Texas Federal Court Finds Insurers Have No Duty To Defend Underlying Worker Death Case But May Have Duty To Indemnify
Two insurers filed a declaratory judgment in Texas federal court to determine whether they had a duty to defend and indemnify certain parties in an underlying Texas state court action in which a deceased worker’s family alleged that the parties were responsible for the worker’s death. The worker was involved in the installation of a city’s sewer lines when he allegedly was instructed to open a manhole, climb inside it, and remove a plug. According to the complaint, however, when he removed the plug, “toxic fumes were released and [the worker] died from asphyxia due to methane gas inhalation.”
In the insurers’ declaratory judgment action, the U.S. District Court for the Northern District of Texas ruled last week that the insurers do not have a duty to defend the state-court lawsuit. Based on the court’s review of the underlying state-court complaint, the plaintiffs’ factual allegations did not potentially support a covered claim. Specifically, the court found that the underlying allegations would create a claim that fell squarely within the policies’ pollution exclusion. The state-court defendants (seeking insurance coverage) did not argue that the methane gas (stated in the complaint as the cause of the death) was not a pollutant, but they asked the federal court to consider extrinsic evidence that demonstrates the worker may have died from a lack of oxygen. The court rejected this evidence in the duty to defend inquiry as it would require the court to engage in determining the truth or falsity of the facts alleged in the underlying case, and that consideration of extrinsic evidence in this inquiry is only permitted when the evidence is relevant to an independent and discrete coverage issue that does not touch on the merits of the underlying claim.
The federal court, however, concluded that a genuine issue of material fact remained on whether the insurers have a duty to indemnify the underlying state-court defendants. This inquiry can yield a different result because it turns on facts actually established in the underlying dispute as opposed to facts merely alleged. Specifically, a corrected autopsy report in which the worker’s death was changed to “asphyxia due to oxygen displacement in a confined space” created the issue of fact as to whether the death fell outside the pollution exclusion. The court acknowledged the insurers’ argument that if oxygen was displaced, it would have had to have been displaced by some other substance (arguably a pollutant as defined by the policies), but explained that the insurers failed to demonstrate that the substance was in fact a pollutant as defined by the policies for purposes of summary judgment.
