united states workers’ compensation/indemnification...
TRANSCRIPT
36 Offices in 17 Countries
United States Workers’Compensation/Indemnification
Overview
January 18, 2012
Jill [email protected]
Kevin [email protected]
Workers’ Compensation SystemGeneral Characteristics
• Compulsory Coverage
• State-by-State Requirements
• Only Cover Work-Related Injuries
An injury that arises out of and in the
course of employment
Insurance Coverage
• Private Coverage
Generally a deductible applies with
private coverage.
• Self-Insurance
Most states have specific qualification
requirements to become self-insured.
• State Fund Coverage
State run insurance program.
No Fault System
• Workers Compensation is generally the
exclusive remedy for the employee
against the employer.
• Employers receive statutory immunity
against related common law claims by
employees.
Employee vs. Independent Contractor
• Workers’ Compensation only coversclaims by employees.
• Independent contractors are not covered.
• Independent contractor status can bechallenged by workers’ compensationclaimants.
Employers cannot characterizeworkers as independent contractorssimply to avoid workers’ compensationliability.
Workers’ Compensation Benefits
• Lost wages
• Medical Expenses
• Disability Benefits
Temporary total disability
Permanent partial disability
Permanent total disability
• Vocational Rehabilitation
• Death/Survivor benefits
Administration of Workers’ Compensation
• Each state typically administers itsworkers’ compensation system via anadministrative agency or commission.
• Generally, informal administrativehearings are conducted on issueschallenged under any given claim.
• Most states provide for an appeal into thestate court system following a finaladministrative determination.
Exceptions To Statutory Immunity
• Employer Bad Faith
• Intentional Tort Actions
VSSR Claims
• Criminal Acts by Employer
• Third Party Lawsuits
Third Party Claims for Contributionor Indemnification
• Majority Rule – In a workers’ compensation setting,
most states provide that there can be no recovery
against the employer of an injured worker by a third
party on a theory of contribution.
• Minority Rule – Some states permit third parties to
recover on a theory of contribution with certain
qualifications.
• HOWEVER, states adopting the majority rule
generally provide that a third party can recover
against an employer in situations where contractual
privity exists.
Indemnification clauses.
Indemnification
• Contractual provision that shifts liability
from one party to another party
• Purpose of indemnity provision is to
allocate risk in advance
• Creates a cause of action under contract
when the person indemnified incurs
liability or is forced to defend a lawsuit
covered by the indemnity.
What can you indemnify?
• Generally indemnification provision which
makes the other party whole for:
Indemnifying party’s negligence OR
For the other party’s own negligence
• Generally cannot indemnify for gross
negligence or for intentional conduct
• Generally indemnity results from a third-
party’s claims, but some cases have
allowed a party to the contract to use
indemnity clause for a breach of contract
action.
Indemnification Laws Vary
• Indemnification laws vary by state and by
industry
Some states have laws that prohibit
indemnification for another party’s own
negligence in certain industries
– Examples:
–California, Minnesota, Utah, Illinois & Indiana –prohibition for indemnification of own negligencein construction contracts
–Utah, Illinois and Indiana – prohibition forindemnification of own negligence in motorcarrier contracts
–Texas & Louisiana – prohibition forindemnification of own negligence in oilfield andmining
Drafting of Indemnity Provision
• Specific Drafting of Indemnity Provision
Needed
Some states require express notice in the
contract for indemnification and especially if
you are indemnifying for a parties’ own
negligence
Examples of express notice: different font,
bold typeface, larger typeface from other
provisions of the contract
• Courts strictly construe indemnity
provisions
Sample Indemnification
Contractor assumes entire responsibility andliability for any claims or actions based on orarising out of injuries, including death, topersons or damages to or destruction ofproperty, sustained or alleged to have beensustained in connection with or to have arisenout of or incidental to the performance of thiscontract by Contractor, its agents andemployees and its subcontractors, their agentsand employees, regardless of whether suchclaims or actions are founded in whole or inpart upon alleged negligence of Company,Company’s representative, or the employees,agents, invitees, or licensees thereof.
Prompt Notice of Claims
• Contract with indemnity provision should include
a clause requiring Company to notify
indemnifying party of any claim, lawsuit or
threatened claim promptly (usually within 60 –
90 days).
• Contract should also specify that indemnifying
party be given advance notice of any settlement
offer that will be subject to the indemnity
provision.
