New Hampshire Insurance Company v. Candis M. Mora, Individually, and A/N/F of Anthony Lorenzo Dean Mora, Emma Elisha Mora, and Francisco John Mora, Minor Children, and as Personal Representative of and Heir to the Estate of Anthony Byron Mora

ACCEPTED 01-15-00406-cv FIRST COURT OF APPEALS HOUSTON, TEXAS 7/8/2015 4:11:38 PM CHRISTOPHER PRINE CLERK

NO. 01-15-00406-CV

In The FILED IN 1st COURT OF APPEALS HOUSTON, TEXAS FIRST COURT OF APPEALS 7/8/2015 4:11:38 PM CHRISTOPHER A. PRINE At Houston, Texas Clerk __________

NEW HAMPSHIRE INSURANCE COMPANY,

Appellant,

V.

CANDIS MORA, et al,

Appellees. __________

Appealed from the 165th District Court of Harris County, Texas ________________________________________________________________________

APPELLANT’S BRIEF ________________________________________________________________________

Loren R. Smith State Bar No. 18643800 Kelly & Smith, P.C. 4305 Yoakum Blvd. Houston, Texas 77006 Tel.: (713) 861-9900 Fax: (713) 861-7100

ORAL ARGUMENT REQUESTED

NO. 01-15-00406-CV

NEW HAMPSHIRE INSURANCE COMPANY,

Appellant,

V.

CANDIS MORA, et al,

Appellees. ____________________________________________________________

IDENTITY OF PARTIES & COUNSEL ____________________________________________________________

1. New Hampshire Insurance Company – Appellant

2. Loren R. Smith – Counsel for Appellant State Bar No. 18643800 Kelly & Smith, P.C. 4305 Yoakum Blvd. Houston, Texas 77006 (713) 861-9900 - Telephone (713) 861-7100 - Facsimile lsmith@ksmpc.com

3. Candis Mora, Individually and as Next Friend of Anthony Lorenzo Dean Mora, Emma Elisha Mora, and Francisco John Mora, Minor Children, and as Personal Representative of and Heir to the Estate of Anthony Bryan Mora, Deceased – Appellees

4. Peter M. Kelly – Counsel for Appellees State Bar No. 00791011 Kelly, Durham & Pittard, L.L.P. 1005 Heights Boulevard Houston, Texas 77008 (713) 529-0048 - Telephone (713) 529-2498 – Facsimile pkelly@texasappeals.com

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TABLE OF CONTENTS

IDENTITY OF PARTIES & COUNSEL............................................................................ii TABLE OF CONTENTS ...................................................................................................iii INDEX OF AUTHORITIES ............................................................................................... v STATEMENT OF THE CASE ........................................................................................viii ISSUES PRESENTED FOR REVIEW .............................................................................. ix STATEMENT OF FACTS .................................................................................................. 1 SUMMARY OF THE ARGUMENT .................................................................................. 4 ARGUMENT....................................................................................................................... 6 ISSUE 1:. ............................................................................................................................. 6

The trial court erred in holding that NHIC’s worker’s compensation subrogation claims were waived, as the waiver of subrogation provisions only pertain to general liability insurance coverage that the parties were required to secure for their indemnity obligations.

ISSUE 2: ............................................................................................................................ 12

The trial court erred in holding that NHIC’s worker’s compensation subrogation claims were waived, as Trinidad did not assume the liabilities of the defendants for this accident.

ISSUE 3:. ........................................................................................................................... 25

The trial court erred in holding that NHIC waived its rights of subrogation against the non-Laredo defendants, as any possible waiver of subrogation as to worker’s compensation benefits is limited to claims against Laredo.

PRAYER FOR RELIEF .................................................................................................... 28 CERTIFICATE OF SERVICE .......................................................................................... 29

CERTIFICATE OF COMPLIANCE AND WORD COUNT ........................................... 29

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APPENDIX........................................................................................................................ 30

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INDEX OF AUTHORITIES

Cases

Approach Operating, LLC v. Resolution Oversight Corp., 2012 Tex. App. LEXIS 5437, at 7 (Tex. App. Austin July 3, 2012, no pet) .................................................. 7, 8

Aranda v. Ins. Co. of N. Am., 748 S.W.2d 210, 212 (Tex. 1988)............................................ 10

Ayres Welding Co., Inc. v. Conoco, Inc., 243 S.W.3d 177, 181 (Tex. App.-- Houston [14th Dist.] 2007, pet. denied)...................................................................... 21

Banner Sign & Barricade, Inc. v. Berry GP, Inc., 2008 Tex. App. LEXIS 7120, 20- 21 (Tex. App. Corpus Christi Sept. 25, 2008, pet. den’d) .......................................... 25

Chevron U.S.A. v. Cigna, No. 09-97-00032-CV, 1998 Tex. App. LEXIS 5043, 1998 WL 472501, at *3-4 (Tex. App.--Beaumont Aug. 13, 1998, pet. denied) ...................... 7

Coastal Mart Inc. v. Southwestern Bell Telephone Co., 154 S.W.3d 839, 852 (Tex. App.--Corpus Christi 2005, Castillo, J. concurring, pet. granted, judgm't vacated w.r.m.)............................................................................................................ 26

Deepwater Horizon, 2015 Tex. LEXIS 141 (Tex. 2015)(emphasis added) .......................... 14 Dresser Indus., Inc. v. Page Petroleum, Inc., 853 S.W.2d 505, 508 (Tex. 1993)................. 26 Hanks v. GAB Bus. Serv., 644 S.W.2d 707, 708, 26 Tex. Sup. Ct. J. 169 (Tex. 1982) ........ 25

Joseph Thomas, Inc. v. Graham, 842 S.W.2d 343, 346 (Tex. App.--Tyler 1992, no writ).......................................................................... 25, 26

Ken Petroleum Corp. v. Questor Drilling Corp., 24 S.W.3d 344, 355 (Tex. 2000) ....... 7, 8, 9

Liberty Ins. Corp. v. SM Energy, 2012 U.S. Dist. LEXIS 174069 (S.D. Tex. Dec. 7, 2012)............................................................................................ 17

Reliance Ins. Co., et al v. Hibdon, 333 S.W.3d 364 (Tex.App.-Houston [14th Dist], pet. den’d).................................................................. 27

Sonerra Res. Corp. v. Helmerich & Payne Int'l Drilling Co., 2012 Tex. App. LEXIS 7730 (Tex. App. Houston 1st Dist. Aug. 30, 2012, pet. den’d)...................... 18

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Tesoro Petroleum Corp. v. Nabors Drilling United States, 106 S.W.3d 118, 127 (Tex. App.-Houston[1st Dist.] 2002, writ den’d) ....................................................... 25

Texas Mutual Ins. Co. v. Ledbetter, 251 S.W.3d 31, 38-39 (Tex. 2008) ............................ 4, 8 Valence Operating Co., 164 S.W.3d at 662........................................................................... 21 Statutes and Restatements 28 TEX. ADMIN. CODE § 21.202 (5) (West 2015) .......................................................... 10 28 TEX. ADMIN. CODE § 21.202 (8) (West 2015 ........................................................... 10 Labor Code § 417.002(b)..................................................................................................... 3 Tex. Labor Code § 408.182 ................................................................................................. 1 Tex. Rule of Civ. Proc. 94 ................................................................................................. 26

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NO. 01-15-00406-CV

NEW HAMPSHIRE INSURANCE COMPANY,

Appellant,

V.

CANDIS MORA, et al,

Appellees.

____________________________________________________________

APPELLANT’S BRIEF ____________________________________________________________

TO THE HONORABLE COURT OF APPEALS OF THE FIRST SUPREME JUDICIAL DISTRICT:

Appellant, New Hampshire Insurance Company (“NHIC"), submits this brief in appeal of the lower court's order and judgment rendered in favor of Appellees, CANDIS MORA, Individually and as Next Friend of ANTHONY LORENZO DEAN MORA, EMMA ELISHA MORA, and FRANCISCO JOHN MORA, MINOR CHILDREN, and as Personal Representative of and Heir to the Estate of ANTHONY BRYAN MORA, DECEASED (collectively referred to as “the Moras"). This appeal is from the 165th District Court of Harris County, Texas, Cause No. 2011-47304, Hon. Elizabeth Ray presiding, in which the Moras were the Plaintiffs, and NHIC was the Intervenor.

