Managing the Risk of an On-site Injury to a Subcontractor’s Employee

By: Jessica C. Neufeld

In Texas, when an employee of a down-stream subcontractor is injured on a project site, an up-stream contractor is uniquely vulnerable to a lawsuit by that employee for negligence. The project owner is more or less protected by a statutory immunity derived from owning the premises. The worker’s direct employer is also generally shielded from litigation by the statutory exclusive remedy of workers compensation. However, the legislature did not grant up-stream contractor’s any such special dispensations. Thus, an up-stream contractor, unable to rely on either of the aforementioned protections granted the owner or direct employer, can be sued by a downstream subcontractor’s employee, alleging the upstream contractor was negligent. How can that contractor protect itself from this vulnerability? Below are a few potential ways to mitigate this risk even before the project breaks ground:

Consider Contractor-Controlled Insurance Program (CCIP) or “wrap-ups”

If you are the general contractor on the project, you can purchase insurance products that provide general liability and worker’s compensation coverage for the entire project. Due to the corresponding increase in cost and risk, wrap-ups are not necessarily well-suited for many contractors and thus do not present a universal solution. However, Texas courts consider an up-stream contractor using such products entitled to workers compensation’s exclusive remedy protections for injuries to its subcontractors’ employees. A contractor can receive exclusive remedy protections even if the project coverage is provided by the owner as long as the contractor agrees to either provide such coverage or pay for the subcontractor to provide it, in the event the owner does not. Wrap-ups also require careful administrative hygiene to be sure the agreements and all relevant coverages are obtained and maintained throughout the life of the project. Just one break in the chain of coverage can result in the loss of the exclusive remedy protection for the contractor.

Monitor subcontractor insurance
A well written and current insurance specification in the subcontract is vital. Policy and endorsement forms change constantly. Knowing what to require and then how to assure it is being provided are essential to mitigating all risk. Additional insured endorsements, waiver of subrogation, and contractual liability terms are key to protection from these claims.

Require subcontractor indemnification for injury to their employees
An indemnity agreement is a promise to safeguard or hold a party harmless against loss, damage, or injury. Generally, Texas does not allow a contractor to be indemnified for its own acts of negligence. However, because the workers’ compensation laws do not provide the exclusive remedy to all employees on a construction project, the legislature provided an exception to this limitation on indemnification. Thus, when a claim arises from an injury to a subcontractor’s employee, a contractor can require that a subcontractor indemnifies it, even if the injury was the result of the contractor’s own fault or negligence. While still commercially available, insurance for this type of indemnity is not necessarily included in the standard additional insured endorsement. A contractor can confirm this coverage is in place by specifically requesting it and reviewing the subcontractor’s additional insured endorsement along with the certificate of insurance.

Clearly flow down safety obligations
The subcontractor’s obligation to take responsibility for all safety precautions applicable to its scope should always be clear to ensure that the ultimate responsibility of addressing those issues lies with subcontractor controlling the means and methods of the work. A carefully implemented CCIP (when appropriate), well-written subcontracts, and close monitoring of subcontractor insurance policy terms can go a long way to minimize the headache that can come with an on-the-job injury to a subcontractor’s employee. u

Jessica C. Neufeld, with Munsch Hardt Kopf & Harr, P.C., practices general commercial litigation with a significant focus on construction litigation and counseling on behalf of contractors, developers, and design professionals. Jessica has both defended and asserted claims of breach of contract, negligence, professional negligence, DTPA, fraud, and mechanic’s liens foreclosure. She is also experienced in drafting construction contracts for a variety of delivery systems (traditional, GMP, design-build, etc.) for developers and general contractors as well as drafting service agreements for engineers and design professionals.

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