IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF TEXAS

PECOS DIVISION

ARCH INSURANCE COMPANY,

 Plaintiff,

v.

RITA CANDELARIO and 

CRISTOBAL CANDELARIO,

 Defendants. 

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P:20-CV-00036-DC

ORDER REJECTING IN PART REPORT AND RECOMMENDATION

BEFORE THE COURT is United States Magistrate Judge David B. Fannin’s Report and 

Recommendation (R&R) filed in the above-captioned case on January 4, 2021, in connection 

with the Corrected Motion to Dismiss (Motion to Dismiss) filed by Defendants Rita Candelario 

(Mrs. Candelario) and Cristobal Candelario (Mr. Candelario) (together, Defendants). (Docs. 7, 

15). Also before the Court are the Response, Reply, and Sur-reply filed in relation to Defendants’ 

Motion to Dismiss and Defendants’ Objection to the R&R. (Docs. 9, 12, 14, 16). After due 

consideration, the Court SUSTAINS Defendants’ Objection and ADOPTS IN PART and

REJECTS IN PART the R&R. (Docs. 15, 16). Accordingly, Defendants’ Motion to Dismiss is

GRANTED. (Doc. 7). 

I. BACKGROUND

Plaintiff Arch Insurance Company’s (Plaintiff) Complaint for Declaratory Judgment1

alleges the following: 

Guard 1 Services LLC (Guard 1) provided security services to Anadarko Petroleum 

Corporation (Anadarko) under a Master Service Agreement (MSA). The MSA required Guard 1 

and Anadarko to reciprocally provide workers’ compensation and commercial general liability 

1. (Doc. 1 at 4–5). 
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coverage for injuries that arise at Anadarko’s natural gas processing plant. Guard 1 employed 

Mrs. Candelario to work at Anadarko’s processing plant. 

Mrs. Candelario was injured while working at Anadarko’s natural gas processing plant as 

a result of an explosion. Her injuries were allegedly covered under Guard 1’s workers’ 

compensation policy and she received, and continues to receive, all workers’ compensation 

benefits under that policy. 

Mrs. Candelario later sought to hold liable for her injuries Guard 1, John Doe,2 Anadarko, 

and Western Gas in a civil action pending in the 143rd Judicial District Court of Reeves County, 

Texas. When Guard 1 filed a motion for summary judgment in the state court action, Mrs. 

Candelario dismissed her claim against Guard 1.

Plaintiff accepted a request for defense and indemnification of the underlying lawsuit by 

Anadarko pursuant to Guard 1’s commercial general liability policy, under a reservation of 

rights. 

According to Plaintiff, discovery in the underlying lawsuit indicates Mrs. Candelario 

meets the criteria of a “borrowed servant” of Anadarko under the MSA, meaning Anadarko was 

Mrs. Candelario’s dual employer, and Anadarko is entitled to the protection of the workers’ 

compensation bar.3

Based on its status as a potential third-party payor on behalf of Anadarko under the 

commercial general liability policy provided to Guard 1, Plaintiff seeks a declaration:

as to the [MSA] and performance thereunder as to its rights and 

duties, if any, if it is determined that, in the case at bar, Anadarko 

2. John Doe is an employee of either Anadarko or Western Gas Partners LP, d/b/a Delaware Basin Midstream, LLC 

(Western Gas) who purportedly caused the explosion that resulted in Mrs. Candelario’s injuries. (Doc. 7 at 3). 

3. “The Texas Labor Code provides that: ‘Recovery of workers’ compensation benefits is the exclusive remedy of 

an employee covered by workers’ compensation insurance coverage or a legal beneficiary against the employer or 

an agent or employee of the employer for the death of or a work-related injury sustained by the employee.’” See 

Oklahoma Sur. Co. v. Williams, 483 F. Supp. 2d 541, 550 (W.D. Tex. 2006) (citing Tex. Lab. Code Ann. 

§ 408.001(a)). 
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is a dual employer and [Mrs.] Candelario is a borrowed servant 

such that the administrative remedy of [w]orkers’ [c]ompensation 

bars Defendants’ recovery against Anadarko as to their liability 

claims. 

Defendants filed the instant Motion to Dismiss on July 7, 2020. (Doc. 7). The parties 

fully briefed the issues presented therein by August 10, 2020. (Docs. 9, 12, 14). On January 4, 

2021, the Magistrate Judge issued an R&R. 