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STATEMENT OF THE CASE

The Moras filed suit against multiple defendants in a case assigned to the 165th District Court of Harris County. The claims were for damages recoverable under the Texas Wrongful Death Act arising out the death of Anthony Bryan Mora on February 27, 2011, in an oilfield accident at Rig 204 at a wellsite operated by Laredo Petroleum. NHIC was the worker’s compensation carrier for the employer of Anthony Bryan Mora, Trinidad Drilling. As he was killed in the course and scope of his employment with Trinidad, NHIC has paid and continues to pay workers’ compensation death benefits to or on behalf of the Moras. NHIC intervened into the Moras’ lawsuit, pleading a subrogation claim to recover reimbursement of the amount of benefits paid at the time of final judgment, and seeking a credit against future benefits.

Shortly before settling their claims with all Defendants, the Moras and certain defendants filed a motion for summary judgment against NHIC, contending that it had waived its right of subrogation. NHIC filed a response and replies to the motion and the Moras’ replies. The motion was set on the Court’s submission docket for October 6, 2014. In October 2014, the Moras reached a global settlement with all defendants.

On February 13, 2015, the trial court entered summary judgment in favor of the Moras and against NHIC on its subrogation claims. A minor settlement hearing was held on February 23, 2015, at which time the trial court accepted the settlement.

On April 24, 2015, NHIC timely filed its notice of appeal. NHIC appeals the trial court’s summary judgment entered in this case on February 13, 2015 in favor of the Movants,

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made final by the Final Order of Dismissal of All Claims of April 15, 2015 and the Agreed Final Judgment and Approval of Minor Settlement of April 20, 2015. NHIC seeks an order from this Court reversing the trial court’s summary judgment that NHIC take nothing on its subrogation claims, and remanding the case to the trial court for a new trial on NHIC’s claims.

ISSUES PRESENTED FOR REVIEW

ISSUE 1:

The trial court erred in holding that NHIC’s worker’s compensation subrogation claims were waived, as the waiver of subrogation provisions only pertain to general liability insurance coverage that the parties were required to secure for their indemnity obligations.

ISSUE 2:

The trial court erred in holding that NHIC’s worker’s compensation subrogation claims were waived, as Trinidad did not assume the liabilities of the defendants for this accident.

ISSUE 3:

The trial court erred in holding that NHIC waived its rights of subrogation against the non-Laredo defendants, as any possible waiver of subrogation as to worker’s compensation benefits is limited to claims against Laredo.

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STATEMENT OF FACTS

Legend: “CR” denotes Clerk’s Record; “RR” denotes the Reporter’s Record.

On February 7, 2011, Anthony Brian Mora was electrocuted and killed in an oilfield accident on Trinidad Rig 204, while in the course and scope of his employment with Trinidad Drilling, LP. CR.449 The Moras alleged the electrocution occurred as a direct result of a defect in a power cord to a Gormann-Rupp electric transfer pump being operated by Mr. Mora at the time of his death. CR.29,187 Pursuant to a policy of insurance with his employer, NHIC was called upon to pay workers’ compensation death benefits to Mr. Mora’s widow, Candis Mora, and three children, Anthony Lorenzo Dean Mora, Emma Elisha Mora, and Francisco John Mora. CR.449 As of September 8, 2014, the total amount of benefits paid by NHIC was $143,242.00. Id. These benefits are currently being paid weekly in the ratio of 50% to the widow, and 50% to the children. Id.

Trinidad was the drilling contractor on the rig, and Laredo was the “operator” of the well and owned, possessed and controlled the premises on which the incident occurred. CR.28 Plaster & Wald was the drilling consultant responsible for supervision, management, and progress of work at the wellsite. Id. Laredo leased the subject Gormann-Rupp electric transfer pump and component parts from Lighthouse for use by Trinidad at the well site. CR.28,187 This is the transfer pump which the Moras alleged electrocuted and killed Mr. Mora. CR.29,54-56 The power cord to the pump was damaged, and the Moras alleged Mr. Mora as killed when his left index finger came into contact with a cut on the power cord,

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while standing on a wet and muddy job site. 1 CR.55

On August 10, 2011, the Moras filed suit against multiple defendants, alleging wrongful death and survival claims related to the death of Anthony Bryan Mora. CR.4 On May 12, 2014, NHIC filed its petition in intervention. CR.71 On September 8, 2014, the Moras and certain defendants filed a motion for summary judgment pertaining to NHIC’s subrogation claims. CR.125 They also filed a notice of submission, placing the motion on the trial court’s submission docket for October 6, 2014. CR.190 On September 29, 2014, NHIC filed its response to the motion for summary judgment. CR.356

In October 2014, while the summary judgment motion was pending, the Moras reached a settlement with the defendants in a confidential amount. On February 13, 2015, the trial court entered summary judgment in favor of the Moras and against NHIC on its subrogation claims. CR.447 A minor settlement hearing was held on February 23, 2015, at which time the trial court accepted the settlement. RR.31

On February 27, 2015, the trial court signed a stipulation agreed to by the Moras and NHIC. CR.449-53 Terms of the stipulation included:

2. Plaintiffs and Plaintiffs’ counsel agree to escrow the sum of $250,000 out of the settlement to cover the anticipated amount of past and future death benefits to be paid by NHIC during the pendency of an appeal of this case. The funds will be escrowed in Plaintiffs’ counsel’s IOLTA account, and shall remain there and not be distributed until there is a final adjudication pertaining to all claims between Plaintiffs and NHIC pertaining to NHIC’s alleged right of subrogation and alleged right of a future credit, and all appeals have been exhausted; or until a final agreement is

1 See also Ex.F, para.18 and Ex.J, p.4 of Plaintiff’s Objection and Response to Trinidad’s No Evidence Motion for Summary Judgment, filed May 2, 2014. This was requested to be part of the record but omitted by the trial court clerk; a supplemental record has been requested and will soon be filed.

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reached between Plaintiffs and NHIC pertaining to NHIC’s alleged right of subrogation and right of a future credit. At that time, the funds will be distributed in accordance with the final determination, or in the event of an agreement, in accordance with the agreement of Plaintiffs and NHIC. As to the remaining settlement funds, these funds can be distributed to Plaintiffs and their counsel immediately after Court approval of the settlement and funding by the Defendants.

3. NHIC agrees to not suspend benefits to Plaintiffs for any claimed right of a statutory credit under Tex. Labor Code § 417.002(b) or pertaining to Plaintiffs’ settlement with Defendants until there is a final adjudication, for which all appeals have been exhausted, or a written agreement between Plaintiffs and NHIC, that NHIC has a right of a statutory credit under Tex. Labor Code § 417.002(b) pertaining to Plaintiffs’ recovery. If there is a final adjudication, for which all appeals have been exhausted, or a written agreement between Plaintiffs and NHIC, that NHIC has a subrogation interest in Plaintiffs’ recovery from Defendants, the amount of NHIC’s subrogation interest for past benefits paid (subject to claims for attorney’s fees and expenses) will be the total amount of benefits paid up and until the date benefits are suspended.

....

5. Of the gross amount of the settlement to be paid collectively on behalf of Defendants Laredo Petroleum, Inc.; Pioneer Consulting and Services, Inc. d/b/a Lighthouse Energy Solutions; Plaster & Wald Consulting Corp.; Airgen & Equipment Repair; Airgen Equipment, LLC and Roger Simmons d/b/a Rig Maintenance Service, Plaintiffs and NHIC stipulate that four and 16/100ths percent (4.16%) of the gross amount of the settlement is being paid to settle the liability of Laredo Petroleum, Inc.

6. Of the gross amount of the settlement to be paid collectively on behalf of Defendants Laredo Petroleum, Inc.; Pioneer Consulting and Services, Inc. d/b/a Lighthouse Energy Solutions; Plaster & Wald Consulting Corp.; Airgen & Equipment Repair; Airgen Equipment, LLC and Roger Simmons d/b/a Rig Maintenance Service, Plaintiffs and NHIC stipulate that 92% of the gross amount of the settlement is apportioned to the claims of the Plaintiffs who are receiving worker’s compensation death benefits; namely, Candis Mora, Anthony Lorenzo Dean Mora, Emma Elisha Mora, and Francisco John Mora. The remaining 8% of the gross amount of the settlement is apportioned to the claims of Anthony Mora’s mother, Elvia Ochoa Garza, who is a non-beneficiary for worker’s compensation, and against whose recovery NHIC does not have subrogation rights or a right of credit against future benefits.

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CR.450-52 Based upon the agreement by Moras’ counsel to escrow $250,000 out of the settlement funds to cover NHIC’s subrogation claims, NHIC is solely pursuing its subrogation claim against the Moras on appeal.2

On April 15, 2015, the trial court entered a final order of dismissal of all claims. CR.459-60 On April 20, 2015, the trial court entered an agreed final judgment and approval of minor settlement. CR.463 These orders made the interlocutory summary judgment against NHIC final and appealable. On April 24, 2015, NHIC timely filed its notice of appeal. CR.474

SUMMARY OF THE ARGUMENT

NHIC appeals from the trial court’s order granting the Moras’ motion for summary judgment, denying its right to recover past benefits paid to the Moras, and denying its credit against future benefits.

