10th Circuit: No Coverage Due Under Owner-Controlled Insurance Program for $22M Verdict

A multinational company that maintains power plants operated by electric utilities cannot turn to its customer’s owner-controlled insurance program for coverage after a losing a jury trial that resulted in a $222 million verdict.

A panel of the 10th Circuit Court of Appeals affirmed a US District Court decision to dismiss Team Industrial Services’ lawsuit against Zurich American Insurance and other carriers. Team had argued that it had “inherited” coverage from Westar Energy’s OPIC when its parent company purchased a subcontractor that participated in the program.

“Coverage under the OCIP and the Zurich policy was for work conducted by a particular insured contractor,” the 10th Circuit’s opinion says. “It made a difference who was doing the work. No contractor could participate in the OCIP unless Westar authorized the company to submit an application for enrollment and Westar approved the application.”

Team contracted with Westar to maintain its Jeffrey Energy Center, a coal-fired power plant located seven miles north of St. Mary’s, Kansas. Team performed maintenance work on steam release valves that were used to lower excess pressure in the system.

On June 3, 2018, operators in the plant’s control room received a signal that steam was being released before the plant was running at full capacity, according to court pleadings. Westar employees Jesse Henson and Damien “Craig” Burchett took an elevator the 14th floor of the facility to investigate. When the elevator doors opened they were engulfed by “flesh boiling” steam that had been released by a defective valve, according to a civil complaint filed by Burchett’s children.

The two men were airlifted to the University of Kansas Medical Center, but died hours later. Both men were 45.

The families of both victims filed wrongful death lawsuits against Team Industrial Services and other parties. Henson’s widow, Kelli Most, filed suit in Fort Bend County, Texas, where Team’s corporate headquarters is located. The South Texas jury awarded Most $22 million in damages and found Team liable for 90% of the award and Westar 10%.

Team sought coverage from Zurich as an insured under Westar’s OPIC. After the claim was denied, the company filed a lawsuit at the US District Court in Kansas City.

Team claimed that it stepped into the shoes of another subcontractor, Furminate America, after its parent company acquired Furminate in 2016 and it took over its responsibilities under a master services agreement with Westar. Team said it reported its payroll to Westar as required by the agreement and Westar paid premiums to Zurich and other insurers in the OPIC based on those payroll figures.

Zurich countered that each subcontractor enrolled in Westar’s OPIC had to apply separately and were approved separately. What’s more, nothing in the service agreement required Westar to offer insurance to its subcontractors. Instead, the agreement said Westar, “at its sole discretion,” may offer insurance through its OPIC.

The 10th Circuit panel rejected Team’s argument that it obtained coverage when the Furminate contract with Westar was consolidated under a change order to the master service agreement with Team that was made in 2017. The panel said the agreement clearly states that Furminate’s contract was “retired” in that transaction.

“The change order contains nary a mention of insurance coverage or the OCIP,” the opinion says. “There is no ambiguity in the language of the change order from which one could infer that Team would thereafter be provided insurance coverage through the Westar OCIP or otherwise.”

Top photo: The Jeffrey Energy Center near St. Mary’s, Kansas is shown. The plant is operated by Westar Energy, which is now a subsidiary of Evergy, Inc.