United States Workers Compensation/Indemnification Overview

Transcription

1 United States Workers Compensation/Indemnification Overview January 18, 2012 Jill Kirila Kevin Hess 36 Offices in 17 Countries

2 Workers Compensation System General Characteristics Compulsory Coverage State-by-State Requirements Only Cover Work-Related Injuries An injury that arises out of and in the course of employment

3 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.

4 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.

5 Employee vs. Independent Contractor Workers Compensation only covers claims by employees. Independent contractors are not covered. Independent contractor status can be challenged by workers compensation claimants. Employers cannot characterize workers as independent contractors simply to avoid workers compensation liability.

6 Workers Compensation Benefits Lost wages Medical Expenses Disability Benefits Temporary total disability Permanent partial disability Permanent total disability Vocational Rehabilitation Death/Survivor benefits

7 Administration of Workers Compensation Each state typically administers its workers compensation system via an administrative agency or commission. Generally, informal administrative hearings are conducted on issues challenged under any given claim. Most states provide for an appeal into the state court system following a final administrative determination.

8 Exceptions To Statutory Immunity Employer Bad Faith Intentional Tort Actions VSSR Claims Criminal Acts by Employer Third Party Lawsuits

9 Third Party Claims for Contribution or 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.

10 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.

11 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 thirdparty s claims, but some cases have allowed a party to the contract to use indemnity clause for a breach of contract action.

12 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 negligence in construction contracts Utah, Illinois and Indiana prohibition for indemnification of own negligence in motor carrier contracts Texas & Louisiana prohibition for indemnification of own negligence in oilfield and mining

13 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

14 Sample Indemnification Contractor assumes entire responsibility and liability for any claims or actions based on or arising out of injuries, including death, to persons or damages to or destruction of property, sustained or alleged to have been sustained in connection with or to have arisen out of or incidental to the performance of this contract by Contractor, its agents and employees and its subcontractors, their agents and employees, regardless of whether such claims or actions are founded in whole or in part upon alleged negligence of Company, Company s representative, or the employees, agents, invitees, or licensees thereof.

15 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 days). Contract should also specify that indemnifying party be given advance notice of any settlement offer that will be subject to the indemnity provision.

16 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.

17 Hypothetical Indemnity Provision Contractor assumes entire responsibility and liability for any claims or actions based on or arising out of injuries, including death, to persons or damages to or destruction of property, sustained or alleged to have been sustained in connection with or to have arisen out of or incidental to the performance of this contract by Contractor, its agents and employees and its subcontractors, their agents and employees, only if the negligent act of Contractor or its employee or representatives is a contributory cause of the resultant injury, death, or damage, and shall have no application when the negligent act or strict liability of Company is the primary cause of the resultant injury, death or damage.

18 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.

19 Hypothetical #2 ABC enters into a contract with Doe Enterprises with joint indemnification of each other and each other s contractors for personal injury claims arising out of work performed under the agreement. XYZ is also performing work at Doe Enterprises. An ABC employee suffers an injury while working at Doe caused by the negligence of ABC, XYZ and Doe. ABC Employee receives workers compensation benefits from ABC and successfully sues both XYZ and Doe for Negligence. In turn, XYZ and Doe sue ABC for Indemnification under the contract between ABC and Doe. Can Doe recover? Can XYZ recover even though they are not a party to the contract with ABC? Doe Enterprises ABC Injured Employee Doe Enterprises XYZ Corp.

20 Arizona Workers Compensation Summary In Arizona, workers' compensation is compulsory, and some employee waivers are permitted. There is a competitive state fund. Employers may insure through private carriers, self-insurance, or through groups of employers. There is no exemption for employers with small numbers of employees. The Industrial Commission of Arizona is responsible for administering workers compensation in Arizona. Arizona Revised Statutes Title 23 Chapter 6. Third Party Contribution/Indemnification Not directly addressed by Arizona statute. However, Arizona case law provides that a third-party cannot seek contribution from an employer absent a contractual agreement between the employer and the third-party. Unique Equip. Co. v. TRW Vehicle Safety Sys., Inc., 197 Ariz. 50 (Ct. App. 1999).

21 California Workers Compensation Summary In California, workers' compensation is compulsory, and no employee waivers are permitted. There is a competitive state fund. Employers may insure through private carriers or self-insurance, but not through groups of employers. There is no exemption for employers with small numbers of employees. Managed by the California Department of Industrial Relations under the Division of Workers Compensation. California Labor Code Third Party Contribution/Indemnification Cal. Labor Code California follows the majority rule. California does not permit contribution/indemnification absent privity of contract.