NHIC’s first issue asserts that the trial court erred in holding that NHIC’s worker’s compensation subrogation claims were waived, as the waiver of subrogation provisions only pertain to general liability insurance coverage that the parties were required to secure for their indemnity obligations. The waiver requirement under Paragraph 13 applied to “insurance coverages of the kind and in the amount set forth in Exhibit “A”, insuring the liabilities specifically assumed by Contractor in Paragraph 14 of this Contract. “ The waiver requirement under Subparagraph 14.8 expressly applied to “liability insurance”. Worker’s

2 See Texas Mutual Ins. Co. v. Ledbetter, 251 S.W.3d 31, 38-39 (Tex. 2008)(“When an injured worker settles a case without reimbursing a compensation carrier, everyone involved is liable to the carrier for conversion – the plaintiffs, the plaintiffs’ attorney, and the defendants. As between those parties, we have held that generally those who received the funds unlawfully (the plaintiffs and their attorney) should disgorge them rather than making

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compensation insurance is first-party coverage, which is not third-party “liability insurance” and which is not intended to insure indemnity obligations.

NHIC’s second issue asserts that even if the waiver of subrogation provisions apply to worker’s compensation coverage, they are limited to liabilities assumed by Trinidad. In this case, Trinidad did not agree to assume the liabilities of either Laredo, or the other defendants. Paragraph 14.8 of the Laredo / Trinidad contract does not apply, as Paragraph 14.7 excepts Trinidad from any loss or damage resulting from the use of materials furnished by Laredo. As it is undisputed that Laredo provided Trinidad the subject transfer pump which resulted in Mr. Mora’s death, there are no “liabilities specifically assumed” by Trinidad which would trigger the waiver of subrogation clause of Paragraph 13.

NHIC’s third issue asserts that the trial court erred in in ruling that NHIC waived its rights of subrogation against the non-Laredo defendants, as any possible waiver of subrogation as to worker’s compensation benefits was limited to claims against the “Operator”, which was Laredo. The waiver in the written contract cannot be inferred, but must be explicit. Since the waiver under Paragraph 13 does not waive subrogation against Operator’s Parties, a waiver of subrogation in favor of Operator’s Parties cannot be inferred.

This Court should reverse the trial court’s summary judgment, and remand the case to the trial court for a new trial on NHIC’s claims. the tortfeasors pay twice.”).

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ARGUMENT

ISSUE 1: The trial court erred in holding that NHIC’s worker’s compensation subrogation claims were waived, as the waiver of subrogation provisions only pertain to general liability insurance coverage that the parties were required to secure for their indemnity obligations.

ARGUMENT AND AUTHORITIES FOR ISSUE 1: A. Waiver requirements.

NHIC’s insurance policy contains a Blanket Waiver of Subrogation Endorsement, which provides that NHIC shall waive its subrogation rights for limited occurrences. In particular, the endorsement provides in part:

We have the right to recover our payments from anyone liable for an injury covered by this policy. We will not enforce our right against the person or organization named in the Schedule, but this waiver applies only with respect to bodily injury arising out of the operations described in the Schedule where you are required by a written contract to obtain this waiver from us.

This agreement shall not operate directly or indirectly to benefit anyone not named in the Schedule.

....

(X) Blanket waiver Any person or organization for whom the Named Insured has agreed by written contract to furnish this waiver.

3 This is standard form WC 42 03 04A, dated January 2000. As noted by the clear language of the endorsement, subrogation is only waived where Trinidad is required by a written contract to obtain this waiver.

3 See Plaintiffs and Defendants’ Motion for Summary Judgment filed September 8, 2014, Ex.2. p.TD1322. This was requested to be part of the record but omitted by the trial court clerk; a supplemental record has been requested and will soon be filed.

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Both sides agree that in order to have a valid waiver of subrogation, two conditions must be met. First, Lilly must obligate itself to a waiver pursuant to an underlying contract with Approach (here, the MSA), and second, it must obtain a separate endorsement from its insurance carrier waiving those rights. See, e.g., Chevron U.S.A. v. Cigna, No. 09-97-00032-CV, 1998 Tex. App. LEXIS 5043, 1998 WL 472501, at *3-4 (Tex. App.--Beaumont Aug. 13, 1998, pet. denied) (not designated for publication) (enforcing waiver of subrogation clause); see also Ken Petroleum Corp. v. Questor Drilling Corp., 24 S.W.3d 344, 355 (Tex. 2000) (noting subrogation waiver in underlying contract and separate endorsement, but holding insurer's claims were outside scope of waiver).

Approach Operating, LLC v. Resolution Oversight Corp., 2012 Tex. App. LEXIS 5437, at 7 (Tex. App. Austin July 3, 2012, no pet). The waiver in the written contract cannot be inferred, but must be explicit.

Approach contends the "express terms of the MSA" similarly required a waiver of subrogation. Unlike the cases discussed above, however, the MSA contains no explicit mention of subrogation. And Approach points to no authority indicating we may infer a waiver of subrogation. On the contrary, Texas courts require explicit waivers of subrogation and will not read them into contracts. For example, in Reliance Ins. Co. v. Hibdon, the court refused to find a waiver of subrogation in favor of a company's employee when the clause only explicitly mentioned the employer.

Id, at 14 (Tex. App. Austin July 3, 2012, no pet)(emphasis added)(citing Reliance Ins. Co. v. Hibdon, 333 S.W.3d 364 (Tex. App.--Houston [14th Dist.] 2011, pet. den’d)). In this case, Trinidad was not required to secure a waiver of subrogation under the terms of its agreement with Laredo; as such, NHIC’s subrogation rights were not waived.

The Moras cite two paragraphs from the contract in support of their waiver contention, Paragraph 13, and the amended Paragraph 14.8. These paragraphs provide:

13. INSURANCE

During the life of this Contract, Contractor shall at Contractor’s expense maintain, with an insurance company or companies authorized to do business in the

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state where the work is to be performed or through a self-insurance program, insurance coverages of the kind and in the amount set forth in Exhibit “A”, insuring the liabilities specifically assumed by Contractor in Paragraph 14 of this Contract. Contractor shall procure from the company or companies writing said insurance a certificate or certificates that said insurance is in full force and effect and that the same shall not be canceled or materially changed without thirty (30) days prior written notice to Operator. For liabilities assumed hereunder by Contractor, its insurance shall be endorsed to provide that the underwriters waive their right of subrogation against Operator. Operator will, as well, cause its insurer to waive subrogation against Contractor for liability it assumes and shall maintain, at Operator’s expense, or shall self insure, insurance coverage as set forth in Exhibit “A” of the same kind and in the same amount as required by Contractor, insuring the liabilities specifically assumed by Operator in Paragraph 14 of this Contract. Operator shall procure from the company or companies writing said insurance a certificate or certificates that said insurance is in full force and effect and that the same shall not be canceled or materially changed without thirty (30) days prior written notice to Contractor. Operator and Contractor shall cause their respective underwriters to name the Contractor’s Group and the Operator’s Group, as appropriate, as an additional insured but only to the extent of the risks, obligations and liabilities assumed by operation of this Contract, including, but not limited to, the drilling rig.

CR.93,154,375

14.8 Contractor’s Indemnification of Operator: Contractor shall release Operator and Operator’s Parties from any liability for, and shall protect, defend and indemnify Operator and Operator’s Parties, its officers, directors, employees and joint owners from and against all claims demands and causes of action of every kind and character, without limit and without regard to the cause or causes thereof or the negligence of any party or parties, arising in connection herewith in favor of Contractor’s employees or Contractor’s subcontractors or their employees, or Contractor’s invitees (collectively the “Contractor’s Parties”), on account of bodily injury, death or damage to property. Contractor shall further release Operator and Operator’s Parties of any liability for, and protect, defend and indemnify Operator, its officers, directors, employees and joint owners from and against all claims, demands and causes of action of every kind and character, without limit, arising in connection herewith in favor of any third party or parties (excluding “Operator’s Parties”), on account of bodily injury, death or damage to property causes by the negligent or willful acts of Contractor’s Parties. Likewise, Contractor shall be responsible for and shall protect, defend and indemnify Operators, its officers, directors, employees and joint owners from and against any fines or sanctions imposed by any governmental agency or authority arising from any unlawful act or acts committed by Contractor’s Parties while in the course of performance of this Contract. Contractor’s indemnity

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under this paragraph shall be without regard to and without any right of contribution from any insurance maintained by the operator pursuant to Paragraph 13. If it is judicially determined that the monetary limits of insurance required hereunder or of the indemnities voluntarily assumed under Paragraph 14.8 (which Contractor and Operator hereby agree will be supported by either available liability insurance, under which the insurer has no right of subrogation against the indemnities, or voluntarily self-insured, in part or whole) exceed the maximum limits permitted under applicable law, it is agreed that said insurance requirements or indemnities shall automatically be amended to conform to the maximum monetary limits permitted under law. The provisions of this paragraph shall be subject to those contained elsewhere in this contract (including Paragraph 14.11): In case of conflict, the other provisions of this contract shall govern.

