Third Party Over Actions in the Construction Industry
Insuring the risk that an employee gets hurt on the job site
Debbie Wagner - Sales Executive, Commercial Lines
Construction is an inherently dangerous industry. Employee injuries are frequent and can be severe. When employees suffer injuries on the job, they have two courses of action available to them: collect workers’ compensation benefits from their employer’s workers’ compensation policy and/or attempt to collect damages under a tort action against a negligent third party.
The latter is a third party over action claim. It occurs when an injured employee is unable to sue his or her employer directly because of the exclusive remedy nature of workers’ compensation. So, the injured employee brings suit against a third party, such as an upper-tier contractor or owner, alleging that the third party’s negligence contributed to the employee’s injury. In order to avoid using their own liability insurance to defend the claim, the third party may before the job starts contractually require and seek indemnification from the worker’s employer for damages, with the goal of transferring any liability back to the employer.
Montana law permits third party over actions. However, indemnification claims may be tempered by Montana’s anti-indemnity statute, MCA 28-2-2111. Under this statute, “a construction contract provision that requires one party to the contract to indemnify, hold harmless, insure, or defend the other party to the contract or the other party's officers, employees, or agents for liability, damages, losses, or costs that are caused by the negligence, recklessness, or intentional misconduct of the other party or the other party's officers, employees, or agents is void as against the public policy of this state.”
Construction contracts typically seek to make the contractor employer — those most responsible for primary employee safety at the job site — the party responsible for all injuries suffered by employees.
In efforts to better manage third party over actions in the construction industry, it is important for all parties to be aware of factors that impact these claims, specifically:
- The hazardous nature of construction work.
- The close proximity of multiple independent parties at the job site. With so many different entities involved — including owner, general contractor, construction manager, subcontractors and their employees — risk for third party over actions increases as all parties work on various projects at the job site.
- Contractual risk transfer devices. These types of devices — including indemnification agreements, hold harmless agreements, additional insured status and waivers of subrogation — allow the potential for a third party over action to come from a construction injury of a subcontractor’s employee. By using these devices, an employee can bring a lawsuit against two parties, such as the general contractor and owner, triggering two layers of additional insurance and indemnification contractual relationships.
It also helps to be aware of raised defenses in third party over action claims. Frequent defenses include:
- Control and supervision. Who retains control of the manner and means in the way work is performed?
- Premises liability. Who is responsible to protect against a dangerous condition that poses a threat of injury on the construction site?
- Inherent danger. The work by an independent contractor involves peculiar risks. Under the “Peculiar Risk Doctrine” in Montana, an employer is vicariously liable for injuries caused by a subcontractor’s failure to reduce unreasonable risks associated with inherently dangerous activity.
- Negligent hiring. The third party negligently hires an independent contractor who does not competently perform work.
- Statutory liability. Is there a statute on the books that makes a third party liable for the actions of an independent contractor?
Whether you are the owner, general contractor or subcontractor, the key to providing coverage for these types of claims is to customize your company’s insurance plan to specifically fit your needs and provide protection against potential claims. It is necessary to have insurance policies in place that anticipate claims that could arise. Coordinating policies, such as workers’ compensation and commercial general liability insurance, with contractual risk transfer will help reduce the risk of uninsured financial loss associated with third party over claims.
Creating and maintaining the right insurance program for your construction business is essential to help reduce claims costs. Insurance expertise regarding the range of available products and underwriters can help you immediately and in the future. For more information or to learn more about customizing a program for your construction activities, speak with a Payne Financial Group advisor or visit www.pfgworld.com.
With any contractual risk transfer situation, it is recommended that you seek qualified independent legal advice.
Debbie Wagner is a Sales Executive in Commercial Lines for Payne Financial Group. She can be reached directly at dwagner@pfgworld.com.
