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United States Workers’
Compensation/Indemnification
Overview
January 18, 2012
Jill Kirila
[email protected]
Kevin Hess
[email protected]
36 Offices in 17 Countries
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
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 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.
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 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.
Exceptions To Statutory Immunity
• Employer Bad Faith
• Intentional Tort Actions
VSSR Claims
• Criminal Acts by Employer
• Third Party Lawsuits
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.
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 thirdparty’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 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
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 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.
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 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.
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 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
Doe
Enterprises
ABC
XYZ Corp.
Injured
Employee
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.
 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 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).
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.
 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 of
contract.
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.
 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 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.
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.
 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 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.
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.
 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 even
without contractual privity. However, Minnesota law provides
that the employer can waive its right to recover from the third
party and avoid contribution.
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.
 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 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).
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.
 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 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. BrinkerhoffSignal Drilling Co., 658 P.2d 1187 (Utah 1983).
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
Remember …
While lawyers sometimes “kill the deal,” managers
sometimes “agree to the deal that kills.”
United States Workers’
Compensation/Indemnification
Overview
Jill Kirila – [email protected]
Kevin Hess – [email protected]
36 Offices in 17 Countries