Hypothetical
ABC Corp. was performing work for XYZ
Company on XYZ’s property. An XYZ employee
was driving a truck on XYZ’s property when he
hit a tank owned by Doe Enterprises damaging
the tank. Doe Enterprises sues XYZ for damage
to the tank and XYZ gives notice to ABC for
indemnity under contract.
Hypothetical Indemnity Provision
Contractor assumes entire responsibility andliability for any claims or actions based on orarising out of injuries, including death, to personsor damages to or destruction of property,sustained or alleged to have been sustained inconnection with or to have arisen out of orincidental to the performance of this contract byContractor, its agents and employees and itssubcontractors, their agents and employees, onlyif the negligent act of Contractor or itsemployee or representatives is a contributorycause of the resultant injury, death, or damage,and shall have no application when thenegligent act or strict liability of Company isthe primary cause of the resultant injury, deathor damage.
Third Party Beneficiary and Indemnification
• Majority Rule – Most states do not permit a party
to assert a claim for indemnification on the
theory of being a third party beneficiary.
• Minority Rule – A few states permit non-parties
to a contract to take advantage of an
indemnification clause in that contract under a
theory of being a third party beneficiary.
Hypothetical #2
• ABC enters into a contract with DoeEnterprises with jointindemnification of each other andeach other’s contractors forpersonal injury claims arising out ofwork performed under theagreement. XYZ is also performingwork at Doe Enterprises.
• An ABC employee suffers an injurywhile working at Doe caused by thenegligence of ABC, XYZ and Doe.
• ABC Employee receives workers’compensation benefits from ABCand successfully sues both XYZand Doe for Negligence.
• In turn, XYZ and Doe sue ABC forIndemnification under the contractbetween ABC and Doe.
• Can Doe recover?• Can XYZ recover even though they
are not a party to the contract withABC?
DoeEnterprises
ABC
InjuredEmployee
DoeEnterprises
XYZ Corp.
Arizona Workers’ Compensation Summary
• In Arizona, workers' compensation is compulsory, andsome employee waivers are permitted. There is acompetitive state fund. Employers may insure throughprivate carriers, self-insurance, or through groups ofemployers. There is no exemption for employers withsmall numbers of employees.
• The Industrial Commission of Arizona is responsible foradministering workers’ compensation in Arizona. http://www.ica.state.az.us
• Arizona Revised Statutes Title 23 Chapter 6.• Third Party Contribution/Indemnification – Not directly
addressed by Arizona statute. However, Arizona case lawprovides that a third-party cannot seek contribution froman employer absent a contractual agreement between theemployer and the third-party. Unique Equip. Co. v. TRWVehicle Safety Sys., Inc., 197 Ariz. 50 (Ct. App. 1999).
California Workers’ Compensation Summary
• In California, workers' compensation iscompulsory, and no employee waivers arepermitted. There is a competitive state fund.Employers may insure through private carriersor self-insurance, but not through groups ofemployers. There is no exemption for employerswith small numbers of employees.
• Managed by the California Department ofIndustrial Relations under the Division ofWorkers’ Compensation. http://www.dir.ca.gov/dwc/dwc_home_page.htm.
• California Labor Code §§3200-6208.• Third Party Contribution/Indemnification – Cal.
Labor Code §3864.California follows the majority rule. California does not
permit contribution/indemnification absent privity ofcontract.
Illinois Workers’ Compensation Summary
• In Illinois, workers' compensation is compulsory, and noemployee waivers are permitted. There is no state fund.Employers may insure through private carriers, self-insurance,or through groups of employers. There is no exemption foremployers with small numbers of employees, but soleproprietors, business partners, corporate officers, andmembers of limited liability companies may exemptthemselves.
• The Illinois Workers' Compensation Commission isresponsible for administering the Workers' Compensation Actin Illinois. http://www.iwcc.il.gov/index.htm.
• 820 ILCS 305/1-30• Third Party Contribution/Indemnification – 820 ILCS 305/5(b)
Illinois follows the minority rule. It permits a third party to seekcontribution absent an express contract but it limits the employer’s liabilityto the amount of compensation paid by the employer under the workers’compensation claim. Therefore, the third party’s liability to the employeeis simply reduced by the amount already received from the employerunder the workers’ compensation claim and the employer is not requiredto pay anything additional out of pocket.