CR.102,163,384 Each of the waiver clauses in the agreement should be interpreted to limit the waiver only to Trinidad’s general liability insurance coverage, and not its worker’s compensation coverage. B. Paragraph 13 waiver.

As to Paragraph 13, although worker’s compensation insurance is one of the required coverages listed on Exhibit “A”, it was not one of the “insurance coverages of the kind and in the amount set forth in Exhibit “A”, insuring the liabilities specifically assumed by Contractor in Paragraph 14 of this Contract. “ Paragraph 14 addresses “Responsibility for Loss or Damage, Indemnity, Release of Liability and Allocation of Loss.” Nowhere in Paragraph 14 is worker’s compensation insurance mentioned. The “liabilities specifically assumed” in Paragraph 14 refers to the indemnity requirement. See Ken Petroleum Co., et al v. Questor Drilling Corp., et al, 24 S.W.3d 344 (Tex. 2000). Finally, the Operator’s Addendum to Subparagraph 14.13 reflects that Paragraph 13 pertains to the liability insurance requirement: “Each party covenants and agrees to support this indemnity agreement by available liability insurance coverage as set forth in Paragraph 13.”

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General liability insurance may provide coverage to companies other than the policyholder in support of an indemnity obligation; worker’s compensation coverage does not. Worker’s compensation coverage only provides for the payment of medical or indemnity benefits to the policyholder’s employees, or death benefits to the employees’ beneficiaries. Worker’s compensation coverage is not third party liability coverage;4 it is first party insurance coverage.5 The worker’s compensation policy is a three party agreement between the carrier, employer and employee. Aranda v. Ins. Co. of N. Am., 748 S.W.2d 210, 212 (Tex. 1988). The worker’s compensation policy does not provide coverage for any indemnity obligation assumed by Trinidad, nor can an unaffiliated company such as Laredo be added as an additional insured to Trinidad’s worker’s compensation coverage, as Laredo is not an alternate employer for Trinidad’s employees. C. Subparagraph 14.8 and 14.13 waivers.

The amended language of Subparagraph 14.8 and the language of Subparagraph 14.13 also support the interpretation that the waiver requirement should only apply to coverage under the general liability policy. These clauses expressly limit the waiver to liability insurance in the same sentence requiring the waiver:

14.8 [Addendum] Contractor’s Indemnification of Operator: . . . . If it is judicially determined that the monetary limits of insurance required hereunder or of the indemnities voluntarily assumed under Paragraph 14.8 (which Contractor and Operator hereby agree will be supported either by available liability insurance, under which the insurer has no right of subrogation against the

4 See 28 TEX. ADMIN. CODE § 21.202 (8) (West 2015(“Third-party coverage--Benefits and other rights provided by an insurance contract to any person other than the insured.) 5 See 28 TEX. ADMIN. CODE § 21.202 (5) (West 2015)(“ First-party coverage--Benefits and other rights provided by an insurance contract to an insured.”)

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indemnities, or voluntary self-insured, in part or whole) exceed the maximum limits permitted under applicable law.

CR.102,163,384 (emphasis added).

14.13 Indemnity Obligation: . . . . The indemnities, releases, and assumptions of liability extended by the parties hereto under the provisions of Paragraph 14 shall in the case of Contractor, inure to the benefit of Contractor, its parent, holding and affiliated companies and their respective officers, directors, employees, agents, servants, and its subcontractors (“Contractor’s Group”), and in the case of Operator, shall inure to the benefit of Operator and its parent, subsidiary, related and affiliated corporation(s), partnership(s), and limited liability companies, and its and their non-operators, co- owners, co-lesseees, partners, co-partners, co-venturers, joint venturers, and other contractors and subcontractors (with the exception of Contractor and its subcontractors) and the officers, directors, employees, agents, assigns, representatives, managers, consultants, insurers, and subrogees of all of the foregoing (“Operator’s Group”). The parties agree that each party will obtain liability insurance, or provide self-insurance (each with minimum limits not less that the amounts set forth in Exhibit A) for the benefit of and with no right of subrogation against the other party or such party’s Group as defined in this Subparagraph 14.13, and that such insurance shall support the parties’ mutual indemnity obligations under Subparagraphs 14.1 through 14.12.

CR.94,155,376 (bold emphasis added).

As reflected in Subparagraph 14.13, the insurance requirement supports the mutual indemnity obligations under Subparagraph 14.1 through 14.12. This provision provides compliance with the Texas Oilfield Anti-Indemnity Act, Tex. Civ. Prac. & Rem. Code Chapter 127. See also Operator’s Addendum, Subparagraph 14.13(b). However, Laredo did not have a reciprocal requirement to secure worker’s compensation insurance, per Exhibit “A”. This is consistent with the interpretation that the mutual indemnity, liability insurance and waiver of subrogation requirements were separate from Trinidad’s worker’s compensation insurance requirement.

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ISSUE 2: The trial court erred in holding that NHIC’s worker’s compensation subrogation claims were waived, as Trinidad did not assume the liabilities of the defendants for this accident.

ARGUMENT AND AUTHORITIES FOR ISSUE 2:

Even if the waiver of subrogation provisions apply to worker’s compensation insurance, they do not apply under the facts of this case. The waiver provisions are limited to liabilities assumed by Trinidad, which are the liabilities for which Trinidad is obligated to indemnify Laredo. The provisions do not apply as Trinidad did not agree to assume liability for this accident.

A. The waiver of subrogation endorsement only applies to the liability of Laredo which Trinidad agreed to assume via the indemnity provision.

The Texas Supreme Court has recognized that a clause with substantially similar language did not waive the carrier’s right of subrogation, when the corresponding indemnity clause does not apply. See Ken Petroleum Co., et al v. Questor Drilling Corp., et al, 24 S.W.3d 344 (Tex. 2000). In Ken Petroleum Co., the contract between Ken Petroleum and Questor contained mutual indemnification clauses, where the parties were required to indemnify each other for claims by their respective employees. The “Insurance” clause then provided the following waiver clause: “For liabilities assumed hereunder by contractor [Questor], its insurance shall be endorsed to provide that the underwriters waive their right of subrogation against Operator. Operator [Ken Petroleum] will, as well, cause its insurer to waive subrogation against Contractor for liability it assumes.” Ken Petroleum Co., 24 S.W.3d at 355. The Court found that the waiver provision did not apply to waive Ken

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Petroleum’s insurance carrier’s right of subrogation against Questor for liability payments made to the family of a Questor employee killed on the job site:

Questor's contentions are not well-founded. Ken Petroleum agreed to cause its underwriters to waive their subrogation rights only as to amounts Ken Petroleum might have to pay under its agreement to indemnify Questor. Ken Petroleum did not agree to indemnify Questor for injuries to or the death of Questor's employees. To the contrary, Questor agreed that it would indemnify Ken Petroleum if a Questor employee were injured or killed. The foregoing provision did not waive the rights of the Underwriters to enforce, as subrogees, the indemnity obligations Questor owed to Ken Petroleum. Questor next points to an endorsement to Ken Petro-leum's policy with the Underwriters entitled "WAIVER OF SUBROGATION WHEN REQUIRED BY CONTRACT" which says: It is agreed that, with respect to such insurance as is afforded by this Cover Note, the company waives any right of subrogation against the "principal" named below by reason of any payment made on account of injury, including death resulting therefrom or on account of property damage sustained by any person or entity while the assured is engaged in any of the operations described in the Schedule of this Cover Note. "Principal" means any party to whom the named assured is contractually obligated to waive its legal rights of indemnification. Questor is not a party to the contract of insurance between Ken Petroleum and its Underwriters. Questor must look to its own contract with Ken Petroleum to determine what subrogation rights it may insist that Ken Petroleum require its insurers to waive. Sections 13 and 14.9 of the drilling contract require Ken Petroleum to cause its insurers to waive their subrogation rights only with regard to Ken Petroleum's agreement to indemnify Questor for the death of or injury to Ken Petroleum employees and certain others. The drilling contract does not require Ken Petroleum to cause its insurers to waive subrogation rights when they pay amounts that Questor should have paid under its agreement to indemnify Ken Petroleum. If Ken Petroleum is not contractually obligated to Questor to enforce a waiver of subrogation, Questor cannot insist that Ken Petroleum assert a waiver of subrogation when Ken Petroleum and the Underwriters both agree that the Underwriters stepped into Ken Petroleum's shoes by paying $ 450,000 to settle the Hemphill litigation.

