The Intersection of Workers' Compensation Immunity and Contractual Indemnity

The workers' compensation statute in many states provides that the workers' compensation benefits received by an injured employee is the employee's exclusive remedy. The benefits are paid based on a no-fault basis and the injured employee is barred from bringing a lawsuit against his or her employer. The degree in which the exclusive remedy provision applies varies in different jurisdictions.

In many construction contracts, a contractor indemnifies an owner for personal injury and property damage caused by the contractor's negligence.

Here is the fact scenario: A contractor's employee gets injured on a jobsite. The employee receives workers' compensation benefits but has incurred additional damages beyond those benefits. The contractor employee cannot bring a lawsuit against the employer based on the workers' compensation exclusive remedy provision, but the employee may bring a lawsuit against the owner for the personal injury damages. Owner seeks indemnification against the contractor.

Question: Does the exclusive remedy provision bar the Owner's right to receive contractual indemnification from the Contractor?

Answer: Maybe.

In Diamond Int'l Corp. v. Sullivan & Merritt, Inc., 493 A.2d 1043 (Me. 1985), the Supreme Judicial Court of Maine held that such an indemnification clause was unenforceable because it did not contain a clear waiver of the employer's workers' compensation immunity. The court reasoned that "[e]mploying such standards when interpreting indemnity provisions will safeguard from relinquishment the statutory immunity granted to employers, except in those circumstances where that immunity is explicitly waived."

This means that the owner in the above fact scenario is left "holding the bag" in the defense of the contractor employee's claim even if the contractor's negligence caused the employee's injury. While not all states follow this approach, it is wise to include such an explicit worker's compensation waiver in your construction contracts.

Proposed language to insert into the indemnity provision is:

The indemnification obligation under this Article shall apply, without limitation, to all matters involving injured employees of the Contractor or any supplier or subcontractor of any tier, regardless of any provisions of the applicable Workers' Compensation laws, and in particular regardless of the exclusive remedy and/or employees' immunity provisions of those laws, all of which are hereby expressly waived.

Including this waiver into your construction contracts, including subcontracts, will ensure that the intent of the contractual indemnification provisions is enforced.