22 Illinois Workers Compensation Summary In Illinois, workers' compensation is compulsory, and no employee 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 for employers with small numbers of employees, but sole proprietors, business partners, corporate officers, and members of limited liability companies may exempt themselves. The Illinois Workers' Compensation Commission is responsible for administering the Workers' Compensation Act in Illinois ILCS 305/1-30 Third Party Contribution/Indemnification 820 ILCS 305/5(b) Illinois follows the minority rule. It permits a third party to seek contribution absent an express contract but it limits the employer s liability to the amount of compensation paid by the employer under the workers compensation claim. Therefore, the third party s liability to the employee is simply reduced by the amount already received from the employer under the workers compensation claim and the employer is not required to pay anything additional out of pocket.

23 Indiana Workers Compensation Summary In Indiana, workers' compensation is compulsory, and no employee waivers are permitted. There is no state fund. Employers may insure through private carriers or selfinsurance, but not through groups of employers. There is no exemption for employers with small numbers of employees. The Worker's Compensation Board is responsible for administering the Workers' Compensation program in Indiana. Burns Ind. Code Ann through Third Party Contribution/Indemnification Not covered directly by Indiana Workers Compensation Act, but the majority rule that statutory immunity protects an employer against a claim of contribution is followed. However, Indiana courts have allowed contractual indemnity claims. Sprigler v. Osnabrucker Mettallwerke (U.S. Dist. Ct. S. Dist. Of Indiana 1991), 761 F. Supp. 86.

24 Minnesota Workers Compensation In Minnesota, workers' compensation is compulsory, and no employee waivers are permitted. There is a competitive state fund. Employers may insure through private carriers, self-insurance, or through groups of employers. There is no exemption for employers with small numbers of employees. The Workers' Compensation Division of the Department of Labor & Industry administers Workers' Compensation in Minnesota. Minnesota Annotated Statutes Chapter Third Party Contribution/Indemnification Minn. Stat Minnesota follows the minority rule in that it does permit a third party to seek contribution from an employer even without contractual privity. However, Minnesota law provides that the employer can waive its right to recover from the third party and avoid contribution.

25 Texas Workers Compensation Summary In Texas, workers' compensation is elective, and no employee waivers are permitted. There is a competitive state fund. Employers may insure through private carriers or selfinsurance, but not through groups of employers. There is no exemption for employers with small numbers of employees. The Texas Department of Insurance (TDI), Division of Workers' Compensation administers the Texas Workers' Compensation Act. Texas Labor Code Chapter 400. Third Party Contribution/Indemnification - Texas Labor Code In an action for damages brought by an injured employee, a legal beneficiary, or an insurance carrier against a third party liable to pay damages for the injury or death under this chapter that results in a judgment against the third party or a settlement by the third party, the employer is not liable to the third party for reimbursement or damages based on the judgment or settlement unless the employer executed, before the injury or death occurred, a written agreement with the third party to assume the liability. (emphasis added).

26 Utah Workers Compensation Summary In Utah, workers' compensation is compulsory, and no employee waivers are permitted. There is a competitive state fund. Employers may insure through private carriers or self-insurance, but not through groups of employers. There is no exemption for employers with small numbers of employees. The Labor Commission of Utah, Division of Industrial Accidents is responsible for administering Workers' Compensation in Utah. Utah Code Title 34A Chapter 2 Third Party Contribution/Indemnification Utah case law provides that where employer and third party voluntarily enter into a written indemnification agreement whereby the employer agrees to indemnify the third party against claims arising out of injuries to the employer's employees, and where an employee is injured and is compensated by the employer in accordance with the workers' compensation law, the exclusive remedy provision of this section does not preclude the enforcement of the indemnification agreement by the third party against the employer for amounts paid by the third party to the employee as a result of the injury. Shell Oil Co. v. Brinkerhoff- Signal Drilling Co., 658 P.2d 1187 (Utah 1983).

27 Best Practices in Drafting Determine applicable jurisdiction s law regarding workers compensation, indemnification/contribution, third party claims against employers, and third party beneficiary status. Limit indemnification to indemnifying party s negligent acts or omissions Watch out for provisions shifting entire liability to indemnifying party based upon any proportion Company responsibility Try to limit liability through caps Matter of contract Include prompt notice provisions, including for settlement Limit definition of indemnity to the company Limit indemnity to actual loss or damages Exclude attorneys fees and/or duty to defend

28 Remember While lawyers sometimes kill the deal, managers sometimes agree to the deal that kills.

29 United States Workers Compensation/Indemnification Overview Jill Kirila Kevin Hess 36 Offices in 17 Countries