The R&R finds an actual controversy exists between Plaintiff and Defendants and 

therefore, the matter presented to the Court is justiciable, that this Court has the requisite 

authority to grant declaratory relief in this case, and that all seven Trejo factors weigh against the 

dismissal of the instant lawsuit. (Doc. 15 at 5–11). Accordingly, the Magistrate Judge 

recommends denying in part Defendants’ Motion to Dismiss. Id. at 12. Additionally, the 

Magistrate Judge finds attorney fees under Texas Civil Practice and Remedies Code § 37.009 are 

not warranted in this case and recommends granting Defendants’ Motion to Dismiss as it relates 

to Plaintiff’s request for attorney fees. Id. 

Defendants’ Objection only challenges the Magistrate Judge’s finding that there is a 

substantial controversy between Plaintiff and Defendants and recommendation that the Court 

deny in part Defendants’ Motion to Dismiss. (Doc. 16). 

II. LEGAL STANDARD

Any party who desires to object to a Magistrate Judge’s findings and recommendations 

must serve and file written objections within fourteen (14) days after being served with a copy of 

the findings and recommendations. 28 U.S.C. § 636(b)(1). Failure to file written objections to the 

R&R within fourteen (14) days after being served with a copy shall bar that party from de novo 

review by the district court of the proposed findings and recommendations. Id. Moreover, except 

upon grounds of plain error, it shall also bar the party from appellate review of proposed factual 
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findings and legal conclusions accepted by the district court to which no objections were filed.

Id.; Thomas v. Arn, 474 U.S. 140, 150–53 (1985); United States v. Wilson, 864 F.2d 1219 (5th 

Cir. 1989) (per curiam). 

III. DISCUSSION

In deciding whether to dismiss a declaratory judgment suit, “[a] federal district court 

must determine: (1) whether the declaratory judgment action is justiciable; (2) whether the court 

has authority to grant declaratory relief; and (3) whether to exercise its discretion or dismiss the 

action.” Sherwin-Williams Co. v. Holmes Cnty., 343 F.3d 383, 387 (5th Cir. 2003) (citing Orix 

Credit All., Inc. v. Wolfe, 212 F.3d 891, 895 (5th Cir. 2000)). A declaratory judgment action is 

ripe and therefore justiciable if there is an “actual controversy” between the parties. Shields v. 

Norton, 289 F.3d 832, 835 (5th Cir. 2002); see also 28 U.S.C. § 2201(a) (limiting the power to 

issue a declaratory judgment to “a case of actual controversy within [a court’s] jurisdiction”). 

Under 28 U.S.C. § 2201(a), federal courts are authorized to “declare the rights and other 

legal relations of any interested party seeking such declaration.” However, the power to issue a 

declaratory judgment is limited to “a case of actual controversy within [a court’s] jurisdiction.” 

28 U.S.C. § 2201(a). Here, Defendants challenge the Magistrate Judge’s findings as to the 

justiciability of this case. (Doc. 16). Specifically, Defendants contend Plaintiff’s Complaint for 

Declaratory Judgment does not present an actual controversy between the parties. See generally 

id. Accordingly, Defendants triggered de novo review as to that issue. Id. 

A declaratory action is justiciable if an actual controversy exists. Shields, 289 F.3d at 

835. There is an actual controversy “where ‘a substantial controversy of sufficient immediacy 

and reality exists between parties having adverse legal interests.’” Id. (quoting Orix, 212 F.3d at 

896). Whether an actual controversy exists is determined on an ad hoc basis, but a “specific and 
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concrete” threat of litigation can establish a justiciable controversy. Lower Colo. River Auth. v. 

Papalote Creek II, L.L.C., 858 F.3d 916, 924 (5th Cir. 2017). Courts “look to the practical 

likelihood that a controversy will become real.” Shields, 289 F.3d at 835. Longstanding 

precedent demonstrates that the potential controversy between a state court plaintiff, who was 

injured by an insured, and the insurance company, who is attempting to deny coverage, presents 

a justiciable controversy that may be decided through a declaratory judgment. Md. Cas. Co. v. 

