Opinion ID: 2975390
Heading Depth: 3
Heading Rank: 2

Heading: Robert Wynn’s Amended Complaint

Text: As noted above, Laborer Wynn amended his complaint to allege that he was an independent contractor rather than an employee of Mandrill. An elaboration on the procedural history of this case is in order: As noted, GAINSCO filed this declaratory judgment action on November 20, 2002. On March 14, 2003 Laborer Wynn moved in state court to amend his complaint and purportedly attached a copy of the amended complaint to the motion. That motion was granted by the state court on May 16, 2003. Wynn filed an answer in this declaratory judgment action on April 10, 2003 to which he attached a copy of this amended complaint and the motion to amend he had filed in state court. We do not know when GAINSCO received notice of the amendment but it received notice at the latest when Wynn filed his answer in the 7 declaratory judgment action. The district court stated that, [w]hile certain areas of the law place importance on the distinction between an employee and an independent contractor, the [CGL Policy] does not. The policy contemplates an employee of Mandrill is one who may be injured arising out of being employed by Mandrill or performing duties related to Mandrill’s business. . . . There is no provision in the policy to prevent bodily injury to an independent contractor from being treated as bodily injury to an employee. Dist. Ct. Mem. at 12 (Feb. 19, 2004). This analysis was in error. The proper inquiry is not whether a provision in the CGL Policy prevents a reading against the interest of the insured. Rather, any ambiguity in an insurance policy in Tennessee is resolved in favor of the insured. As the district court notes, there are many areas of the law where a distinction exists between independent contractors and employees. Because the CGL Policy arguably covers the independent contractor claim in Wynn’s amended complaint, GAINSCO had the duty to defend Mandrill on Wynn’s claim from the date GAINSCO was served with a copy of the amended complaint until it became apparent that coverage did not exist under the CGL Policy. In response to Mandrill’s motion for summary judgment, GAINSCO filed a response supported by affidavits that established that the Laborers were employees of Mandrill and were not temporary workers. It asked for summary judgment in its favor. The district court granted it summary judgment in an order dated February 19, 2004, although not on that basis. Since it was entitled to summary judgment on the basis that it had established that the three Laborers were employees as defined in the CGL Policy, the motion was properly granted even if for the wrong reason.1 Thus, 1 While Tennessee law mandates that the duty to defend attaches based on the allegations in the complaint, that duty ends when the insurer ascertains that the actual facts fall within an exclusion. See 22-136 Appleman on Insurance § 136.7[C][1] (describing insurers right to bring a declaratory judgment action and the effect of such action). Based on the record before us, it is clear 8 GAINSCO cannot be liable for any cost of defense subsequent to that date. On remand, the district court should consider both when GAINSCO was first notified of Wynn’s amended complaint, and whether that notification fulfilled the notice requirement under the CGL Policy. c. Temporary Workers Exception – Mathis and Wheeler Complaints As to the two remaining laborers, Johnny Mathis and Ronald Wheeler, we affirm the district court’s judgment. While Judge Clay would affirm because, “[t]he complaints filed by Mathis and Wheeler’s Estate each clearly allege that [they] were ‘employees,’” post at 2, and thus no further inquiry is necessary, I conclude, for the reasons above, that we should inquire whether they were “temporary workers.” I conclude that they were not. The employer exclusion and the definitions of temporary and leased workers appear on a form copyrighted by the Insurance Services Office, Inc. (“ISO”). As a result, these same definitions appear on many CGL policies across the country. The ISO added these definitions to this standard form in 1993. See American Family Mutual Ins. Co. v. Tickle, 99 S.W.3d 25, 30 (Mo. Ct. App. 2003). The temporary worker definition was apparently added to address a distinction made by several states’ workers’ compensation statutes. See Brown v. Ind. Ins. Co., 184 S.W.3d 528, 538 (Ky. 2005). These statutes distinguish between leased employees, who are considered to be employees of the lessee company; and temporary employees, who are considered to remain employees of the temporary staffing agency. Id.; see, e.g., KY . REV . STAT . ANN . § 342.615 (2006). The CGL Policy’s definition of employee, therefore, is designed to reflect this distinction as it exists in some states. that Wynn was not an independent contractor, but rather was an employee and thus his suit was excluded from the CGL Policy’s coverage. 