Judicial Reform , Economy
Jonathan Small | November 1, 2024
Oklahoma Supreme Court activism hits oil industry
Jonathan Small
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Oklahomans are justifiably concerned about judicial activism. Even “minor” rulings can have major consequences. A recent Oklahoma Supreme Court decision falls into that category.
Thanks to the court’s ruling, an untold number of contracts have been nullified and countless state businesses left with daunting potential legal liability. Oklahoma companies operating in the oil and gas industry may be among those hardest hit.
When companies use subcontractors, it is common to have an indemnity contract that protects the contracting company from being sued for alleged wrongdoing done by a subcontractor.
But in Knox v. Oklahoma Gas and Electric Co., the Oklahoma Supreme Court invalidated an indemnity contract.
The case centered on the widow of a man killed at a construction site. The wife filed a workers’ compensation claim against her deceased husband’s employer and received payment. She also sued all companies involved in the project. (Her husband’s employer was one of several subcontractors involved in developing a property for a solar power facility.)
The Oklahoma Supreme Court was asked to determine if the employer of the deceased husband—who had already compensated the widow under workers’ comp—had to also indemnify the contractor as promised. The court held the contractor could not enforce its indemnification agreement with the subcontractor, because the subcontractor had already paid out under workers’ comp.
Notably, the Court was split with two justices dissenting and another two concurring in part and dissenting in part.
The Knox decision is expected, in practice, to nullify countless indemnity agreements regarding personal injury, leaving Oklahoma businesses facing unquantifiable and unpredictable liability.
Since indemnity agreements are routine in the oil-and-gas industry, those businesses now face dramatic financial and legal uncertainty. And that could have a significant, negative impact on the Oklahoma state economy.
A study performed by RegionTrack and commissioned by the Oklahoma Energy Resources Board found the oil and natural gas industry employed more than 200,000 workers with $31 billion in household earnings in 2023, meaning about one in every five dollars of total statewide income was generated by oil and natural gas.
The oil and natural gas industry contributed $55.7 billion to the state’s GDP in 2023, or 22 percent of all statewide economic activity.
The industry contributed $2.9 billion in total taxes in 2023, so any negative impact from the court’s ruling could be felt in areas such as reduced school funding, to cite just one example.
Put simply, the court’s decision dramatically increased liability to include many businesses that play no role in a worker accident and did so in a way that provides no guidance on how to reduce the associated financial exposure.
That’s a recipe for economic struggles that have nothing to do with market forces and everything to do with judicial activism untethered from common sense or longstanding legal precedent.
Jonathan Small
President
Jonathan Small, C.P.A., serves as President and joined the staff in December of 2010. Previously, Jonathan served as a budget analyst for the Oklahoma Office of State Finance, as a fiscal policy analyst and research analyst for the Oklahoma House of Representatives, and as director of government affairs for the Oklahoma Insurance Department. Small’s work includes co-authoring “Economics 101” with Dr. Arthur Laffer and Dr. Wayne Winegarden, and his policy expertise has been referenced by The Oklahoman, the Tulsa World, National Review, the L.A. Times, The Hill, the Wall Street Journal and the Huffington Post. His weekly column “Free Market Friday” is published by the Journal Record and syndicated in 27 markets. A recipient of the American Legislative Exchange Council’s prestigious Private Sector Member of the Year award, Small is nationally recognized for his work to promote free markets, limited government and innovative public policy reforms. Jonathan holds a B.A. in Accounting from the University of Central Oklahoma and is a Certified Public Accountant.