Pac. Coal & Oil Co., 312 U.S. 270, 273–74 (1941); Cent. Sur. & Ins. Corp. v. Norris, 103 F.2d 

116, 117 (5th Cir. 1939) (“The interest of [the injured parties] in the question the Insurance 

Corporation is trying to get adjudicated by a declaratory judgment is real and substantial though 

not immediate. They ought to be retained as parties to be heard on it and to be bound by the 

result.”); Dairyland Ins. Co. v. Makover, 654 F.2d 1120, 1123 (5th Cir. Unit B Sept. 1981) (“In a 

declaratory judgment action brought by an insurer to determine coverage under a liability policy, 

third parties claiming liability in state tort suits against the insured have been held to be proper 

parties to the declaratory suit, even though their claims against the insurer [were] contingent 

upon recovery of a judgment against the insured.”).

Here, Plaintiff, who is not a party to the underlying litigation, asks the Court to interpret 

the MSA executed by Anadarko and Guard 1. (Doc. 1, 7). Specifically, Plaintiff asks the Court to 

declare that Mrs. Candelario was a “borrowed employee” under the MSA, that Anadarko was 

Mrs. Candelario’s dual employer, and that Mrs. Candelario has not exhausted her administrative 

remedies under the workers’ compensation statute. (See Doc. 1). Although such a declaration 

from this Court would also affect whether Plaintiff must defend and indemnify Anadarko, the 

Court fails to see how this action is similar to cases in which an insurance company seeks a 

declaratory judgment that the insurance policy it issued does not provide coverage for the 
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damages sustained by a state court plaintiff who was injured by the insured. Those cases 

typically require courts to interpret the insurance policy issued by the insurance company to the 

insured. See, e.g., Maryland Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 274 (1941) (holding 

the insurer established a case and controversy between itself and the state court plaintiff, who 

sued the insured in state court, where the insurer asked the court to interpret the policy it issued 

to the insured); United Fin. Cas. Co. v. Spirit of the Lion, LLC, 19-CV-7-DC, 2020 WL 5357380, 

at *5 (W.D. Tex. Mar. 13, 2020) (asking this Court to interpret the relevant insurance policy to 

determine the scope of coverage while the state court determines liability). More importantly, 

those cases request a determination as to whether the policy in question provides coverage for 

the injuries sustained by a third party. Here, the Court is asked to interpret the MSA between 

Anadarko and Guard 1, neither of whom are parties to this lawsuit, in order to determine Mrs. 

Candelario’s employment status with Anadarko. (See Doc. 1). If the Court were to issue the 

declaratory judgment sought in this case, the judgment would determine Mrs. Candelario’s

relationship with Anadarko and whether Defendants may recover from Anadarko. It would not, 

the Court finds, determine coverage under the policy issued by Plaintiff.

Plaintiff fails to provide this Court with persuasive authority to support the conclusion 

that a case and controversy exists between Plaintiff and Defendants.4 Accordingly, the Court 

rules Plaintiff’s declaratory judgment action does not present a justiciable controversy between 

Plaintiff and Defendants. 

4. The Court notes that the cases cited by Plaintiff in relation to the “justiciability” issue are not similar to the case at 

bar. See, e.g., Progressive Am. Ins. Co. v. Steele, 15 F. Supp. 3d 1240 (M.D. Fla. 2014) (seeking a declaratory 

judgment against the insured, the “excluded driver,” and the injured third-party that the policy in question did not 

provide injury liability coverage to the insured or the excluded driver, that the insurance company had no duty to 

indemnify the insured or the excluded driver for damages sustained by the injured third-party, and that if the thirdparty filed a separate action as a result of the accident, the insurance company had no duty to defend the insured or 

the excluded driver in that action). 
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Finally, the parties do not object to the Magistrate Judge’s conclusion that Plaintiff is not 

entitled to attorney fees under the Texas Civil Practice and Remedies Code or recommendation 

that the Court grant Defendants’ Motion to Dismiss as to that issue. The Court finds the 

Magistrate Judge’s ruling on attorney fees is neither clearly erroneous nor contrary to law. 

IV. CONCLUSION

Based on the foregoing, the Court SUSTAINS Defendants’ Objection to the R&R 

(Doc. 16) and ADOPTS IN PART and REJECTS IN PART the R&R (Doc. 15). Accordingly, 

the Court GRANTS Defendants’ Motion to Dismiss. (Doc. 7). 

It is so ORDERED.

SIGNED this 29th day of January, 2021.

DAVID COUNTS

UNITED STATES DISTRICT JUDGE