Using Indemnification Clauses to Avoid Extra Liability Category: Legal Services
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Using Indemnification Clauses to Avoid Extra Liability
Personal injury claims connected with construction work site injuries have become common today. Most construction contracts between Owners and General Contractors require the contractor to carry workers' compensation insurance to cover employees who may be injured while working on the project. In turn, General Contractors commonly require the same of their subcontractors.
Joshua C. Quinter
Despite the existence of workers' compensation coverage, the language of an indemnification clause in a construction contract can heavily impact workers' compensation coverage and shift huge financial risks related to bodily injuries.
Generally, indemnification clauses call for the subcontractor to indemnify the General Contractor for all claims made against the General Contractor for bodily injury or property damage resulting from the subcontractor's work. But what happens when a subcontractor's injured employee sues the General Contractor or the Owner, and the General Contractor or the Owner attempts to enforce the indemnification clause in its respective contract by suing the subcontractor? Is the subcontractor, which is ordinarily immune from suit because it is paying workers' compensation benefits exposed to liability?
New Jersey Courts have ruled that workers' compensation immunity can only be waived by the subcontractor expressly. To waive this immunity, the language of the contract's indemnification clause must clearly shift liability for injured employees of the subcontractor to the subcontractor by stating that the subcontractor expressly waives workers' compensation immunity.
Similarly, a Pennsylvania subcontractor paying workers' compensation benefits to an injured employee remains immune from suit unless the General Contractor proves a specific waiver of immunity. The language must be "clear and unequivocal" to void workers' compensation immunity. Practically speaking, the contract must state that the specific subcontractor agrees to waive workers' compensation immunity and indemnify the General Contractor.
To ensure that they have the right to sue a responsible subcontractor-employer, Owners, General Contractors, or architects/engineers who may be held liable for job site safety, should use an indemnification clause that identifies the subcontractor by name and expressly provides for a waiver of workers' compensation immunity. In this way, the subcontractor is not insulated from liability if its injured employee sues "upstream." Conversely, subcontractors should try to avoid indemnification clauses with immunity waivers. Otherwise, the subcontractor may have to pay for the same injury twice - first by paying workers' compensation benefits through its policy and then again through the indemnification clause. In either case, the wording of the indemnification clause can have a major impact on financial losses related to job site injuries. Author: Joshua C. Quinter, Esquire
Phone: (610) 941-2521
Website: www.kaplaw.com
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