United States Workers Compensation/Indemnification Overview - PowerPoint PPT Presentation

United States Workers’ Compensation/Indemnification Overview January 18, 2012 Jill Kirila jill.kirila@squiresanders.com Kevin Hess kevin.hess@squiresanders.com 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 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 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 Doe Doe personal injury claims arising out of Enterprises Enterprises 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’ XYZ Corp. ABC 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? Injured • Can XYZ recover even though they Employee are not a party to the contract with ABC?

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.