Ken Petroleum Co., 24 S.W.3d at 355-56.

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Similarly, the Texas Supreme Court held earlier this year that an insurance obligation dependent on “liabilities assumed” was only triggered if there is an enforceable indemnity agreement. The following is the Court’s summary of its holdings:

As to the first question, we hold that (1) the Transocean insurance policies include language that necessitates consulting the drilling contract to determine BP's status as an "additional insured"; (2) under the terms of the drilling contract, BP's status as an additional insured is inextricably intertwined with limitations on the extent of coverage to be afforded under the Transocean policies; (3) the only reasonable construction of the drilling contract's additional-insured provision is that BP's status as an additional insured is limited to the liabilities Transocean assumed in the drilling contract; and (4) BP is not entitled to coverage under the Transocean insurance policies for damages arising from subsurface pollution because BP, not Transocean, assumed liability for such claims. We therefore answer the first certified question in the negative, and based on our analysis of that issue, do not reach the second question.

In re Deepwater Horizon, 2015 Tex. LEXIS 141 (Tex. 2015)(emphasis added). The case arose out of “the April 2010 explosion and sinking of the Deepwater Horizon oil-drilling rig, which claimed eleven lives and resulted in subsurface discharge of oil into the Gulf of Mexico at alarming rates for nearly three consecutive months.” The Court accepted a certified question from the Fifth Circuit as to whether BP was entitled to coverage for subsurface pollution under an additional insured endorsement of Transocean’s insurance policy. The analysis and holding of the Court relevant to this case follows:

In the Drilling Contract, BP and Transocean agreed to a "knock-for-knock" allocation of risk that is standard in the oil and gas industry. Among other indemnity provisions, Transocean agreed to indemnify BP for above-surface pollution regardless of fault, and BP agreed to indemnify Transocean for all pollution risk Transocean did not assume, i.e., subsurface pollution.

Without limiting Transocean's indemnity obligations, the Drilling Contract further required Transocean to carry multiple types of insurance at its own expense. Among the required policies, Transocean was obliged to carry comprehensive general

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liability insurance, including contractual liability insurance for the indemnity agreement, of at least $10 million. Transocean was also charged with naming BP, its affiliates, officers, employees, and a host of other related individuals and entities:

as additional insureds in each of [Transocean's] policies, except Workers' Compensation for liabilities assumed by [Transocean] under the terms of [the Drilling] Contract. (Emphasis added.)

To the extent the terms of the Drilling Contract are incorporated into Transocean's insurance policies, the proper construction of the emphasized portion of the foregoing additional-insured provision becomes central to the resolution of the coverage issue before us.

....

After BP made a demand for coverage, the Insurers sought a declaration that BP would not be entitled to additional-insured coverage for subsurface-pollution claims arising from the Deepwater Horizon incident because the Drilling Contract limits the additional-insured obligation to "liabilities assumed by [Transocean] under the terms of [the Drilling] Contract." ....

As Urrutia demonstrates, an insurance policy may incorporate an external limit on additional-insured coverage. In such cases, the external limit is, in effect, an endorsement to the insurance policy that "suppl[ies] the limits of coverage and extend[s] those benefits to the customer identified therein as accepting the [insured's] offer of insurance." Id. at 443. By tying additional-insured coverage to the terms of an underlying agreement, the parties procure only the coverage the insured is contractually obligated to provide, thereby minimizing the insurer's exposure under the policy and the named insured's premiums. See id. ("The endorsement . . . allowed [the insured] to determine in the rental contracts themselves which customers would be insured and the amount of their respective coverage.").

....

Applying the only reasonable construction of the additional-insured provision, we conclude that BP is an additional insured only as to liabilities assumed by Transocean under the Drilling Contract and no others. Because Transocean did not assume liability for subsurface pollution, Transocean was not "obliged" to name BP as an additional insured as to that risk. Because there is no obligation to provide insurance for that risk, BP lacks status as an "Insured" for the same.

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....

Such is the case here. The Drilling Contract required Transocean to name BP as an additional insured only for the liability Transocean assumed under the contract. Accordingly, Transocean had separate duties to indemnify and insure BP for certain risk, but the scope of that risk for either indemnity or insurance purposes extends only to above-surface pollution. Article 20.1 of the Drilling Contract, on which BP relies, provides that Transocean's duty to maintain insurance does not alleviate its duty to indemnify BP. This merely confirms our holding in Getty Oil Co. v. Insurance Co. of North America that indemnity and insurance clauses can impose separate and independent duties. 845 S.W.2d at 804. Article 20.1 does not provide that the scope of the indemnity and insurance duties are different. Instead, the additional-insured clause confirms they are congruent regarding the risk at issue by requiring Transocean to insure BP "for liabilities assumed by [Transocean] under the terms of this Contract." Because the scope of Transocean's duty to indemnify governs the scope of Transocean's duty to insure BP, we decline BP's request to ignore the indemnity obligation when construing the Drilling Contract.

In sum, we answer the first certified question in the negative because BP is not covered for the damages at issue by virtue of the limitations on the scope of its additional-insured status imposed in the Drilling Contract and incorporated into the Transocean insurance policies by reference.

Id, at 5 – 40 (emphasis added). The analysis in determining whether an additional insured endorsement is triggered under Deepwater Horizon is no different that the analysis in this case as to whether a waiver of subrogation endorsement is triggered in this case.

Finally, in a case from the Southern District of Texas involving the application of a waiver clause to a worker’s compensation carrier’s subrogation rights, the reviewing court referenced the contract’s indemnity clause in interpreting the scope of the limiting term of the waiver clause “as respects risks and liabilities assumed by Contractor. . . .” In that case, the indemnity clause was clear that the employer was assuming the defendant’s liability: “The state-court suit is a claim against St. Mary ‘arising out of or related to bodily injury or death’ of Select's employees for ‘medical, compensation or other benefits.’ (Id., ¶ 11.2). Under the

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unambiguous language of the MSC, Select assumed St. Mary's liability in that suit.” Liberty Ins. Corp. v. SM Energy, 2012 U.S. Dist. LEXIS 174069 (S.D. Tex. Dec. 7, 2012). However, in this case Laredo’s contract does not call for Trinidad to assume liability for the claims arising out of Mr. Mora’s death. B. Trinidad did not agree to assumed liability for this accident.

In this case, Laredo / Trinidad contract excepts Trinidad from all liability for claims arising out of this accident:

14.7 Inspection of Materials Furnished by Operator: Contractor agrees to visually inspect all materials furnished by Operator before using same and to notify Operator of any apparent defects thereto. Contractor shall not be liable for any loss or damage resulting from the use of materials furnished by Operator, and Operator shall release Contractor from, and shall protect, defend and indemnify Contractor from and against, any such liability.

CR.93,154,375 (emphasis added). In this case, the summary judgment evidence demonstrates that Mr. Mora was killed by transfer pump, which Laredo’s representative Kenneth E. Dornblaser admits in his affidavit was provided by Laredo to Trinidad. CR.187 The transfer pump is part of the materials furnished by Laredo to Trinidad to perform its work.

This Court addressed the indemnity obligations arising out of a drilling contract with an identical Paragraph 14.7 and substantially similar Paragraphs 14.8 and 14.9 in the case of Sonerra Res. Corp. v. Helmerich & Payne Int'l Drilling Co., 2012 Tex. App. LEXIS 7730 (Tex. App. Houston 1st Dist. Aug. 30, 2012, pet. den’d). The facts of Sonerra are as follows:

Sonerra entered into an International Association of Drilling Contractors Drilling Bid Proposal and Daywork Drilling Contract (the "drilling contract") with H&P. Sonerra, an oil-well operator, retained H&P, a drilling contractor, to drill and

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work on an oil well in Nacogdoches County, Texas. During H&P's work at the well, H&P employee Billy Jack McDaniel was injured when hot gas was released from the well after a stripper rubber inside a rotating-control device ("RCD") failed. McDaniel sued Sonerra, who had furnished the RCD and the stripper rubber to H&P for use in drilling operations. Sonerra demanded that H&P, pursuant to an indemnity provision in article 14.8 of the drilling contract, defend and indemnify it from the claims made against it by McDaniel. H&P refused, contending that an indemnity provision in article 14.7 of the drilling contract required that Sonerra indemnify it and release it from any such liability.

