An article by Noelle McCall, CIC, CRM, CCIP, ACRA, CISR

Many construction and service contracts in Idaho, Montana, Oregon, and Washington include a special indemnity clause that requires subcontractors to “waive any immunity” under those states’ workers’ compensation laws. In simple terms, this means the subcontractor gives up its usual legal shield—its exclusive remedy under workers’ compensation—so that it must handle employee injury claims just like it would any third-party lawsuit.

Sample Waiver Clause
“For the purposes of these indemnification provisions only, SUBCONTRACTOR specifically and expressly waives any immunity that may be granted it under the worker’s compensation laws of any state, including but not limited to, Washington State Industrial Insurance Act, Title 51 RCW; Idaho Worker’s Compensation Act, Sec. 72-209; Montana Worker’s Compensation Act, Sec. 39-71-411; and Oregon Worker’s Compensation Act, Sec. 656.018; provided that such waiver shall be expressly limited to SUBCONTRACTOR’s indemnity obligations herein and shall not be intended as a benefit to any third party. Further, the indemnification obligation under this SUBCONTRACT shall not be limited in any way by any limitation on the amount or type of damages, compensation or benefits payable to or for any third party under worker’s compensation acts, disability benefits acts, or other employee benefits acts.”

By agreeing to this type of waiver (often by initialing the waiver clause in the contract), the subcontractor promises to defend and pay for claims brought by its own injured workers against the general contractor or owner. Normally, Washington’s Industrial Insurance Act (and similar laws elsewhere) would block such suits, but the waiver carves out an exception, so the general contractor or owner isn’t left paying on behalf of the subcontractor.

Why include this? Imagine a subcontractor’s employee is hurt on a jobsite, collects Workers' Compensation benefits, and then sues the property owner for extra money. If the owner has an indemnity agreement with the subcontractor—but the subcontractor still enjoyed its immunity—the owner could be stuck with paying for the subcontractor’s share of fault for causing or contributing to the employee's injury. The waiver prevents that gap by letting the owner recover the costs directly from the subcontractor.

For this waiver to hold up in court, it must be crystal clear, specifically written into the agreement, and mutually agreed upon (which is why parties often have to initial it in the contract). The waiver cannot be buried in fine print or implied by general language.

Lastly, contractual risk should be transferred in an equitable manner. A well-drafted indemnity clause can require each party to pay only to the extent of the harm it actually causes. Insurance can and should be used to help support indemnity obligations in contracts. Contractual liability coverage on a subcontractor's Commercial General Liability (CGL) policy may help pay for the subcontractor's indemnity obligations, subject to policy terms and conditions. If state law prevents a subcontractor from indemnifying the owner, then additional insured coverage on the subcontractor’s CGL policy may step in to help protect the owner for the subcontractor’s share of responsibility based on how the coverage applies.

Disclaimer - this article is provided from an insurance and risk-related (not legal) perspective. Please consult with legal counsel when drafting and negotiating indemnity clauses in contracts.