9 Courts that have considered the language have been mixed. The majority of these courts have held that the phrase “furnished to” in the definition unambiguously requires the involvement of a third party, such as a temporary staffing agency, that supplies the worker to the insured employer. See, e.g., AMCO Ins. Co. v. Dorpinghaus, 2007 U.S. Dist. LEXIS 2440, at -15 (D. Minn. Jan. 11, 2007); Nautilus Ins. Co. v. Gardner, No. 04-1858, 2005 U.S. Dist. LEXIS 4423 at -7 (E.D. Pa. Mar. 21, 2005); Brown, 184 S.W.3d at 537; Monticello Ins. Co. v. Dion, 836 N.E.2d 1112, 1115 (Mass. App. Ct. 2005); Nationwide Mut. Ins. Co. v. Allen, 83 A.2d 1047, 1055 (Conn. App. Ct. 2004); Tickle, 99 S.W.3d at 30. A minority of courts, however, have held that the phrase “furnished to,” nowhere defined by the standard ISO CGL form, creates an ambiguity and thus have sent the issue to a factfinder to divine the parties’ intentions. See, e.g., Bituminous Cas. Corp. v. Mike Ross, Inc., 413 F. Supp. 2d 740, 745 (N.D. W. Va. 2006); Am. Family Mut. Ins. Co. v. As One, Inc., 189 S.W.3d 194, 198 (Mo. Ct. App. 2006); Ayers v. C&D Gen. Contractors, 237 F. Supp. 2d 764, 768-69 (W.D. Ky. 2002). The majority position is based on a combination of grammatical analysis of the definitions, Tickle, 99 S.W.3d at 30, and a recognition of the workers’ compensation statutes that provoked their inclusion in the standard ISO form, Brown, 184 S.W.3d at 537-40. Courts in jurisdictions in which the workers’ compensation statutes do not recognize the temporary/leased worker distinction have likewise held that the exception does not create an ambiguity, but rather held that the “furnished to” language unambiguously requires that a third party “employment agency, manpower service provider or a[ ] similar service,” be involved in supplying the worker.2 2 Temporary agencies may sometimes provide temporary employees as well as permanent or quasi-permanent employees. 10 Allen, 83 Conn. App. at 540. This distinction between leased and temporary workers does not exist in the Tennessee Workers’ Compensation Statute, TENN . CODE ANN . § 50-6-101 et seq. Nor have the Tennessee courts ruled on the interpretation of the standard CGL language. I am persuaded that the majority position is correct and that Tennessee would adopt this position. The minority position argues that the provision is ambiguous because it can be read two ways: (a) “Temporary worker” means a person (1) who is furnished to [the insured] to substitute for a permanent “employee” or (2) to meet seasonal or short-term workload conditions. (b) “Temporary worker” means a person who is furnished to [the insured] (1) to substitute for a permanent “employee” or (2) to meet seasonal or short-term workload conditions. That is, these courts have questioned whether “furnished to” applies to both substitute workers and seasonal workers, or just to substitutes. If “furnished to” applies only to substitutes, then it is relevant whether the Laborers are for “seasonal or short-term workload conditions,” a phrase that this minority of courts has also found ambiguous.3 Although at least one judge has found this grammatical analysis “extremely confusing” and that such analysis “certainly indicates that ambiguity exists,” Brown, 184 S.W.3d at 543 3 Should I so inquire, I would be inclined to find that the Laborers were not “temporary workers.” This demolition was the only job that Mandrill had at the time and the Laborers had been on the job, consistently, for months. To hold that the Laborers were “temporary workers,” therefore, would effectively hold that everyone on the Mandrill payroll was a “temporary worker” and read the employer’s exclusion out of the CGL Policy. 11 (Wintersheimer, J., dissenting), I disagree. The first interpretation does not make grammatical sense and, as such, the second is the only reasonable interpretation of the contract. Therefore, “furnished to” must apply to both substitute workers and those needed to accommodate shortterm fluctuations in workload conditions. In addition,“furnished to” requires the involvement of a third party. That is, to say that a worker furnishes himself to the employer, as some courts have held, see, e.g., As One, 189 S.W.3d at 198-99, is erroneous because it effectively reads the phrase “furnished to” out of the CGL Policy. If [the court] adopted [the minority of courts’] interpretation – that is, if [the court] agreed that a worker could furnish himself to an insured simply by showing up to work – then every worker would be “furnished to [ ]” [the insured] for purposes of the policy, and the phrase would be meaningless. There would be no difference between the definition of “temporary worker” that actually appears in the policy – “a person who is furnished to you . . . to meet seasonal or short-term working conditions” – and a