The indemnity provisions relied upon by the parties are contained in Section 14 of the drilling contract, entitled "Responsibility for Loss or Damage, Indemnity, Release of Liability and Allocation of Risk." Section 14 provides, in pertinent part,

14.7 Inspection of Materials Furnished by Operator: Contractor agrees to visually inspect all materials furnished by Operator before using same and to notify Operator of any apparent defects therein. Contractor shall not be liable for any loss or damage resulting from the use of materials furnished by Operator, and Operator shall release Contractor from, and shall protect, defend and indemnify Contractor from and against, any such liability.

14.8 Contractor's Indemnification of Operator: Contractor shall release Operator of any liability for and shall protect, defend and indemnify Operator from and against all claims, demands, and causes of action of every kind and character, without limit and without regard to the cause or causes thereof or the negligence of any party or parties, arising in connection herewith in favor of Contractor's employees or Contractor's subcontractors of any tier (inclusive of any agent or consultant engaged by Contractor) or their employees, or Contractor's invitees, on account of bodily injury, death, or damage to property. Contractor's indemnity under this Paragraph shall be without regard to and without any right to contribution from any insurance maintained by Operator pursuant to Paragraph 13. If it is judicially determined that the monetary limits of insurance required hereunder or of the indemnities voluntarily assumed under Subparagraph 14.8 (which Contractor and Operator hereby agree will be supported either by available liability insurance, under which the insurer has no right of subrogation against the indemnities, or voluntarily self insured, in part or whole) exceed the maximum limits permitted under applicable law, it is agreed that said insurance requirements or indemnities shall automatically be amended to conform to the maximum monetary limits permitted under such law.

14.9 Operator's Indemnification of Contractor: Operator shall release

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contractor of any liability for, and shall protect, defend and indemnify Contractor from and against all claims, demands, and causes of action of every kind and character, without limit and without regard to the cause or causes thereof or the negligence of any party or parties, arising in connection herewith in favor of Operator's employees or Operator's contractors of any tier (inclusive of any agent, consultant or subcontractor engaged by Operator) or their employees, or Operator's invitees, other than those parties identified in Subparagraph 14.8 on account of bodily injury, death or damage to property. Operator's indemnity under this paragraph shall be without regard to and without any right to contribution from any insurance maintained by Contractor pursuant to Paragraph 13. If it is judicially determined that the monetary limits of insurance required hereunder or of the indemnities voluntarily assumed under Subparagraph 14.9 (which Contractor and Operator hereby agree will be supported either by available liability insurance, under which the insurer has no right of subrogation against the indemnities, or voluntarily self-insured, in part or whole) exceed the maximum limits permitted under applicable law, it is agreed that said insurance requirements or indemnities shall automatically be amended to conform to the maximum monetary limits permitted under such law.

Sonerra, 2012 Tex. App. LEXIS 7730, at 1-5. This Court held that Paragraph 14.7 excepted the contractor (H&P) from the obligation to provide indemnity to the operator (Sonerra) for the accident injuring H&P’s employee, irrespective of the provisions of Paragraph 14.8:

In sum, to limit article 14.7 so as not to include within it an indemnity by Sonerra in favor of H&P for any claims brought by H&P employees for bodily injury caused by materials furnished by Sonerra, we would have to insert additional language into the drilling contract. Article 14.8 does not modify the indemnity and release language of article 14.7. If the parties had intended for the indemnity provision in article 14.7 to be so limited, the parties could have included language limiting the class of losses or damages to which it applied or excepting employee claims for losses or damages that would otherwise fall within article 14.8. When properly harmonized, and when considered in light of the entire agreement, article 14.7 of the drilling contract unambiguously precludes Sonerra's indemnity claims against H&P. Accordingly, we hold that the trial court did not err in granting H&P's summary- judgment motion and denying Sonerra's summary-judgment motion.

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Sonerra, 2012 Tex. App. LEXIS 7730, at 27-28. Paragraph 14.7 of the Laredo / Trinidad contract is a specific clause which carves out an exception to the general provisions of Paragraphs 14.8 and 14.9 of the Operator’s Addendum, just as was the case in Sonerra:

When all of the articles of the drilling contract are harmonized, it is evident that the indemnity obligation and release in article 14.7 carve out a set of claims that might otherwise be covered by the indemnity provision in article 14.8. See Clark v. Cotten Schmidt, L.L.P., 327 S.W.3d 765, 773 (Tex. App.--Fort Worth 2010, no pet.); ("A specific contractual provision controls over a general provision"); Ayres Welding Co., Inc. v. Conoco, Inc., 243 S.W.3d 177, 181 (Tex. App.--Houston [14th Dist.] 2007, pet. denied) (providing that more specific provisions of contract will control over general).

Sonerra, at 22-23.

The Moras argue that the electric transfer pump is “equipment”, and as such should not be considered “materials” under Subparagraph 14.7. However, this Court in Sonerra held that “materials” under Subparagraph 14.7 of the IADC contract (the form also used for the Laredo / Trinidad contract) includes equipment such as a rotating-control device (“RCD”):

In sum, there is simply no indication in the written contract that these terms, as used throughout the contract, are mutually exclusive and refer to a distinct set of items. Sonerra's efforts to restrict the construction of the term "materials" to exclude the stripper rubbers inside the RCD conflicts with the plain, ordinary, and generally accepted meanings of the words used in the drilling contract. See Valence Operating Co., 164 S.W.3d at 662. The terms "material" or "materials" are defined as "the matter from which a thing is or can be made" or "things needed for an activity," 4 "the substance or substances of which a thing is made or composed" or "any constituent element,"5 "the equipment necessary for a particular activity,"6 and "the elements, constituents,7 or substances of which something is composed or can be made" or an "apparatus necessary for doing or making something."8 4 THE NEW OXFORD AMERICAN DICTIONARY 1054 (2001). 5 RANDOM HOUSE WEBSTER'S UNABRIDGED DICTIONARY 1185 (2d. ed. 2003).

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6 COLLINS ENGLISH DICTIONARY - COMPLETE & UNABRIDGED (10th ed. 2009). 7 Sonerra even cites in its briefing the definition of "material" that refers to an "element" or "constituent." The term "element" is defined to be a "constituent part" and a "distinct part of a composite device." MERRIAM WEBSTER'S COLLEGIATE DICTIONARY 402 (11th ed. 2003). And constituent is defined to be "an essential part" and a "component element," WEBSTER'S DICTIONARY 248 (10th ed. 1999); "a constituent element, material, etc.; component," RANDOM HOUSE WEBSTER'S UNABRIDGED DICTIONARY 436 (2d. ed. 2003); and a "component part of something." THE NEW OXFORD AMERICAN DICTIONARY 368 (2001). 8 MERRIAM WEBSTER'S COLLEGIATE DICTIONARY 765 (11th ed. 2003).

Sonerra admits in its briefing that it furnished the stripper rubber and the stripper rubber is a "component" of the RCD. The plain language of article 14.7, when considered in the context of the drilling contract, indicates that the parties used the term "materials" to generally refer to the physical items that were to be provided by Sonerra at the well. Sonerra's argument that article 14.7 is inapplicable because the defective stripper rubber and the RCD can only be considered a piece of "equipment" and not "materials" necessarily fails.9

9 Sonerra also argues that the parties' use of the term "equipment" in other indemnity provisions in the drilling contract reveals that the parties' used the terms "equipment" and "materials" to mean different things. For example, in article 14.1 H&P assumed liability for damage to its surface equipment, in article 14.2 Sonerra assumed liability for H&P's in-hole equipment, in article 14.3 Sonerra assumed liability for damage to H&P's equipment resulting from hydrogen sulfide or other corrosive elements, and in article 14.4 Sonerra assumed liability for its own equipment. We need not address whether the parties' use of the term equipment in these other indemnity provisions pertains to a subset of items described in the drilling contract, including items described in Exhibit A. Rather, we confine our analysis to determining the meaning of the term "materials" as that term was used by the parties in article 14.7 and in light of the entire drilling contract.