Indiana Workers’ Compensation Summary
• In Indiana, workers' compensation is compulsory, and noemployee waivers are permitted. There is no state fund.Employers may insure through private carriers or self-insurance, but not through groups of employers. There isno exemption for employers with small numbers ofemployees.
• The Worker's Compensation Board is responsible foradministering the Workers' Compensation program inIndiana. http://www.in.gov/wcb/
• Burns Ind. Code Ann. § 22-3-1-1 through § 22-3-12-5.• Third Party Contribution/Indemnification – Not covered
directly by Indiana Workers’ Compensation Act, but themajority rule that statutory immunity protects an employeragainst a claim of contribution is followed.
• However, Indiana courts have allowed contractualindemnity claims. Sprigler v. Osnabrucker Mettallwerke(U.S. Dist. Ct. S. Dist. Of Indiana 1991), 761 F. Supp. 86.
Minnesota Workers’ Compensation
• In Minnesota, workers' compensation is compulsory, andno employee waivers are permitted. There is a competitivestate fund. Employers may insure through private carriers,self-insurance, or through groups of employers. There isno exemption for employers with small numbers ofemployees.
• The Workers' Compensation Division of the Department ofLabor & Industry administers Workers' Compensation inMinnesota. http://www.dli.mn.gov/main.asp
• Minnesota Annotated Statutes Chapter 176.001-862.• Third Party Contribution/Indemnification – Minn. Stat. §
176.061. Minnesota follows the minority rule in that it does permit a
third party to seek contribution from an employer evenwithout contractual privity. However, Minnesota law providesthat the employer can waive its right to recover from the thirdparty and avoid contribution.
Texas Workers’ Compensation Summary
• In Texas, workers' compensation is elective, and noemployee waivers are permitted. There is a competitive statefund. Employers may insure through private carriers or self-insurance, but not through groups of employers. There is noexemption for employers with small numbers of employees.
• The Texas Department of Insurance (TDI), Division ofWorkers' Compensation administers the Texas Workers'Compensation Act. http://www.tdi.texas.gov/index.html
• Texas Labor Code Chapter 400.• Third Party Contribution/Indemnification - Texas Labor Code
§ 417.004. “In an action for damages brought by an injured employee, a
legal beneficiary, or an insurance carrier against a third partyliable to pay damages for the injury or death under this chapterthat results in a judgment against the third party or a settlementby the third party, the employer is not liable to the third party forreimbursement or damages based on the judgment or settlementunless the employer executed, before the injury or deathoccurred, a written agreement with the third party to assume theliability.” (emphasis added).
Utah Workers’ Compensation Summary
• In Utah, workers' compensation is compulsory, and noemployee waivers are permitted. There is a competitivestate fund. Employers may insure through private carriers orself-insurance, but not through groups of employers. Thereis no exemption for employers with small numbers ofemployees.
• The Labor Commission of Utah, Division of IndustrialAccidents is responsible for administering Workers'Compensation in Utah. http://www.laborcommission.utah.gov/IndustrialAccidents/index.html
• Utah Code Title 34A Chapter 2• Third Party Contribution/Indemnification –
Utah case law provides that where employer and third party voluntarilyenter into a written indemnification agreement whereby the employeragrees to indemnify the third party against claims arising out of injuriesto the employer's employees, and where an employee is injured and iscompensated by the employer in accordance with the workers'compensation law, the exclusive remedy provision of this section doesnot preclude the enforcement of the indemnification agreement by thethird party against the employer for amounts paid by the third party tothe employee as a result of the injury. Shell Oil Co. v. Brinkerhoff-Signal Drilling Co., 658 P.2d 1187 (Utah 1983).
Best Practices in Drafting
• Determine applicable jurisdiction’s law regardingworkers’ compensation,indemnification/contribution, third party claimsagainst employers, and third party beneficiarystatus.
• Limit indemnification to indemnifying party’snegligent acts or omissions
• Watch out for provisions shifting entire liability toindemnifying party based upon any proportionCompany responsibility
• Try to limit liability through capsMatter of contract
• Include prompt notice provisions, including forsettlement
• Limit definition of indemnity to the company• Limit indemnity to actual loss or damagesExclude attorneys’ fees and/or duty to defend
Remember …
While lawyers sometimes “kill the deal,” managers
sometimes “agree to the deal that kills.”
36 Offices in 17 Countries
United States Workers’Compensation/Indemnification
Overview
Jill Kirila – [email protected]
Kevin Hess – [email protected]