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IN Graphic Packaging International, LLC v. Everest National Insurance Companyno. N22C-03-192 AML CCLD, Superior Court of Delaware (May 8, 2023) Plaintiff sought coverage under an employer’s liability insurance policy for losses incurred by the plaintiff during litigation and settlement of a workplace injury action brought by its employee.
The policy only provided coverage for “bodily injury by accident”. In the underlying litigation, the employer faced a claim that it knowingly engaged in conduct that was substantially certain to injure the employee. The employer settled the underlying lawsuit shortly before trial, and the insurance company denied coverage for the settlement on the basis that the lawsuit involved a claim for intentional tort rather than a claim for an accidental injury within the scope of the policy’s coverage.
Under settled Texas law, Texas workers’ compensation law does not apply when the employer commits an intentional tort. Accordingly, the only claim raised by the employee in the underlying dispute was that the employer’s conduct “[rose] to the level of an intentional tort.”
Plaintiff Graphic Packaging International (“Graphic”) or (“GPHC”) manufactures sustainable paper-based packaging solutions for a variety of food, beverage, foodservice and other consumer product companies. GPHC’s primary insurer, Arch Insurance Company (“Arch”), issued a workers’ compensation and employer’s liability policy to GPHC and Graphic (“Arch Policy”). The Arch Policy contained a limit of $1 million per occurrence and provided two separate coverages. In Part One, Arch Policy Insured Graphics’ obligations under state workers’ compensation laws. In part two, Arch Policy insured Graphic for employee injury claims outside of workers’ compensation.
Everest National Insurance Company (“Everest”) provided a Commercial Umbrella Liability Policy to GPHC and its subsidiaries, including Graphic (“Everest Policy”). The Everest policy contained a coverage limit of $25 million per occurrence that exceeded the Arch Policy.
The Arch Policy (which Everest followed) excluded coverage for “bodily injury intentionally caused or aggravated by [Graphic].”
The Crompton action
Montgomery Crompton (“Mr. Crompton”), a graphic arts employee, sustained an injury while working at a graphic paper mill in Texas. During steam production, it was essential that a sudden intense release of steam, known as a “blow-off”, occurred. In July 2018, a hole developed in the exhaust pipe, requiring the placement of a temporary steel patch until the mill could be closed for repairs. Knowing that the safest way to repair the blowout head was to shut down the production process, Graphic instead ordered Mr. Crompton to manually perform the steel patch.
As Mr Crompton began the repair, he noticed hot water leaking from the hole in the head and told his supervisor he was concerned for his safety. Mr. Crompton returned to the blowout head, and while working on the steel patch, a blowdown occurred, covering him in scalding vapors that burned him severely.
The Texas Workers’ Compensation Act (“TWCA”) controls the relationship and conduct between an employee who is injured in the course of their employment and an employer who carries workers’ compensation insurance. When an employer commits an intentional tort, there is a general exception to the otherwise exclusive remedy created by the TWCA.
Mr. Crompton and his wife (“The Cromptons”) sued Graphic in the (“Crompton Action”), alleging “the conduct of [Graphic] rises to the level of an intentional tort; specifically, [Graphic] had knowledge that its conduct would injure Crompton.” Arch, as Graphic’s primary insurer, defended Graphic in the Crompton Action.
Arch offered to tender its $1 million employer’s liability limit to Everest to use in trying to settle the Crompton action. Everest rejected Arch’s bid because Everest “continues[d] to believe there is no coverage[ed] for any liability Graphic may face in the ongoing trial.”
The parties to the Crompton Action attended a settlement conference on January 18, 2022. During that conference, the Cromptons reduced their claims and Arch reiterated that its entire $1 million policy limit could be used by Everest and Graphic to settle the case. Everest refused to give Graphic authority to use any part of the Everest Policy to resolve the Crompton Action.
The Cromptons also accepted the mediator’s proposal and Graphic paid the portion of the settlement that exceeded Arch’s policy limit.
This coverage measure
Graphic sued Everest for failure to cover the Crompton action, seeking to recover the amount Graphic paid to settle Crompton’s claim. Everest successfully moved for judgment on the pleading.
The court concluded that it is clear as a matter of law that the Crompton action does not fall within the scope of Everest’s coverage obligation. Graphic, as the insured, had the burden of proving that it is entitled to coverage under the terms of the Everest policy. Everest Policy’s indemnity, incorporated from the underlying Arch Policy, states: “Bodily injury caused by intentional tortious conduct is distinct from bodily injury caused ‘by accident.'” Courts interpret the term “accident” in an insurance policy to mean “an event occurring without anticipation, expectation or planning.”
The controlling Texas law is that only a “substantially certain” intentional injury could have made Graphic liable in the Crompton Action. The Cromptons alleged in their complaint that Graphic knew or believed its actions would harm Mr. Crompton. That claim does not and cannot be construed as falling within the policy’s “accidental bodily injury” coverage. The Cromptons could prevail only if they showed that Graphic, through McCright, intended to injure Mr Crompton. At the time of the settlement, therefore, Graphic faced only an intentional tort claim. Intentional torts fall outside the scope of the policy’s coverage for accidental damage and therefore Crompton’s claim against Graphic does not fall within the coverage of the Everest Policy.
Because the only way the Cromptons could succeed is to prove that Graphic intended to harm Mr Crompton and, as a result, there was no way Everest could owe Graphic any compensation. Since Everest followed form with Arch Graphic should have been happy that Arch offered its limits.
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