Sonerra, at 16-18 (emphasis added). Similarly, in this case the electric transfer pump should be considered both “materials” and “equipment”, as those terms are not mutually exclusive. The Laredo / Trinidad contract has the identical IADC form Exhibit “A” as in Sonerra, with the referenced Paragraphs 4 and 5 listing the “machinery, equipment, tools, materials, supplies,

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instruments, services and labor” to be provided by the contractor and operator, respectively, and Paragraph 6 entitled “Equipment, Materials and Services to be Furnished by Designated Party.” See Sonerra, at 14-15; CR.97-98,158-159,379-380 It also has the same Subparagraphs 4.9 and 14.12 referenced in the Sonerra opinion at p. 13-14 in support of the court’s opinion that the terms “materials” and “equipment” are not mutually exclusive. CR.94,155,376

As Subparagraph 14.7 provides that Trinidad shall “not be liable for any loss or damage resulting from the use of materials furnished by Operator,” Trinidad did not assume the liability of either the Operator or Operator’s Parties under the amended Subparagraph 14.8. It would make no sense for Trinidad to be required to indemnify “Operator’s Parties” under Subparagraph 14.8 for liability from which it was excepted under Subparagraph 14.7.

C. NHIC did not have the burden to prove a condition precedent to the exclusion of indemnity.

The Moras argued, for the first time in their Reply Brief, that that the first sentence of Subparagraph 14.7 is a “condition precedent” which was not triggered. To recap, Subparagraph 14.7 provides:

14.7 Inspection of Materials Furnished by Operator: Contractor agrees to visually inspect all materials furnished by Operator before using same and to notify Operator of any apparent defects thereto. Contractor shall not be liable for any loss or damage resulting from the use of materials furnished by Operator, and Operator shall release Contractor from, and shall protect, defend and indemnify Contractor from and against, any such liability.

The Moras then argued that this was a contractual exclusion to the indemnity requirement, which NHIC had the burden to prove. Actually, the contractual exclusion to the indemnity agreement was not the alleged condition precedent (the first sentence), but was the fact that

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the loss or damage resulted from the use of materials furnished by Laredo (the second sentence). Proof that the loss or damage resulted from the use of materials excludes the application of the indemnity provision of Paragraph 14.8.

Nonetheless, the first sentence is not a condition precedent to Trinidad’s right of indemnity against Laredo for losses or damages resulting from the use of materials furnished by Operator. This Court has held that a breach of contract claim by an indemnitor does not create a fact issue as to the indemnity claim asserted by the indemnitee, as the right of indemnity is not a dependent covenant, but is an independent obligation:

C. Breach of Contract Fact Issue

In issue four, Tesoro argues that the trial court erred in granting summary judgment to Nabors because a disputed issue of fact exists as to whether Nabors breached the contract, excusing Tesoro of its duty to indemnify Nabors.

Tesoro contends Nabors breached the paragraph in the drilling contract that provided: "[Nabors] shall maintain well control equipment in good condition at all times and shall use all reasonable means to prevent and control fires and blowouts and to protect the hole." It alleges this breach occurred when the BOPs failed because Nabors chose to buy and install inferior and improper products into BOPs that did not have proven capacities or technical support that would maintain the well control equipment in good condition at all times.

Tesoro claims these actions breached the contract, and they also claim Nabors was grossly negligent for buying and installing the "inferior and improper" products.

As Nabors stated, Nabors's conduct in supplying well control equipment was either: (1) prudent; (2) negligent; (3) grossly negligent; or (4) intentional misconduct. Tesoro failed to raise a fact issue that Nabors's conduct was grossly negligent, and no party has alleged intentional misconduct. Thus, Nabors's conduct was either prudent or it was negligent. If the conduct was prudent, the conduct was not actionable. If the conduct was negligent, Tesoro is required to indemnify Nabors under its contract with Nabors. Either way, Tesoro's argument fails.

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Tesoro further contends that indemnity is a dependant covenant; therefore, a breach of a part of the indemnity agreement excuses Tesoro from indemnifying Nabors at all. We disagree.

An indemnity agreement "is an original obligation between the contracting parties and independent of other agreements." Joseph Thomas, Inc. v. Graham, 842 S.W.2d 343, 346 (Tex. App.--Tyler 1992, no writ). A prerequisite to the remedy of excuse of performance is that covenants in a contract must be mutually dependent promises. Hanks v. GAB Bus. Serv., 644 S.W.2d 707, 708, 26 Tex. Sup. Ct. J. 169 (Tex. 1982). Because an indemnity agreement is an independent covenant, Tesoro is not excused from performing under the contract based on unsupported allegations that Nabors breached the contract.

We overrule Tesoro's issue four. Tesoro Petroleum Corp. v. Nabors Drilling United States, 106 S.W.3d 118, 127 (Tex. App.-Houston[1st Dist.] 2002, writ den’d); see also Banner Sign & Barricade, Inc. v. Berry GP, Inc., 2008 Tex. App. LEXIS 7120, 20-21 (Tex. App. Corpus Christi Sept. 25, 2008, pet. den’d); Coastal Mart Inc. v. Southwestern Bell Telephone Co., 154 S.W.3d 839, 852 (Tex. App.--Corpus Christi 2005, Castillo, J. concurring, pet. granted, judgm't vacated w.r.m.); Joseph Thomas, Inc. v. Graham, 842 S.W.2d 343, 346 (Tex. App.--Tyler 1992, no writ).

Since waiver is an affirmative defense, it is the Moras’ burden to prove it applies as a matter of law.6 Additionally, as the Moras’ filed a traditional motion for summary judgment, they had the burden to prove as a matter of law that waiver applies. As the Moras’ did not prove their affirmative defense of waiver as a matter of law, this Court should reverse the trial court’s summary judgment.

6 SeeTex. Rule of Civ. Proc. 94; Dresser Indus., Inc. v. Page Petroleum, Inc., 853 S.W.2d 505, 508 (Tex. 1993).

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ISSUE 3: The trial court erred in holding that NHIC waived its rights of subrogation against the non-Laredo defendants, as any possible waiver of subrogation as to worker’s compensation benefits is limited to claims against Laredo.

ARGUMENT AND AUTHORITIES FOR ISSUE 3:

Even if there is an enforceable waiver of subrogation in favor of Laredo pertaining to worker’s compensation benefits, it does not accrue to the benefit of the remaining defendants nor waive NHIC’s subrogation rights as to recoveries from those defendants. Notably, the waiver clause in Paragraph 13 only waives subrogation against the “Operator”, not the “Operator’s Parties”: “For liabilities assumed hereunder by Contractor, its insurance shall be endorsed to provide that the underwriters waive their right of subrogation against Operator. Operator will, as well, cause its insurer to waive subrogation against Contractor for liability it assumes . . . .” (emphasis added) Only Laredo Petroleum, Inc. is a defined “Operator” under the contract. CR.90,151,372

In Reliance Ins. Co., et al v. Hibdon, 333 S.W.3d 364 (Tex.App.-Houston [14th Dist], pet. den’d), the Fourteenth Court of Appeals applied a worker’s compensation waiver endorsement identical to the one in this case, in finding that the contract did not call for a waiver of subrogation in favor of the defendant, Hibdon. Hibdon was an employee of co-defendant RME, which had entered into a drilling contract with Grey Wolf Drilling Company, the employer of the injured employee. The court recognized that the indemnity clause did include “employees” of RME as covered parties:

11.1 Each party hereto agrees to indemnify and hold the other party, its officers, employees, subsidiaries, affiliated companies and non-operating Interest Holders harmless from any and all losses, claims, actions, costs, expenses, judgments, subrogations or other damages resulting from injury . . . to any person

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(including, but not limited to, the parties hereto, their respective employees, representatives, agents, invitees and subcontractors) or damage to property of any person . . . arising out of the negligent act or willful misconduct of the indemnifying party, its employees, agents, contractors or invitees.

(emphasis added). Reliance Ins. Co., 333 S.W.3d at 370. However, the waiver of subrogation clause of the RME/Grey Wolf contract did not include “employees” as covered parties:

. . . . . Operator [RME] and its non-operating Interest Holders shall be named as additional insureds in each of such policies. [A] "Waiver of Subrogation" in favor of Operator, its subsidiaries, affiliated companies and non-operating Interest Holders shall be added to all policies of insurance, including Contractor's [Grey Wolf] property insurance covering Contractor's rig and equipment.

(emphasis added). Id. Based upon the omission of “employees” in the waiver clause, the court held:

The waiver requirement in the RME/Grey Wolf contract is straightforward: "[A] 'Waiver of Subrogation' in favor of Operator, its subsidiaries, affiliated companies and non-operating Interest Holders shall be added to all policies of insurance." Considering the contract as a whole, we conclude the language sub judice is unambiguous and construe the contract as written. See Marshall, 388 S.W.2d at 181. According to the plain meaning of the provision, RME and Grey Wolf intended for Grey Wolf's workers' compensation carrier to waive subrogation in RME's favor but did not intend for a similar waiver in Hibdon's favor. If the parties intended to provide a subrogation waiver in Hibdon's favor, they could have added the term "employees" to the provision.

Id, at 371.

