construction site

By the Kean Miller Construction Team

On April 6, 2016, Louisiana’s Third Circuit Court of Appeal issued a ruling on the question of whether the state’s relatively new anti-indemnity statute affects a defendant’s ability to assert the “statutory employer” defense for purposes of workers compensation. Blanks v. Entergy Gulf States Louisiana, LLC, No. 15-1094, — So.3d —-, 2016 WL 1358492 (La.App. 3d. Cir. Apr. 6, 2016). The Blanks opinion is notable in that, to date, very few courts have interpreted the statute in published rulings. Although the Blanks ruling does not answer every open question surrounding Louisiana’s anti-indemnity rules, it does shed light on the statute’s relationship (or lack thereof) to the workers compensation scheme. Set forth below is background on the anti-indemnity statute and a brief summary of the Blanks opinion.

Louisiana’s Anti-Indemnity Law: Background

The concept of “indemnity” refers to one party shifting its risk of loss to another party. Insurance is the most common form of indemnity, where for the cost of a premium the insured shifts the risk of loss upon an insurer. Indemnity may also be created by contract, in which one party (the “indemnitee”) passes risk of loss and liability for certain damages to another party (the “indemnitor”).

In 2010, the Louisiana State Legislature enacted the first version of the state’s anti-indemnity law applicable to construction contracts, La. R.S. 9:2780.1. In general, the anti-indemnity law operates to invalidate any provisions within a construction contract that purport to hold the indemnitor responsible for damages arising from the negligence or intentional acts of the indemnitee.

This basic principle—that a party can’t require indemnification for its own bad acts—is relatively straightforward and consistent with a nationwide trend of other states’ anti-indemnity restrictions.

Other elements of the statute are less straightforward and have yet to be fleshed out by the courts. For example, the statute expressly allows indemnity provisions (that otherwise would be invalidated) if two conditions are met: (1) the same contract requires the indemnitor to obtain insurance for that obligation, and if (2) “there is evidence that the indemnitor recovered the cost of the required insurance in the contract price.” La. R.S. 9:2780.1.  What type and extent of “evidence” is so required remains an open question not yet fully addressed in any published court opinion.

Third Circuit’s Blanks Ruling

The Blanks dispute originated from a workplace accident. The plaintiff, an employee of an industrial contractor, was injured while working a boiler repair job on premises owned by defendant Entergy. At the time of the accident, plaintiff’s employer and Entergy had in place a services contract under which Entergy was deemed “statutory employer” for purposes of Louisiana’s Worker’s Compensation Act.[1]

Seeking to recover from Entergy outside the confines of worker’s compensation, the plaintiff’s argument was twofold. First, plaintiff argued that the services contract between Entergy and plaintiff’s employer contained an indemnity provision that was overly broad. Because no evidence had been introduced to show that the employer/indemnitor “recovered the cost” of the related insurance against those risks, plaintiff contended, the provision was thus invalid. The trial and appellate court agreed, holding that the indemnity provision was overly broad and unenforceable as written. Notably, the Third Circuit offered no commentary on the nature of the lack of “evidence” as to the indemnitee’s purchase of insurance.

Plaintiff’s second (and more creative) argument was that Entergy was prohibited from maintaining its statutory employer defense strictly because the indemnity provision within the underlying services contract had been invalidated by the anti-indemnity statute. A valid indemnity provision, according to plaintiff, was a prerequisite to the indemnitee’s assertion of the statutory employer defense. Here, both the trial and appellate court disagreed, finding the anti-indemnity and workers compensation statutes to be separate and distinct:

“the language of each statute addresses distinct relationships. Louisiana Revised Statutes 9:2780.1 applies to construction contracts, advancing various requirements for general, contractual indemnification…. However, no language is included within La.R.S. 9:2780.1, or elsewhere, that would indicate that it obviates La.R.S. 23:1061’s separate statutory employer defense from tort liability in applicable cases. Had the legislature intended for La.R.S. 9:2780.1 to operate as an additional element to La.R.S. 23:1061, it could have included language specifically requiring such a change. It did not.”[2]

*         *         *

Although several questions continue to surround the interpretation of the anti-indemnity statute, the Third Circuit’s ruling in Blanks offers a degree of clarity on the statute’s relationship with the worker’s compensation scheme: a defendant may assert a “statutory employer” defense regardless of the validity of an underlying contractual indemnity provision.

[1] For purposes of worker’s compensation, an entity may become a “statutory employer” over a separate contractor’s employees if that relationship is properly spelled out in a contract. Although not the technical “employer”, the entity is then considered the equivalent “statutory employer” and enjoys workers compensation immunity against suits from the contractor’s employees. See La. R.S. 23:1061.

[2] Blanks at *5.