Travelers Property Casualty Company of America sought to recover workers' compensation benefits through subrogation from Unitrac Railroad Materials, Inc. after an employee, Calvin Jones, sustained severe injuries due to a malfunctioning track hoe operated by Unitrac. Travelers alleged Unitrac's negligence in operating the machinery and claimed it had paid over $199,255.90 in benefits to Jones, asserting a right to recover under a Service Agreement between Labor (Jones' employer) and Unitrac, which included provisions for indemnification and safe working conditions. Unitrac moved to dismiss the case, arguing that it owed no duty to Travelers as it was not a party to the service agreement and that Jones, as a co-employee, was barred from suing under the exclusivity provision of Tennessee's workers' compensation law. The Trial Court ruled in favor of Unitrac, stating the dismissal was justified. Travelers appealed, contending it had valid grounds for its claim, as an employee can sue a third party for damages if the injury was caused by someone other than the employer, although the employer retains a subrogation lien on any recovery made. The appellate court affirmed the Trial Court's judgment.
The court granted the motion after reviewing the motion, supporting memorandum, opposition, exhibits, and the entire record. The Motion to Dismiss was treated as a summary judgment under Tennessee Rule of Civil Procedure 56. Travelers contends that it qualifies as an "employer" under Tennessee Code Annotated § 50-6-102, allowing it to subrogate the injured worker Jones’ recovery rights against Unitrac. However, Unitrac may also be deemed Jones’ employer under the co-employer test from Winchester v. Seay, which stipulates that a "special" employer is liable for workers' compensation if: (1) there’s an express or implied contract with the employee; (2) the work is essentially for the special employer; and (3) the special employer controls the work details. The agreement between Labor and Unitrac indicates that Unitrac had control over the work, fulfilling these conditions. The Supreme Court in Bennett v. Mid-South Terminals Corp. established that employees of temporary staffing services are aware they will work for the clients of those services, thus consenting to being "special employers." Jones, employed by Labor, consented to work for Unitrac through his assignment, creating an implied contract with Unitrac. Consequently, both Unitrac and Labor employed Jones, granting Unitrac tort immunity under Tennessee Code Annotated § 50-6-108, preventing Travelers from pursuing a tort claim against Unitrac. Additionally, Travelers argues that an indemnity clause in the agreement between Labor and Unitrac allows them to seek recovery after paying workers’ compensation benefits, claiming to be a "real party in interest." They assert that the exclusivity provision in § 50-6-108 does not apply, as subsection (b) permits third-party indemnity claims against employers who have expressly contracted for such indemnification.
Tenn. Code Ann. 50-6-108 permits third-party indemnity actions based on express contracts, as established in Easter v. Exxon, with the statute amended in 1985 to reflect this. However, previous cases have focused on contracts between the parties involved in litigation, without addressing whether an insurance company can assume its insured's contractual rights. Unitrac argues that Travelers, not being a party to the contract, lacks standing to sue for breach unless it qualifies as an intended third-party beneficiary, a status Unitrac claims does not apply in this case. The Supreme Court has emphasized that contracts are typically for the benefit of the parties involved, not third parties, and traditional privity rules state that non-parties cannot sue for breach. An exception exists if the contracting parties explicitly intend to benefit a third party. The Supreme Court outlined that a third party is an intended beneficiary if: (1) the contract does not state otherwise; (2) allowing enforcement aligns with the parties' intentions; and (3) the contract's terms or performance context indicate that the promise benefits the third party or addresses an obligation owed to them. The intent of the contracting parties is paramount in determining the status of a third-party beneficiary.
Courts must analyze the parties' intended goals when interpreting agreements, ensuring that a third party cannot be considered an intended beneficiary if it contradicts the parties' purposes. Part (3) distinguishes between intended and incidental beneficiaries, emphasizing the promisee's intent rather than the promisor's, as the third party's rights do not hinge on the promisor's motives. Subsection (a) pertains to beneficiaries akin to "creditor beneficiaries" from the Restatement (First), focusing on the promisee's intention to fulfill a duty rather than merely financial obligations. This broader approach accommodates situations where the duty owed to the beneficiary is not financially quantifiable. It highlights that the promisee's primary aim may be to relieve their own obligations rather than to benefit the third party. Subsection (b) assesses whether the promisee genuinely intends to confer a benefit to the third party, incorporating beneficiaries who do not fit neatly into the original categories. In the current case, the contract does not clarify whether the parties meant to reserve benefits for themselves, but there is insufficient evidence that allowing Travelers to act as a third-party beneficiary aligns with the contract's intent. The indemnification clause primarily protects Labor's employees, indicating that it benefits them and Labor exclusively. Furthermore, the contract specifies that Labor is accountable for workers' compensation insurance, implying that Travelers would not receive any benefit from the promise. Therefore, Travelers cannot establish itself as an intended beneficiary and lacks standing to claim a breach of contract. The Trial Court’s dismissal of Travelers' claims is upheld, with appeal costs assigned to Travelers Property Casualty Company of America.