As applied to this case, if Laredo Petroleum, Inc. is entitled to a waiver of subrogation pursuant to Paragraph 13, since Defendants Pioneer Consulting and Services, Inc. d/b/a Lighthouse Energy Solutions, Plaster & Wald Consulting Corp., Airgen & Equipment Repair,

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Airgen Equipment, LLC and Roger Simmons d/b/a Rig Maintenance Service are not the defined “Operator”, there is no waiver of subrogation as to NHIC’s claims against these defendants. If the parties intended to provide a subrogation waiver in favor of the other defendants, they could have added the term "Operator’s Parties" to Paragraph 13.

The Moras argue that Subparagraph 14.8 of the addendum enlarged the scope of the waiver to include the “Operator’s Parties”. However, the waiver in Subparagraph 14.8 is expressly limited to liability insurance: “(which Contractor and Operator hereby agree will be supported either by available liability insurance, under which the insurer has no right of subrogation against the indemnities, or voluntary self-insured, in part or whole).” Moreover, the broader coverage of Subparagraph 14.8 cannot control over the more restrictive coverage of Paragraph 13, as per the last sentence of Subparagraph 14.8: “The provisions of this paragraph shall be subject to those contained elsewhere in this contract (including Paragraph 14.11): In case of conflict, the other provisions of this contract shall govern.” Finally, any indemnity obligation on the part of Trinidad under Subparagraph 14.8 in favor of the “Operator’s Parties” cannot be construed to be a waiver of subrogation. See Approach Operating, LLC, 2012 Tex. App. LEXIS 5437, at 17-18 (“Approach argues this includes a claim for subrogation and asks us to construe the indemnity clause as requiring a waiver of subrogation. Again, Approach cites no cases to support the proposition that we can treat indemnity clauses as implied waiver of subrogation clauses.”)

As such, the trial court erred in granting summary judgment that NHIC waived subrogation as to these defendants and any recovery by the Moras from these defendants, and

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that it waived its credit against future benefits under Tex. Labor Code § 417.002(b) in the net amount of the Moras’ recovery from these defendants. Notably, only 4.16% of the third party settlement was apportioned to the liability of Laredo; 95.84% of the settlement was apportioned to the liability of these remaining defendants. At a minimum, NHIC is entitled to reimbursement of the past amount of benefits paid, plus a credit against future benefits of 95.84% of the net amount of the Moras’ third party recovery.

PRAYER FOR RELIEF

WHEREFORE, NHIC prays that this Court reverse the trial court’s summary judgment that NHIC take nothing as to the Moras, remand the case to the trial court for a new trial on NHIC’s intervention interests; that NHIC recover its taxable costs of Court, and for such other and further relief as just.

Respectfully submitted,

KELLY & SMITH, P.C.

/s/ Loren R. Smith__________________ Loren R. Smith Texas Bar No. 18643800 4305 Yoakum Blvd. Houston, Texas 77006 713/861-9900 713/861-7100 - FAX

ATTORNEYS FOR APPELLANT THE INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA

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CERTIFICATE OF SERVICE

I hereby certify that on July 8, 2015, a true and correct copy of the foregoing was forwarded by electronic transmission to the following counsel of record:

Peter M. Kelly Kelly, Durham & Pittard, L.L.P. 1005 Heights Boulevard Houston, Texas 77008

/s/ Loren R. Smith__________________ Loren R. Smith

CERTIFICATE OF COMPLIANCE AND WORD COUNT

I hereby certify that this document was produced on a computer using Microsoft Word and contains 8,993 ____ words, as determined by the computer software’s word-count function, excluding the sections of the document listed in Texas Rule of Appellate Procedure 9.4(i)(1).

/s/ Loren R. Smith__________________ Loren R. Smith

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APPENDIX

APPENDIX “A”: Trial Court’s Order Granting Summary Judgment APPENDIX “B”: Trial Court’s Order of Dismissal of All Claims

APPENDIX “C”: Trial Court’s Agreed Final Judgment and Approval of Minor Settlement

APPENDIX “D”: Texas Labor Code Chapter 417 APPENDIX “E”: Relevant Provisions of Laredo / Trinidad Contract

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APPENDIX "A" APPENDIX "B"

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APPENDIX "C"

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LABOR CODE CHAPTER 417. THIRD-PARTY LIABILITY

Sec. 417.001. THIRD-PARTY LIABILITY. (a) An employee or legal beneficiary may seek damages from a third party who is or becomes liable to pay damages for an injury or death that is compensable under this subtitle and may also pursue a claim for workers' compensation benefits under this subtitle.

(b) If a benefit is claimed by an injured employee or a legal beneficiary of the employee, the insurance carrier is subrogated to the rights of the injured employee and may enforce the liability of the third party in the name of the injured employee or the legal beneficiary. The insurance carrier's subrogation interest is limited to the amount of the total benefits paid or assumed by the carrier to the employee or the legal beneficiary, less the amount by which the court reduces the judgment based on the percentage of responsibility determined by the trier of fact under Section 33.003, Civil Practice and Remedies Code, attributable to the employer. If the recovery is for an amount greater than the amount of the insurance carrier's subrogation interest, the insurance carrier shall:

(1) reimburse itself and pay the costs from the amount recovered; and (2) pay the remainder of the amount recovered to the injured employee or the legal beneficiary.

(c) If a claimant receives benefits from the subsequent injury fund, the commission is: (1) considered to be the insurance carrier under this section for purposes of those benefits; (2) subrogated to the rights of the claimant; and (3) entitled to reimbursement in the same manner as the insurance carrier.

APPENDIX “D”

(d) The commission shall remit money recovered under this section to the comptroller for deposit to the credit of the subsequent injury fund. Acts 1993, 73rd Leg., ch. 269, Sec. 1, eff. Sept. 1, 1993. Amended by Acts 1997, 75th Leg., ch. 1423, Sec. 12.13, eff. Sept. 1, 1997; Acts 2003, 78th Leg., ch. 204, Sec. 4.09, eff. Sept. 1, 2003.

Sec. 417.002. RECOVERY IN THIRD-PARTY ACTION. (a) The net amount recovered by a claimant in a third-party action shall be used to reimburse the insurance carrier for benefits, including medical benefits, that have been paid for the compensable injury.

(b) Any amount recovered that exceeds the amount of the reimbursement required under Subsection (a) shall be treated as an advance against future benefits, including medical benefits, that the claimant is entitled to receive under this subtitle.

(c) If the advance under Subsection (b) is adequate to cover all future benefits, the insurance carrier is not required to resume the payment of benefits. If the advance is insufficient, the insurance carrier shall resume the payment of benefits when the advance is exhausted. Acts 1993, 73rd Leg., ch. 269, Sec. 1, eff. Sept. 1, 1993.

Sec. 417.003. ATTORNEY'S FEE FOR REPRESENTATION OF INSURANCE CARRIER'S INTEREST. (a) An insurance carrier whose interest is not actively represented by an attorney in a third-party action shall pay a fee to an attorney representing the claimant in the amount agreed on between the attorney and the insurance carrier. In the absence of an agreement, the court shall award to the attorney payable out of the insurance carrier's recovery:

(1) a reasonable fee for recovery of the insurance carrier's interest that may not exceed one-third of the insurance carrier's recovery; and (2) a proportionate share of expenses.

(b) An attorney who represents the claimant and is also to represent the subrogated insurance carrier shall make a full written disclosure to the claimant before

employment as an attorney by the insurance carrier. The claimant must acknowledge the disclosure and consent to the representation. A signed copy of the disclosure shall be furnished to all concerned parties and made a part of the commission file. A copy of the disclosure with the claimant's consent shall be filed with the claimant's pleading before a judgment is entered and approved by the court. The claimant's attorney may not receive a fee under this section to which the attorney is otherwise entitled under an agreement with the insurance carrier unless the attorney complies with the requirements of this subsection.

(c) If an attorney actively representing the insurance carrier's interest actively participates in obtaining a recovery, the court shall award and apportion between the claimant's and the insurance carrier's attorneys a fee payable out of the insurance carrier's subrogation recovery. In apportioning the award, the court shall consider the benefit accruing to the insurance carrier as a result of each attorney's service. The total attorney's fees may not exceed one-third of the insurance carrier's recovery.

(d) For purposes of determining the amount of an attorney's fee under this section, only the amount recovered for benefits, including medical benefits, that have been paid by the insurance carrier may be considered. Acts 1993, 73rd Leg., ch. 269, Sec. 1, eff. Sept. 1, 1993.

Sec. 417.004. EMPLOYER LIABILITY TO THIRD PARTY. 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. Acts 1993, 73rd Leg., ch. 269, Sec. 1, eff. Sept. 1, 1993.

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