Contract containing indemnification clause spells trouble for employer

Under Rhode Island law, an employer and a leasing company can create a contractual right to indemnification that is enforceable notwithstanding the exclusive remedy provisions of the workers' compensation statute.

Case name: Rushworth v. Salah & Pecci Leasing Co. Inc., et al., No. 06-369 S (D.R.I. 08/31/09).

Ruling: The U.S. District Court, District of Rhode Island denied summary judgment to the employer in a case involving contractual indemnity.

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What it means: Under Rhode Island law, the right of contribution does not exist between an employer and a leasing company where the workers' compensation exclusivity laws apply. However, the employer and the leasing company can create a contractual right to indemnification that is enforceable notwithstanding the exclusive remedy provisions of the workers' compensation statute.

Summary: A worker was killed in a crane accident. His estate sued the company that leased the crane to the worker's employer and filed for workers' compensation benefits from the employer. The employer paid workers' compensation to the estate. The leasing company filed a third-party action against the employer seeking contractual indemnification under a clause contained in the crane lease agreement. The employer argued the indemnification clause only applied in specific situations where the leasing company was liable because of the employer's negligence. The court disagreed. It pointed out that a third-party action for contract indemnification from the employer is not an action based on the employee's injury but is an action for reimbursement based on a contractual obligation. The court denied the employer's motion for summary judgment, concluding that because a right to contractual indemnification is an independently bargained-for obligation, a written contract including an indemnity clause is enforceable notwithstanding the exclusive remedy provisions of workers' compensation law.

The indemnification clause stated the leasing company was indemnified from "all losses, damages, expenses and penalties" from any action on account of personal injury or damage to property. It further stated the employer held it harmless "for all court actions and all claims for injuries to persons or property occassioned [sic] to use of this equipment while in your possession."

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October 8, 2009

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