kreger and Hill, ⁽⁴⁾ JJ.

1. For clarity, we refer to appellants as "plaintiffs" or "appellants" and appellees as "defendants" or "appellees." We note that in plaintiffs' petition, Glenda Matous's surname is spelled "Matouse." Elsewhere in the record, it is spelled "Matous."

2. As explained by the San Antonio Court of Appeals in a case involving the same underlying facts, plaintiffs

contend that Mobil engaged in a cash-flow retrospective plan whereby Mobil had the insurer file a conventional retrospective rated insurance policy with the state, but it did not actually pay the premium indicated by the policy. Instead, Mobil pa[i]d a fraction of that premium to cover the insurer's expected losses paid, expenses, insurance risk premium, and premium taxes. Mobil also issued letters of credit to the insurer for the difference between the conventional premium and the amount actually paid. Mobil reinsured the insurer's risk through an offshore subsidiary. Therefore, Mobil and its reinsurance subsidiary became the true insurers of the risk associated with Mobil's workers' compensation program.

ExxonMobil Corp. v. Kirkendall, 151 S.W.3d 594, 600 (Tex. App.--San Antonio 2004, pet. denied). The Fifth Circuit has also addressed these same contentions in the context of a claim under the Racketeer Influenced and Corrupt Organizations Act. See Patterson v. Mobil Oil Corp., 335 F.3d 476 (5th Cir. 2003).

3. In their brief, plaintiffs do not contest the granting of the no-evidence motion for summary judgment.

4. The Honorable John Hill, sitting by assignment pursuant to section 74.003(b) of the Texas Government Code. See Tex. Gov't Code Ann. § 74.003(b) (Vernon 2005).