Contractual indemnities appear in many services agreements, including subcontracting, labour hire and wet plant hire agreements. Indemnity clauses shift liability from one party to another by requiring one party to indemnify the other.
A particularly common type of indemnity occurs where one party agrees to indemnify another party for all liability for a claim for personal injuries arising out of the performance of the contract, regardless of which party caused the injury. If a party is caught on the wrong side of such an indemnity, it can be very costly.
Recent amendments to the Workers’ Compensation and Rehabilitation Act 2003 (Qld) mean that, in certain circumstances, a contractual indemnity will now be void. And it could be void without the parties realising!
The Workers’ Compensation and Rehabilitation (National Injury Insurance Scheme) Amendment Act 2016 (Qld) was intended to reverse the effect of the landmark decision of Byrne v People Resourcing (Qld) Pty Ltd  QSC 269. However, the end result actually goes further.
From 31 August 2016 onwards, an indemnity clause in respect of liability for personal injuries will be void if:
- a worker makes a common law claim against their employer;
- the employer agreed to indemnify another party for legal liability that the employer would not otherwise have had; and
- WorkCover Queensland seeks contribution against that other party.
If an indemnity clause is void, the party wishing to rely upon it can no longer enforce it against WorkCover Queensland or the employer directly.
By way of an example:
- John Smith is a delivery driver employed by ABC Transport. In the course of his employment, John attends a site owned and operated by XYZ Construction. While there, John is injured when a XYZ Construction employee, who is helping load his vehicle, drops a heavy drill on his foot.
- John sues both ABC Transport and XYZ Construction. WorkCover Queensland (the workers’ compensation insurer of ABC Transport) seeks contribution from XYZ Construction.
- XYZ Construction attempts to escape liability by relying upon an indemnity clause in its services agreement with ABC Transport. However, it is unable to do so as the WCRA amendments make the indemnity clause void.
To make things more complicated, the amendments will be partially retrospective – they apply to all claims in which there has been no settlement or trial (including part-heard trials) as at 31 August 2016.
What does this mean for you? Rather than hoping to take comfort from an indemnity, you should ensure your business has appropriate insurance cover to avoid footing the bill for a claim for personal injuries.
If you are party to an agreement containing indemnity clauses, or if you are thinking about entering into an agreement that includes indemnity clauses, you should seek legal advice and also contact your insurance broker to ensure that your existing insurance policies will respond to any liability you have under the agreement.