definition of “temporary worker” that completely omitted the furnished-to-you qualifier – e.g., “a person who meets seasonal or short-term working conditions.” Dorpinghaus, 2007 U.S. Dist. LEXIS 2440, at  (emphasis in original) (citing Monticello, 836 N.E.2d at 1115). There is not a scintilla of evidence in the record to indicate that any of the Laborers were “furnished to” Mandrill by any third party. As such, Wheeler and Mathis were not temporary workers; their status was as employees. Therefore, while the reasoning of the district court in its February 19, 2004 order denying summary judgment with regard to indemnification was erroneous, the court’s final judgment was not. Because the pleadings nowhere indicate that these workers were “furnished to” Mandrill and the true facts, as revealed by subsequent discovery, confirmed that they were not, GAINSCO was not obligated either to defend or to indemnify by 12 the CGL Policy. d. Mandrill's Other Arguments Mandrill's other arguments for reversal are more easily dealt with: 1. Broader Duty to Defend is Triggered by Subsequent Indemnification Mandrill argues that the duty to defend is broader and completely encapsulates the duty to indemnify and that GAINSCO in fact indemnified by contributing to the settlement of the Laborers’ claims. We need not decide that issue because Mandrill's premise, that GAINSCO actually did indemnify it, is flawed. As the district court noted, GAINSCO argues that it did not indemnify Mandrill, but rather paid the nuisance value to make the suit go away. Dist. Ct. Mem. (March 16, 2006) at 9; JA at 56. In addition, holding that a payment on a contested insurance claim triggered a duty to defend would discourage settlement, which we and other courts are loathe to do. As there is no indication that GAINSCO admitted a duty to indemnify Mandrill, Mandrill's argument fails. 2. CGL Policy Does Not Provide for Apportionment of Coverage Mandrill next argues that the CGL Policy does not provide for partial coverage of defense costs where the insurer elects to voluntarily settle claims. Since GAINSCO did voluntarily settle, argues Mandrill, they are also liable for the entire amount of costs. We accept the district court’s statement that the duty to defend is subject to the exclusions section of the policy . . .. Mandrill's argument based solely on the coverage section of the policy is faulty because it fails to acknowledge the exclusions to that coverage. Dist. Ct. Mem. (February 16, 2004) at 10; JA at 57. 3. Quantum Meruit 13 Mandrill next makes a claim under the equitable theory of quantum meruit. As the district court noted, quantum meruit is a remedy available in Tennessee when there is no existing, enforceable contract governing payment for the services rendered. Since the CGL Policy is an existing, enforceable contract governing such payment, quantum meruit is unavailable. 4. Waiver Mandrill argues that GAINSCO, essentially waived its right to assert any defenses against coverage, BLUE at 27, citing Allstate Ins. Co. v. Dixon, 1991 Tenn. App. LEXIS 386 (Tenn. Ct. App. 1991) (unpublished), for the proposition that, [i]n order for an insurance company to proceed with actual payment of a claim, the payment must be made pursuant to a reservation of rights or nonwaiver agreement that specifically reserves such rights in the event of actual payment of the claim. Id. at -16. Mandrill goes further, however, and claims that if no such reservation was made contemporaneously with the settlement of the underlying claim, BLUE at 26, then GAINSCO waived its defenses. Mandrill's reliance on contemporaneity is misplaced. The court in Dixon further stated: Since Allstate only reserved its rights while it was defending the underlying action then it waived its right to deny coverage when it exceeded the point of defending the action and actually paid the underlying claim. As far as this record reveals, Allstate did not reserve the right to pay a settlement and still retain the right to deny coverage. We simply cannot extend these agreements beyond their exact terms. Id. at . Therefore, the court did not find significant the timing of the waiver, but rather the specific rights reserved. With this proper understanding of Dixon, Mandrill's argument begins to crumble. GAINSCO reservation of rights in this case stated: Nothing which this insurer may have done or may do hereafter in connection with the investigation or defense of any matters arising out of this incident, or in connection with the handling of any claim or litigation through the courts, including 14 investigation and/or negotiations for settlement, shall be construed or held as a waiver of any of the rights or defenses of this insurer under the [CGL Policy]. Dist. Ct. Mem. (March 16, 2006) at 4; JA at 51. A settlement payment is the natural result of “negotiations for settlement,” and so the waiver covers such a payment.